Saturday, November 22, 2008
Saturday, 22 November 2008
The markets are in panic mode and while there will be some excellent opportunities on the long side, it feels and probably is a lot easier to go with the flow and short certain stocks that have yet to play catch-up. One sector that is getting an absolute caning is that of the shipping sector. Time charter rates for Panamax and Capesize vessels have sunk by 90% plus in the last six months, as the financial sector freezes and economic growth expectations are lowered. Clarkson (CKN) is an investment holding company involved with shipping related services including shipbroking, financial services, ship support services and research. The company is capped at just £75 million and trades on a price to earnings ratio of 3.5.
On the face of it this looks cheap. However, when I compared Clarkson to some other shipping companies, where some have most of their ships on long-term time charter at vastly inflated rates yet their own ratings are close to just 1 times earnings.
Yesterday I heard there was some form of ‘crisis meeting’ held at the Baltic Exchange where shipowners and shipbrokers got together to see what can be done about the current state of play and to canvas opinion about when the slump will end.
No doubt a number of shipping companies will go to the wall if freight rates don’t sharpen up quickly, but I also think the current rates are insane and will return to some semblance of normality at some stage. I can envisage the scrap yards of Bangladesh being quite busy in the next year or so.
I do think there is further scope for downside in Clarkson’s share price. The stock was trading over 1000p in September and I only wished I tipped a short sell then. I think the shares have potential to halve again. Short positions should be considered at market with a stop loss at 450p and a target of 205p.
Keep an eye on RIT Capital Partners (RCP). The company invests for long-term capital growth while trying to preserve capital.
While I have no doubt that the company has some very astute fund managers (the company was deliberately exposed to the US dollar which has made a positive impact as highlighted in yesterday’s interim results) and its performance fund wise has been commendable given the fall-out of the equity markets, I think the shares might cave-in a bit as investors look for cash and cautiously watch from the sidelines.
Short positions should be considered at market with a stop loss at 1060p and a target of 865p.
It was very refreshing to see some positive news come from one CEO recently in the form of Justin King, the chief executive of Sainsbury (SBRY).
The shares have been annihilated since Robert Tchenguiz was forced to liquidate his holding after Kaupthing (one of his prime banker’s) collapsed. The shares were trading in the range of 360-380p before the Icelandic banking meltdown. It is now trading at 282p, trades on a price to earnings ratio of 14 times with net assets of £4.7 billion, just below the current market cap of £4.9 billion.
The company beat expectations for its recent interim results, was upbeat about prospects for a decent Christmas although it remained cautious for the second half of its current financial year. Some have commentated that it is just a question of time before the largest shareholder, the Qatari Investment Authority, make an approach for the company.
Long positions should be considered at market with a stop loss based on a close below 240p As adapted from Citywire