Portfolio update and thoughts

I am no longer writing actively on finance and have moved on to other pursuits, but here is an update on what I am doing with my portfolio so you know my thoughts.

Tankers

Main positions are in order:

• Scorpio Tankers

• TNP

• Okeanis Eco Tankers

The stocks rose to a high level in 2023 due to the Russia Ukraine war rerouting tanker routes. There are also 3 additional factors:

• Panama canal water levels are low, increasing ton miles due to rerouting

• Suez canal crisis due to the Houthis

• 2024 is where the order-book really begins to fall off for tankers (some sub segments differ, but overall this is the case)

My thoughts:

• No indications that the Russia Ukraine war ending, but the rerouting is done already.

• No clue on how long the Panama canal drought will last, but it seems seasonal + weather dependent. People say it will last till mid year though

• I expect the Houthi conflict to drag on at least for half a year. They have proved difficult to defeat, and have many geographical advantages and the backing of Iran. Rerouting of routes and recalibration of tanker rates due to the Suez crisis is incomplete and may take a few months

• The order-book situation for tankers is likely to become even better, due to the massive boost the Suez crisis is giving the container segment, which will likely choke up shipyards further.

My plans and what I have done so far:

• Rerouting due to the Russia Ukraine war is priced in to both rates and the stock price. Panama canal and Suez canal rerouting is not fully priced in in rates nor the stock price, and may take a few more months. The order-book situation is partially priced in.

• I think it’s safe to wait a few more months for rerouting and higher rates and stock prices. I expect stocks to continue to rise here in a moderate fashion, but not in the sharp spikes we see from market surprises like wars.

• But I would likely exit my entire position as stocks rise moderately over the next few months. The reason is because:

  • Over the next few months, I expect the combination of supply rigidity due to order book constraints, the crises at the 2 canals, and the Russia Ukraine war to be increasingly priced into the stocks. As positive surprises become priced in, the risk is increasingly to the downside as negative surprises such as cessation of hostilities or weather changes at the Suez canal (none of which you can predict, and can happen any time) can happen.

  • I don’t want to count on hype and overvaluation of tanker stocks to make money. The easy money is moving from hated to tolerated, and I prefer to play that rather than tolerated to loved.

  • Personal financial reasons. I expect I need the money soon.

  • There are other bear factors, such as recession, opening of Nigerian refineries that will cut ton miles. I don’t know all of them.

  • Specific to Scorpio: There has been strong insider selling. I don’t trust management to use capital well. There have been estimates that up to 30% of the profits are going to management compensation. I have sold down more than half of my Scorpio position, and plan to make a full exit if the stock rises slightly more in response to rate increases over the next few months, because I am uncomfortable with management.

  • Specific to TNP: Management is garbage, but the stock is overly penalised for that. I am counting on both: 1) rising rates and 2) correction of pessimism about management competence/alignment to spike the stock higher. I am willing to hold this position longer than Scorpio, but I will likely make an exit within the next 4 months, even if 1 and 2 do not fully play out as I hope.

  • Specific to Okeanis Eco Tankers: It is well run, and the market knows that. One can expect shareholder interests and company value to accrue if they stay in the stock. But I don’t like the idea of sitting and waiting for incremental and steady gains in a sector like Tankers, which is highly volatile and events driven, because there is a large risk to extended holding periods. I plan to exit over the next 4 months.

Dry bulk

Main positions are in order:

• NMM

• Eurodry

The stocks have gone sideways in 2023 after coming down sharply from 2022 highs, but have recently climbed up due to the Suez crisis, which has some rerouting too.

My thoughts:

• Dry bulk utilisation isn’t as tight as tankers, and it appears that rerouting from the crisis isn’t as drastic as for tankers, but it is happening and likely to increase a bit more over the next few months.

• The order book situation isn’t also as tight as for tankers. So the bull market might be slightly delayed relative to tankers, but it will come. But as the container and bull markets precede dry bulk, they will choke up the shipyards, creating the conditions for a dry bulk bull market.

• The main factor for dry bulk is the global commodities trade, heavily tied to iron ore and China. It is the Chinese economy, that has been depressed, especially the property sector, that has held down the sector. This is a negative reality that is priced in, I expect surprises in this area to be positive as well.

• The growth of dry bulk is tied to the growth of commodity shipping, which will increase as countries like India and Indonesia grow.

My plans and what I have done so far:

• I expect Suez crisis rerouting to have a moderate positive impact on rates over the next few months, but how much I don’t know.

• I am willing to wait for positive surprises from the Chinese economy, and don’t expect much more downside.

• Supply side shortages should worsen over time.

• Overall, for the sector, there seems to be room for improvement over time, although I don’t see anything dramatic imminently. I’m willing to wait.

• Specific to NMM: This stock is deeply hated due to management, but I believe the management now has realigned incentives as Angeliki Frangou now owns 16% of the company. I don’t think there’s much downside, and only room for improvement as NMM demonstrates new shareholder alignment to the market.

• Specific to Eurodry: Still a cheap stock I like

• I don’t see a reason to sell anything over this year.

Uranium

The stocks have moved up sharply with spot price. I expect it to be choppy, but spot should increase over the coming year. The stocks have also lagged behind the stock price, so some normalisation of that ratio is expected. I expect a volatile path upwards over 2024, as we face shortages and the story is more well known. I expect to scale out incrementally over time.

Stocks overvalued at spot price $120 - start selling

Stock fair valued at spot price $150 - start selling

I don’t expect ro be doing any more rotation within the uranium sector, as I am happy with my allocations. I recently allocated more to a few beaten down stocks like Peninsula, and I will be riding that to the end.

I may take advantage of some volatility, selling at local peaks and buying at local troughts, but I’m not too good at that, so probably not too much.

Cannabis

I am no longer in the sector, and don’t know of any good company other than Glass House, but it’s risen quite dramatically recently (and the California market has recovered from lows), so I would not be buying.

Gold and Silver

I am quite bullish on this for this coming year. I won’t provide the explanation but you can follow Lobo Tiggre. I tend to go out on the risk curve. Main positions in order:

• Discovery Silver

• Gogold

• Skeena Resources

• Franco Nevada

• MAG Silver

I don’t foresee myself selling for this year.

Copper

Copper is a long term play, but green transition and Chinese recovery are anticipated bull factors. Copper prices are relatively low now too, so surprises are likely positive. But copper was attractive because I really liked Salazar and Advantus.

Ecuador recently got a new president, Noboa. He is pro mining, willing to enforce that with armed forces, and his family has ties to the Cupiramba project. Adventus and Salzar recently received permits for the Cupiramba project, which can begin construction.

I expect a combination of hitting project milestones, improving political situation in Ecuador, and a recovery in copper prices to lead to a rise in the stocks over time. I think I will likely sell 2 years from now.

Sources:

• Tankers and Dry Bulk

  • Joeri on twitter

  • Mintzmyer on twitter

  • Calvin froedge on twitter

  • Allthingsventured on twitter

  • Original braila on twitter

  • Chris shipping on twitter

  • Ed finley richardson on twitter

• Gold, Silver, Copper

  • Lobo tiggre