Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Summary: Shipping stocks are enjoying tailwind from the pandemic that has lifted shipping rates and profitability. Our view is that the current dynamics will continue in 2021 and thus shipping stocks could continue to perform well, but longer term we prefer more broad-based logistics companies. In today's equity update we also take a look at US momentum stocks and highlights an inspirational list of stocks that could be hit hard if we get an equity market correction in the near future.
This week the world’s largest container shipping company reported Q4 earnings showing a solid tailwind from the pandemic with revenue up 16% y/y reaching $11.3bn and 84% y/y increase in EBITDA reaching $.2.7bn. This translate into a healthy operating margin increase from 15.3% to 24.1% in just one year. This is part of the overall trend of rising costs everywhere in the global supply chain with UPS reporting 8% increase in average revenue per piece in their Q4. A global composite container freight index is running at levels 3x higher than normal at this time of the year.
Despite strong tailwind from the pandemic lifting shipping stocks in general with the Bloomberg Global Marine Shipping Index up 81% since March 2020, the industry is only up 19% or 1.1% annualized since late 2005. The industry has been plagued by oversupply, something that has plagued the entire commodity sector since 2010. The big question is whether we have entered a new secular trend in shipping stocks with more gains in front of us? Our view is that stimulus and inflationary pressures building everywhere will continue to support shipping rates this year and combining that with the momentum factor being positive (shipping stocks have outperformed global equities the past year), we are optimistic on shipping stocks on a tactical level in 2021. Longer term, we have not moved to a positive position and like the broader logistics companies more as we highlighted in our Are logistics companies long-term winners? from December 2020.
For those investors that want exposure to shipping stocks the list below is a good starting place. It shows all the shipping stocks in the Bloomberg Global Marine Shipping Index that can be traded on Saxo’s trading systems. We have included the consensus price target from analysts covering the stocks and calculated the spread in percentage to the current price. Analysts are quite positive on the industry with an average price target 21% above current market prices.
Name | Price | Price target | Mkt. cap. USD mn. | Price vs. price target (%) |
AP Moller - Maersk A/S | 2,085.80 | 2,503.06 | 39,216 | 20.0 |
Hapag-Lloyd AG | 125.42 | 113.16 | 21,657 | -9.8 |
COSCO SHIPPING Holdings Co Ltd | 0.99 | 1.37 | 18,876 | 38.4 |
Orient Overseas International Ltd | 9.65 | 14.67 | 6,152 | 52.0 |
China Merchants Energy Shipping Co Ltd | 0.72 | 1.17 | 4,863 | 61.9 |
Nippon Yusen KK | 28.02 | 30.64 | 4,767 | 9.4 |
COSCO SHIP ENGY | 0.41 | 0.58 | 3,838 | 43.3 |
COSCO SHIPPING Development Co Ltd | 0.16 | 3,622 | NA | |
Mitsui OSK Lines Ltd | 29.46 | 39.31 | 3,555 | 33.4 |
Wan Hai Lines Ltd | 1.51 | 1.80 | 3,343 | 19.7 |
Euronav NV | 9.00 | 11.48 | 1,957 | 27.5 |
Kawasaki Kisen Kaisha Ltd | 18.45 | 17.47 | 1,734 | -5.3 |
Frontline Ltd/Bermuda | 6.88 | 7.12 | 1,360 | 3.5 |
Star Bulk Carriers Corp | 11.82 | 13.92 | 1,135 | 17.8 |
DHT Holdings Inc | 6.00 | 6.55 | 1,025 | 9.2 |
Stolt-Nielsen Ltd | 14.78 | 18.41 | 937 | 24.6 |
Pacific Basin Shipping Ltd | 0.19 | 0.22 | 908 | 13.3 |
Scorpio Tankers Inc | 15.48 | 19.35 | 898 | 25.0 |
SFL Corp Ltd | 7.33 | 7.20 | 886 | -1.8 |
Golden Ocean Group Ltd | 5.47 | 789 | NA | |
D/S Norden A/S | 18.82 | 20.63 | 754 | 9.6 |
Danaos Corp | 35.84 | 35.00 | 733 | -2.3 |
Navigator Holdings Ltd | 9.73 | 13.40 | 544 | 37.7 |
Nordic American Tankers Ltd | 3.26 | 3.49 | 493 | 6.9 |
FLEX LNG Ltd | 8.64 | 12.34 | 471 | 42.8 |
GasLog Ltd | 4.60 | 5.08 | 438 | 10.4 |
Teekay Corp | 3.12 | 315 | NA | |
Odfjell SE | 3.26 | 4.75 | 299 | 45.4 |
Diana Shipping Inc | 2.92 | 3.26 | 261 | 11.6 |
Eneti Inc | 20.90 | 24.40 | 236 | 16.7 |
Tsakos Energy Navigation Ltd | 9.22 | 10.50 | 173 | 13.9 |
Ardmore Shipping Corp | 3.90 | 5.12 | 130 | 31.3 |
Source: Bloomberg and Saxo Group
Is a new momentum crash on the horizon?
Equities are grinding higher everyday and the speculative fever is running high with Bitcoin price action and the short squeeze in GameStop and other shorted stocks as recent evidence. If we look at the Russell 3000 Index in the US, we observe 720 stocks with a one-year total return above 50%. Yes, you read correctly and note that the starting point for the calculation is before the major selloff started. In the finance literature, many different authors have covered a concept called momentum crashes (read here, here, and here). Momentum crashes mean different things to different investors. The ones that implement equity factor strategies in long-short versions tend to view momentum crashes when the equity market bounces back from a huge selloff as the one in 2008 when the losing stocks shorted suddenly reverses big time creating large losses in the short component of the portfolio relative to the gains on the long component.
In a paper from the quant investment firm Robeco it is shown how generic momentum stocks (sorted on simple 1-year total return metric) suffered greatly in the subsequent 36 months. Long-only momentum strategies are part of an overreaction and buying on narratives aggravating the mispricing which drastically lowers the expected returns (they become negative) on such stocks and is realised when the market reverses. The recnt erratic behaviour in financial markets and equity valuations getting inflated across what we call tier-2 and tier-3 companies (those with little earnings) are a cause for concern. We could very well soon be experiencing a momentum crash in combination with a normal and healthy equity market correction. In this case the inspirational list below shows the stocks in Russell 3000 that are up the most the past year.
Name | Return 1Y | Return 5Y | Market Cap (USD mn.) | P/E | Return YTD |
Novavax Inc | 4150.14 | 220.13 | 18993.58 | 167.56 | |
Veritone Inc | 1815.66 | 1486.80 | 67.66 | ||
Plug Power Inc | 1368.72 | 3883.28 | 32326.95 | 89.71 | |
Digital Turbine Inc | 1275.39 | 7304.17 | 7944.40 | 211.79 | 57.09 |
GameStop Corp | 1199.49 | 149.01 | 3571.04 | 171.76 | |
FuelCell Energy Inc | 1187.38 | -53.77 | 8550.38 | 137.42 | |
eXp World Holdings Inc | 1124.98 | 18836.11 | 9537.27 | 426.06 | 116.00 |
Overstock.com Inc | 1120.07 | 673.18 | 4315.00 | 430.04 | 110.34 |
Workhorse Group Inc | 1101.87 | 669.20 | 4635.55 | 94.44 | |
Waitr Holdings Inc | 1078.42 | 434.00 | 40.65 | ||
Retractable Technologies Inc | 1019.48 | 513.52 | 583.00 | 53.52 | 60.52 |
Aspira Women's Health Inc | 1018.32 | 644.92 | 972.71 | 31.00 | |
GrowGeneration Corp | 1002.79 | 3422.52 | 1,217.72 | 57.11 | |
Pacific Biosciences of California Inc | 992.86 | 422.78 | 8538.90 | 97.69 | 76.95 |
Celsius Holdings Inc | 940.51 | 3172.58 | 4414.13 | 957.06 | 20.99 |
Fulgent Genetics Inc | 924.17 | 4186.46 | 84.89 | 231.04 | |
Nautilus Inc | 902.75 | 56.80 | 882.95 | 17.76 | 60.86 |
Silvergate Capital Corp | 791.83 | 3349.34 | 108.97 | 93.82 | |
Atomera Inc | 752.76 | 894.68 | 159.17 | ||
CarParts.com Inc | 736.86 | 690.37 | 1022.76 | 72.24 | |
SunPower Corp | 690.03 | 242.87 | 8361.64 | 91.65 | |
ExOne Co/The | 669.57 | 607.88 | 1123.41 | 467.65 | |
Moderna Inc | 658.31 | 70966.65 | 71.67 | ||
iBio Inc | 616.06 | -51.85 | 545.94 | 147.62 | |
Vaxart Inc | 614.41 | -46.03 | 922.82 | 47.64 | |
Clean Energy Fuels Corp | 602.90 | 642.98 | 3358.70 | 167.27 | 115.52 |
Seres Therapeutics Inc | 600.82 | 11.12 | 2353.29 | 5.27 | |
Arcturus Therapeutics Holdings Inc | 557.70 | 120.85 | 2086.75 | 86.03 | |
MicroStrategy Inc | 543.43 | 549.00 | 9342.34 | 223.17 | 150.80 |
Tupperware Brands Corp | 531.14 | -7.80 | 1744.24 | 19.09 | 9.51 |
Source: Bloomberg and Saxo Group
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