Oil Tankers: Short on Supply, Long on Profits

Top Tankers -- which focuses primarily on routes west of the Suez Canal, sending oil to Europe, the Black Sea and, to a lesser extent, the U.S. East Coast, West Africa and Singapore -- doesn't participate in the spot market. Through a profit-sharing arrangement with customers, however, it does partially benefit from rising shipping rates. Pistiolis said he plans to move the company into as many as 15 dry-bulk ships over the next two years, though he considers the coal, iron ore, alumina, fertilizer and grains businesses less sophisticated, with lower standards and with more tiresome negotiations. "In petroleum trading, the majors will inspect your ship up and down before leasing; in dry bulk, they don't even know what an inspection is," he said.

So what you have, in sum, is a small company selling for a forward price-to-earnings multiple of 5.3 for this year and 7.6 for 2006. Its revenue is growing at better than 20% per year, it has a focus on cost control, it has most of its capacity and income locked in over the next five years. And it pays a healthy dividend and is run by experienced managers with a proven record for making good deals on its ships.

It sounds good, but beware: The tanker business has been very cyclical, with shares of companies like Knightsbridge Tankers(VLCCF Quote) going from a high of $26 in 1998 to around $9 in 2003. So if you dip into these waters, don't expect to be able to float forever.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider TOPT to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.