Last time we talked, we highlighted how you can get paid for passing gas. (the clever tagline was Kevin’s idea) Today, in honor of Kevin’s Taco Bell Story, we’ll show you another way to not just get paid for passing gas, but for passing a whole lot of other sh…tuff.
First of all, I love transportation stocks (minus trucking). This includes railroads, shipping, pipelines, etc. I love these stocks because they are not very dependent on the price of the commodity they transport but instead simply collect a fee based on the quantity. Also these industries have a high startup cost (barrier to entry) and can therefore often get higher margins. Although these are not your 100,000% return stocks, they do provide steady returns. (Kevin’s note: where can we find the 100,000% return stocks, because I want one?)
In the past the Thousandaire portfolio has invested in railroads (UNP) and in pipelines (ETP). Today we will round out the trio with a shipping company.
Frontline Ltd. (NYSE:FRO)
Frontline is a shipping company that owns and operates a number of oil tankers and bulk ore carriers. If you are unfamiliar with how the shipping industry works, shipping rates are usually based on spot prices. When there is a shortage of vessels (high demand) like there was in 2007/2008, these companies achieve giant returns by the portion of their ships available to spot prices. During times of low demand these companies can survive off the vessels they have under contract but do not get the extra boost from the spot price income.
There are a number of comparable companies, however I like Frontline for several reasons.
- They operate the far east (Asia) which I believe will be key markets of growth going forward
- They have several ships currently being built, showing that they are planning on growth
- They have spent the last year repurchasing shares.
- They have not stopped paying dividends like many of their peers
Although this stock is heavily dependent on demand, I am confident that global trade will surge, demand will rise, and great returns will return (no pun intended). If the industry returns to its 2008 heyday, I will gladly take my $2.75 every 3 months (effectively a 50% dividend). In the meantime, I will settle for the 2 – 14% they’ve been paying over the past year, which is still better than my savings account.
Disclosure:
I currently do not have a position in this stock and do not plan to do so for the next 90 days.
Kevin’s Take:
I agree with the Hoff and his love of transportation companies. They are easy to understand and provide a necessary service. I wouldn’t load up my portfolio with too many of them, but I think it’s nice that we’ve given a few options. Our investments in UNP and ETP are up 5.73% and 3.24% respectively. Considering the entire portfolio is only up 0.42%, this is pretty good. Let’s hope FRO is another winner.
Important to note that ALL ideas, thoughts, and/or forecasts expressed or implied herein are for informational and entertainment purposes only and should NOT be construed as a recommendation to invest, trade, or speculate in the markets.
I might try to invest in this company and see where their option price is set at.
I think transportation is a great long-term buy. However, bulk dry shipping companies still have numerous new ships in production purchased during the 2008 heyday slated for delivery this year and next. New supply, limited growth in demand means little upward movement in service fees.
For this reason, railroads will continue to strike my fancy. Not only are they great for economic rebounds, but it isn’t nearly as easy to build more railways than it is to put more ships on the open ocean. A new railway would have to cut through the property of thousands of people, but how hard is it to cut through international waters that are limitlessly divisible?