Typically, one of the first things I do when I am thinking of writing about something is to search the database and see what I might have said about that stock, sector, or whatever in the past. That can be an interesting exercise at times, and it was this week. I was surprised to see that the last time I had talked about tanker stocks here was back in February of 2021. That is surprising because they are something that I follow consistently.
The fortunes of the tanker companies are, of course, linked to crude prices, but they can also sometimes be a forward indicator for that market, which is why I track them. Healthy trade and, therefore, strong tanker demand is a good measure of the overall demand for oil, but if tanker demand is too strong, it can indicate oversupply. So, fluctuations in the prices of the tanker companies’ stocks can tell you a lot about global oil market conditions.
The 2021 article, however, wasn’t concerned with that connection. My point then was that in a market where value was a rarity, both Scorpion Tankers (STNG) and Teekay Tankers (TNK) were, as I put it at the time, “dirt cheap”. I recommended buying both for long-term holding, and that worked out pretty well…
Neither stock qualifies as dirt cheap at the current price, but nor are they particularly expensive. STNG, for example, is trading at around 10x trailing earnings. That looks good when compared to the S&P 500’s average P/E of around 29, but it is still…
Typically, one of the first things I do when I am thinking of writing about something is to search the database and see what I might have said about that stock, sector, or whatever in the past. That can be an interesting exercise at times, and it was this week. I was surprised to see that the last time I had talked about tanker stocks here was back in February of 2021. That is surprising because they are something that I follow consistently.
The fortunes of the tanker companies are, of course, linked to crude prices, but they can also sometimes be a forward indicator for that market, which is why I track them. Healthy trade and, therefore, strong tanker demand is a good measure of the overall demand for oil, but if tanker demand is too strong, it can indicate oversupply. So, fluctuations in the prices of the tanker companies’ stocks can tell you a lot about global oil market conditions.
The 2021 article, however, wasn’t concerned with that connection. My point then was that in a market where value was a rarity, both Scorpion Tankers (STNG) and Teekay Tankers (TNK) were, as I put it at the time, “dirt cheap”. I recommended buying both for long-term holding, and that worked out pretty well…
Neither stock qualifies as dirt cheap at the current price, but nor are they particularly expensive. STNG, for example, is trading at around 10x trailing earnings. That looks good when compared to the S&P 500’s average P/E of around 29, but it is still a far cry from the low single-digit multiples available in 2021. Similarly, TNK, at 7.8x trailing twelve-month earnings, is relatively cheap until you compare it to the P/E of under 2 that was available when I last recommended the stock. Those, however, were exceptional circumstances: the world was in the early stages of recovering from the pandemic, and there were even questions about whether both of these companies could survive the shock that had come before. Even so, while STNG and TNK are not the screaming bargains they were back then, they are both worth considering for a different reason. They can act as a hedge in an uncertain market.
Think for a minute about the things causing that uncertainty.
Top of the list right now is the friction between the US and Iran. As I have said before, I don’t believe that will amount to anything, but there is always a chance that, faced with falling poll numbers, President Trump will see an overseas conflict as an opportunity to “wrap himself in the flag” and could escalate things. If that were to happen, then presumably it would disrupt shipping in the Straits of Hormuz, but only for a short time. Both sides have shown in past conflicts that keeping the oil flowing through that stretch of water is a priority, so any disruption will probably be minor and short-lived.
So, as most stocks came under pressure in the face of yet another drawn-out, expensive war in the Middle East, oil prices, and therefore tanker charges, would at least hold up, if not actually climb.
Then there is the fear that we are in an “AI bubble”. That may or may not be the case, but as we have seen in recent weeks, oil-related stocks don’t really move with tech stocks, proving my point that tankers may be a good place to hide from uncertainty.
Then third on that list of possible problems would be inflation, but in the short to medium term, that is not too much of a worry for any oil-related stocks either. Inflation means higher prices for everything, including oil and tanker fees. In the long-term, of course, inflationary pressure can cause all sorts of problems for the US and global economies, but what I am proposing here is holding STNG and TNK for a few months, while things hopefully settle down.
If you do that, if things get even more hairy, you will have some downside protection for the reasons stated above. But should this all turn out to be a storm in a teacup, as I suspect it will, the upward march that both STNG and TNK have been on in the first couple of months of this year can continue. At some point, the cyclical nature of oil supply and demand will probably result in a drop in tanker demand and pricing, but we haven’t seen any sign of that yet, so these stocks could provide some relative safety for a month or two for investors who believe that there are just too many potential problems around to avoid a correction of some sort before too long.
