4 Shipping Stocks To Take Off On Likely Q1 Earnings Beat

The Q1 earnings season is in its last leg with majority of the companies having already unveiled their quarterly financial numbers. The picture that has emerged so far is quite encouraging and the Q1 earnings season remains on track to end on a strong note, displaying substantial growth.

According to our latest Earnings Preview, total earnings and revenues for companies in the S&P 500 space are projected to expand 12.7% and 6.2%, both on a year-over-year basis.  In fact, both figures compare favorably with the readings in Q4, when bottom line expanded 7.3% and revenues grew 4.7%. The progress in the quarterly performance can be attributed to a turnaround in the economy and improved job market scenario, among other factors.

With the overall scenario so bright, it is of little wonder that 12 of the 16 Zacks sectors are projected to end the quarter with their bottom line expanded. Unfortunately, the highly-diversified transportation sector is not one of them. With reports available from the entire S&P500 transportation fraternity, the sector has cut a sorry figure. The bottom line has contracted 17.9% for these companies due to higher costs. Apart from increased labor expenses, the uptick in fuel costs has also distorted the earnings picture for transports in the current reporting cycle.

Shippers to the Rescue

Even though the overall transportation sector is struggling, shipping stocks offer a glimmer of hope. The surge in the Baltic Dry Index (a gauge of the shipping costs of raw materials such as iron ore, coal and grain) earlier this year is testimony to the fact that shipping stocks are on their way up after struggling for quite some time.
In fact we have already seen stocks in the space like Eagle Bulk Shipping Inc. (EGLE - Free Report) and Gener8 Maritime (GNRT - Free Report) outperform with respect to the bottom-line.

Favorable Industry Rank

The favorable Zacks Industry Rank of 107 carried by the 49 member Zacks-categorized Transportation- Shipping further augments the good times for shipping stocks. In fact, the favorable rank places the industry in the top 42% of the 250+ groups enlisted.

The Rank of this division compares favorably to those of most other Zacks-categorized transportation sub-groups. Notably, the Zacks Industry Ranks for the Transportation-AirlineTransportation-TruckTransportation-Services, and the Transportation-Air Freight and Cargo, sub-groups are 184,248, 164 and 219 respectively.

How to Pick the Winners?

In view of the bullish sentiment surrounding shipping stocks, it would not be a bad idea to add companies from the space, with the potential of reporting better- than-expected earnings in Q1, to one’s portfolio. An earnings beat more often than not boosts investor confidence in the stocks, which translates into rapid price appreciation.

However, given the high degree of diversity in the shipping space, the task is by no means easy. In fact, it is akin to searching for ‘a needle in a haystack’. Here our proprietary methodology comes in handy. It advises investors to look for stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

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