Submitted by Quoth the Raven at QTR's Fringe Finance,
This is part 2 of an exclusive Fringe Finance interview with shipping analyst (and friend of mine) J Mintzmyer, where we discuss the state of the supply chain in the country, what’s next for the shipping industry and what stocks appeal to him in the difficult-to-understand and cyclical world of shipping.
J is a renowned maritime shipping analyst and investor who directs the Value Investor's Edge ("VIE") research platform on Seeking Alpha. You can follow him on Twitter @mintzmyer. J is a frequent speaker at industry conferences, is regularly quoted in trade journals, and hosts a popular podcast featuring shipping industry executives.
J has earned a BS in Economics from the Air Force Academy, an MA in Public Policy from the University of Maryland, and is a PhD Candidate at Harvard University, where he researches global trade flows and security policy.
Q: What has changed in the shipping world since the last time you were on my podcast?
A: The supply chain fiasco (which we started discussing back in September of 2020) has gotten much worse and is now totally mainstream. Back when we talked in February, I don't think most folks really noticed or cared. We've made significant returns in our portfolio since then, with our Risk/Reward model up about 43% and our Speculative model is up 94% since we talked in mid-February.
Can you update us on ZIM, which was one of your top picks this last time we spoke?
ZIM Integrated Shipping (ZIM) has been a phenomenal investment for us. I sold the majority of my holdings at $59-$60 in mid-September as the stock looked to be overbought and I figured some of the large holders might trim their position.
In this case, I just got extremely lucky as the recent pullback gave me an opportunity to get long again and I actually have a larger net long exposure to ZIM now than I did even earlier this summer.
We have a fair value estimate of $70.00, and I expect to see $10-$12 in Q3-21 EPS and $11-$15 in Q4-21 EPS. ZIM is net debt free and I estimate they currently have about $20/sh in net cash on the balance sheet.
They are generating about $100-$150M in free cash flow per week (over $1/sh) and ZIM is set to pay 30-50% of their 2021 earnings as a dividend, so we could see a dividend payment of $15/sh or higher early next year... all this for a stock that trades under $50! Crazy stuff!
When do you see supply chains returning to normal in the US - if ever?
I think we're probably at the peak of rates right now, and I have been advising folks of a mid-Oct to mid-Nov top for awhile. That's simply how the seasonal cycle works!
However, things look tight through at least the Chinese New Year (February 2022), and I don't expect we'll see 'normal' situations for at least several more years *unless* we get a massive US recession, which of course nobody wants to see! The port infrastructure and our entire supply chain (all the way down to trucks and drivers) has been underinvested for a decade straight.
We got away with it for several years, but now folks are waking up and realizing that we have a serious structural problem on our hands. If ports are properly upgraded, rail lines are improved, and the truck/chassis situation is sorted, then we could hope for a smoother holiday season next year and ideally a 'smooth system' by 2023.
What's your 1 month, 1 year and 1 decade outlook for the sector? I know shipping is cyclical and can be tough, but do your best?
We cover 6 segments of shipping, of which containerships is just one of them- but I'll try my best on this segment. I expect rates are topping out here within the next month, but I like the stocks because they are significantly undervalued and haven't priced in the 3-5 year leasing contracts which have been signed.
Frankly, the spot rates don't even matter anymore except for news headlines.
Over the next year, I hope to see some easing by next February and I am optimistic that we could have a smoother 2022 Holiday season, albeit I think elevated shipping costs are here to stay.
In the next decade, the focus becomes more on pending environmental regulations and how these will be implemented. Global consolidation of liners is an obvious trend, which should lead to improved cost and capacity discipline.
I expect the 2021-2030s will look a lot more like the 2000s in terms of average shipping costs and profits as opposed to the 2010s, which marked a horrendous downturn for the entire sector. Too many people have the incorrect view that 2012-2018 was 'normal' for shipping. It wasn't! We went through a 6-year straight bear market in containerships and Americans got used to unrealistically cheap shipping costs, subsidized by endless losses by global carriers.
That era is over.
PART 1 OF THIS INTERVIEW CAN BE FOUND HERE.
You can also listen to J’s last appearance on my podcast here:
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I have not personally vetted J’s returns — it is up to readers considering his service to do so. I own ZIM as does J, as disclosed. None of this is a solicitation to buy or sell securities. It is only a look into our personal opinions and portfolios. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe.