Overseas Shipholding Group (NYSE: OSG) a bulk shipping company that engages primarily in the ocean transportation of crude oil and petroleum products, is a good value play in the shipping sector.
Overseas Shipholding has 20 vessels either owned or leased and generates 25% of its revenues from grain, coal, and iron ore. It owns and operates a fleet of ocean going vessels and provides transportation of liquid and dry bulk cargos. The company primarily serves independent and state-owned oil companies, oil traders, and government entities.
Overseas Shipholding is actively adding vessels to its growing ?eet by acquisition and new construction. OSG is selling its older vessels to pay for new vessels and to pay down its debt.
The shipping industry is currently in a position over capacity, the shipping industry is ?ooded with new and old vessels, but conditions will change when all single-hull tankers are phased out by the end of 2010.
OSG is currently undervalued by the market; it has a large cash position and great earnings power. OSG’s earnings per share have increased by over 25% during the 1st quarter of 2009. However with fewer Vessel sales expected in the next few quarters EPS will decline for the next few quarters.
The shipping industry has been under pricing pressure, which has caused shipping rates by 50% from a year ago caused by a slowing worldwide demand and an increased supply of ships. This combination will hurt OSG’s earnings per share over the next year, but should rebound after.
Overseas Shipholding Group is a solid value play because it has a really strong balance sheet, with $20 per share cash balance. OSG’s dividend is secure and was actually increased in August 2008 by 40% a good sign of the company’s financial health. OSG provides a very solid 5.1% dividend yield currently.
OSG made a strong 120% move from the march low to the recent June high, before a sharp 25% correction in just 8 days. The stock recently found support at the rising 50 day EMA (at $33.55) and just above a 50% Fibonacci retracement (at$32.20) of the June high $44.27 to the March low of $20.13. A possible entry point into OSG sits just below at the $33.50-$34 level. OSG is currently trading at $34.60; I suggest a conservative protective stop be placed just below the $30 level because the last big swing low sits at $30.22.
Note: I do not own OSG
