The Donald Trump Shipping Stock Boom

Euroseas is a tiny Greek shipping company with a fleet of 12 vessels and a penny stock traded on Nasdaq. On Tuesday, Euroseas’ shares rose by 100%. Since Donald Trump was elected president, Euroseas’ stock has nearly quadrupled. Seanergy Maritime, another small dry bulk shipping company that moves grain and coal, saw its shares soar by 75% on Tuesday. Shares of DryShips, a Greek shipping company that recently looked like it could be headed for bankruptcy, have climbed by 1,400% since Election Day.

President-Elect Trump’s initial impact on financial markets has been seismic, steepening the yield curve, sending copper prices soaring and sparking a broad stock rally in most sectors outside of technology. But one of the most bewildering and out-sized moves has been in shipping stocks, particularly small dry bulk shippers that have squeezed short sellers and seem to be trading in ways that are not linked to their fundamentals.

 

Grischa Rueschendorf/Bloomberg News.

The broad stock market surge has been fueled by expectations that a Trump victory will bring inflation and fiscal stimulus—tax cuts, offshore cash repatriation and infrastructure spending. The same ideas appear to be energizing investors about dry bulk shipping, even though the sector has traditionally been driven more by what goes on in China than the U.S., and Trump is seen by some as a protectionist who could diminish global trade.

The larger dry bulk shipping companies, which still have small market capitalizations after years of being hammered in the stock market, have seen strong moves since the election. Shares of Diana Shipping are up 60% while Safe Bulkers shares are up 30% in the last week.

“Many of the shipping names in the last four to five years have adjusted to slower growth by not investing in shipping capacity,” says Douglas Mavrinac, a shipping analyst at Jefferies. “It will be good for these names if we have inflation and more economic growth, and it turns out we had underinvestment in the shipping market to facilitate the increased need for commodities going forward.”

Mavrinac points out that Wall Street had stopped really paying attention to many of the shipping companies, particularly the very small ones. The lack of liquidity in the stocks of many of the dry bulk shippers means that they are easy to knock around and were trading at big discounts to their historical multiple levels. It does seem like short sellers were caught offside in some of the dry bulk shipping stocks and were squeezed, particularly in the case of DryShips.

In recent years, dry bulk shipping demand had stagnated, going from consistent 3% to 4% annual growth to almost no growth at all in 2015. The Baltic Dry Index, a key measure of the cost to ship raw materials, started to rise before Trump won the White House, probably due to efforts by Beijing to stimulate the Chinese economy. Freight rates for some large Capesize ships, the most sensitive rates typically, have now increased to 18-month highs and the Baltic Dry Index has surged to highs not seen in over a year.

 

Nathan Vardi ,  

Still, it’s easy to argue that investors have become overly exuberant over some of the dry bulk shippers. “There is a lot of posturing and speculation, which is what the market does,” says Mavrinac.

But the surge of shipping stocks has not extended to the crude oil tanker companies. Those companies have built up a huge supply of tankers and it’s hard to see how OPEC can pump much more oil than it already is putting on the market. Shares of Frontline, for example, are down nearly 50% this year and Trump’s election win hasn’t helped much.

The stocks of companies that manage vessels that carry liquefied natural gas, however, are doing better. Shares of Golar and GasLog are up big in 2016 and while they popped a bit after Election Day, their gains have been built over the entire year. In this case, there at least is a clear fundamental reason for the surge as some liquefied natural gas facilities finally come on line and LNG shipping demand strengthens. For the dry bulk shipping rally to last much longer, investors will probably need to see similar evidence of a rebound.