As fun as it can be to find a homerun stock, the reality is that truly successful investors beat the market over time by consistently hitting singles.
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Well, the latest supply of single-hitting stocks is admittedly coming from an obscure industry. But, given the data we're seeing, we could see a long and wide streak of singles for quite some time here, even if the economy softens a little.
The industry? Maritime intermodal transportation. Don't laugh - it a great business to be in, and it's getting better every day.
You may have seen them without even realizing what they are. They're the giant boxes you see placed two high and two deep on a flatbed rail car, stacked by the dozens on a ship, or pulled one or two in a row behind a tractor trailer. The containers may travel by all three modes (road, rail, water), with the contents - once packed - never being touched until they're at their final destination.
Though one could argue "shipping is shipping," it's really not. The kinds of goods that need to be shipped can vary greatly, as can the kind of boat that can ship it. Take high-profile shipping name Navios Maritime (NYSE:NM) for example. It primarily operates tankers that haul huge, unbundled piles of iron ore and coal in the ship's hull - the ship is the container. These tankers can't effectively (if at all) haul intermodal boxes.
Danaos Corp. (NYSE:DAC), on the other hand, operates ships specifically designed to move intermodal containers by the hundreds, but can't transport anything like aggregate or oil in its boat hulls.
Container Ships Win, Tankers Lose
Many organizations are finding the latter - containers - to be an easier and cheaper mode of transportation despite a recent cost hike.
For instance, the cost to ship a box nearly doubled in 2010, while the rental cost of a tanker fell about 75% over the last twelve months, reaching two-year lows in February. Yet, the rising costs of box-shipping aren't expected to crimp demand or activity. In fact, container shipping is expected to grow by 8% in 2011, while dry bulk/tanker demand is expected to remain weak for the rest of the year.
The divergence between the two modes of shipping two-pronged. The first prong is a straight-forward lack of demand for dry bulk shipping, particularly from China, and evidenced by the Baltic Dry Index level (the average daily cost to charter a tanker) still being just slightly above multi-year lows.
The second prong is a simple case of oversupply. Though there are already too many tankers jockeying for too little business, even more of these boats are about to hit the high seas. In fact, some estimates suggest that 200 tankers are scheduled for 2011 delivery - this after 2010's 210 tankers were launched. All told, the globe's supertanker fleet has grown by 18% since 2009.
In contrast, container box shipping is holding up well, as demand for finished goods remains strong even if demand for raw materials is soft.
How to Play It
As tempting as all this data makes a container shipping company like Danaos or Global Ship Lease (NYSE:GSL) with its 17 ships, the shipping companies themselves aren't the low-risk/high-reliability way to tap into this obscure long-term trend. That honor belongs to the companies that actually lease out the big 20-foot containers.
It's an ideal scenario. The lessors have no particular vested stake in the profitability of the shipping company, nor in the parties buying or selling the goods. The lessors simply collect a fee as long as the boxes are being used, which is easy money when parked on a ship for days on end.
There are a small handful of these companies, but Textainer Group Holdings (NYSE:TGH) and TAL International Group (NYSE:TAL) are stand-outs. Neither one is a sexy homerun hitter, but both are reliable single and double hitters. Though both saw modest earnings slides when the recession was at its worst, neither Textainer nor TAL actually dipped into the red during that period. Throw in their decent dividend yields, and what you have is a sneaky, durable, and consistent winner few others are even thinking of. (A diversified portfolio will protect you in a tough market. Get some solid tips here! Check out 5 Tips For Diversifying Your Portfolio.)
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