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Geopolitical tensions shake $120 billion grain trade; Which shipping stocks to watch?

Dino Kurbegovic

Shipments from Ukraine and Russia account for a quarter of global grain trade, and with Russia’s invasion of Ukraine, food-security concerns have risen. 

Ukrainian stockpiles of grain are now difficult to get to buyers providing a sneak peek into the turmoil wrought on the $120 billion grain trade caused by the war.

Supply-chain bottlenecks, rising freight rates, and also weather are increasing complications with global food deliveries. Countries fearing potential food shortages are scrambling to find alternative suppliers and trade routes. 

Shipping stocks are the ones that could seemingly benefit from the newfound confusion. The following two should be on investors’ watchlists as companies that potentially stand to profit from rising freight prices. 

1. Star Bulk Carriers (NASDAQ: SBLK)

Given the more recent increase in the Baltic Exchange Dry Index, which measures the cost to ship commodities across various routes, Star Bulk stands to potentially profit from this. Shipping rates play well into Star Bulk’ with their 128 vessels making them one of the largest shippers.

Star Bulk has a long history of transparency with investors announcing a dividend policy that revolves around the quarterly cash balance divided by the number of vessels multiplied by $2.1 million. The remainder of the funds is all distributed to shareholders, so the strong dividend yield should continue. 

The stock’s performance has been pretty strong lately trading above 20-50-200 daily Simple Moving Averages. There is a strong resistance point around $32 and $26 at the lower end. With shipping prices moving up the stock shouldn’t test the lower price point any time soon. 

SBLK 20-50-200 SMA lines chart. Source. data. See more stocks here.

Wall Street gives the stock a strong buy rating predicting in the next 12 months an average price of $36.29 a potential increase of 26.67% from the current trading price of $28.65. The highest price analysts put on the stock is $41 which could be reached if supply chains stay distressed for some time.

Source: TipRanks

2. Danaos Corporation (NYSE: DAC)

Though Star Bulk represents an entry into dry goods, Danaos offers access to container shipping where growth rates can also be equally rewarding. The index investors track for container shipping of 40-foot containers along various routes is the Freightos Baltic Global Container Index

Long-term charter contracts the company has should provide cash flows for quite some time even if rates decline which probably will not happen any time soon. Danaos is currently trading at a discount to its net asset value which is calculated to be $144 per share. 

The stock has been trading in an upward channel and recently fell to test the 50-day SMA promptly bouncing off of it. There is strong support around the 50-day SMA on the downside so investors should keep an eye out for this level.

DAC 20-50-200 SMA lines chart. Source. data. See more stocks here.

Analysts give the stock a moderate buy predicting that the average price in the next 12 months will be $116.67. This would represent a potential increase of 22.04% from the current trading price of $95.60

Source: TipRanks

High demand and tight supply will most likely keep food and energy prices high which spells well for the shipping companies. Additionally, there is pent-up demand for vessels that stretches from 2021 and will likely offer pricing power to shippers since fleets won’t be so easily replaced and increased.

Investors should be well rewarded if they put these stocks on their watchlists. Along with the stocks, the two mentioned indexes will help investors gauge where shipping prices are moving and how that could affect their investment thesis in shipping stocks.  

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

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