Abandon Ship
One of the most underappreciated attributes in investing is the ability to take a loss, to admit that an idea didn’t work out and walk away before it causes more harm. It sounds easy but anyone who’s invested for any length of time knows how hard it is to admit defeat at any given point.
Yet the repeated failure to do so on a timely basis risks a complete loss at investing, as inevitable errors are allowed to compound and multiply. The line between costly stubbornness and contrarian patience is admittedly on the blurry side, which doesn’t make the whole business any easier.
But I’m pretty sure at this point that contrarian patience will not be rewarded any time soon in the tanker space, no matter how much we might wish otherwise.
This was an investment thesis that worked out great at first in the early months of 2015, as dramatically cheaper crude boosted shipments of crude and refined fuels, causing charter rates to rally.
But while the rates have since stayed relatively firm they’ve slid of late as traffic has dropped off, even as a wave of newly built tankers ordered when market first perked up two years ago is about to hit.
In sum, the circumstances in the markets for crude and products tankers are very different than they were when we first made our current recommendations in this space, and as a result we’re pulling out.
Aggressive Portfolio picks Capital Products Partners (NASDAQ: CPLP), DHT Holdings (NYSE: DHT), EuroNav (NYSE: EURN), Scorpio Tankers (NYSE: STNG) and Teekay Tankers (NYSE: TNK) are downgraded to Sell.
If you were to point out that we liked all of these names too long, you’d get no argument from us. As noted, taking losses is hard. Our priority is to do what must be done before moving on to better opportunities.
Stock Talk
Jim Keen
Igor, would you put GMLP in the same category as CPLP, DHT, EURN, STNG and TNK….thanks…
Igor Greenwald
I would not; our call was limited to the crude and products tankers rather than LNG shipping. And while we don’t recommend GMLP we continue to stick with Hold-rated Aggressive pick GasLog Partners (GLOP). The LNG tanker market is prone to booms and busts like other shipping sectors, but GLOP does have a few years remaining on its charters, and demand should expand dramatically as new LNG export terminals come online (though of course there will be plenty of competition for that business as well.)
Robert Zeller
I own GLOP and have a loss of about of 37% and will hold it as recommended.
For some mysterious reason I own GMLP which you said you did not recommend. I only follow he advice of this service. I wonder if the questioner above about GMLP also got a wrong impression. I’ve lost 43%on it. I am not complaining as overall I have made a lot of money because of this service but would like your advice on GMLP. Should I hold or sell?
Igor Greenwald
I think it’s OK to hold for now. They fully covered their current 13% yield during the most recent quarter, and the three tankers coming off charter next year account for 17% of revenue. Right now they would not be able to recharter them at anywhere near the old rates, but do expect market improvement over the next 18 months as new LNG capacity comes on line. Of course, as we’ve seen with other shippers, if the yield stays so high that they can’t economically sell equity or refinance debt, they will cut it. It doesn’t seem to be an immediate risk here, and at least with LNG lots of visible demand will be coming online over next few years . Because the market’s already bad no one’s ordering new vessels at the moment, though I think the market still needs to absorb a few dozen carriers ordered in good times two years ago. But of course if the rates rebound people will order more. That’s how it works in almost any industry, but ships are a lot easier to build than land-based plants, etc, and the barriers to entry are very low.
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EdwardM
Enjoyed yesterday web chat and always gleen information of value. On CPLP really think at 3 and change there is not much to lose? Like a call option at this point. Will clear the deck for you but almost feel, take a shot and just maybe you will hit a winner on a percentage basis from that 3 plus change price now. Ed M
Igor Greenwald
It’s definitely possible. But the worry is that the fuel tanker market gets significantly weaker, and I’d rather play elsewhere.
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Mr. Ed, The Talking Horse
Quite amazing the number of reversals from buy to sell in the mlps this news letter recommends, especially considering the fact that mlps are supposed to be a long term buy/hold sort of asset class.
Mr. Ed, The Talking Horse
Had not intended to be posted and what I meant is that I personally find it difficult to invest in Mlps given the changes in outlook. But perhaps that’s just the way things are these days with all asset classes. Thank you.
Igor Greenwald
I understand the sentiment; it’s completely justified because MLPs have exhibited much more volatility than usual over the last two years. I do think that’s produced some opportunities that have even outlasted the recent rally. Also, we were up-front when first recommending tankers in 2014 that they are never a buy-and-hold investment,. Most of the key midstream players remain in the portfolios, and we’ve been fortunate to find some up-and-comers as well.
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