This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Tanker Stock Rally: Shorting the Love

Stocks in this article: FRO OSG NAT TK

NEW YORK ( TheStreet) -- Shares of oil tanker companies, which ended trading Thursday mostly lower, have gone on a staggering run over the last two months.

Leading the pack has been Frontline (FRO), the largest publicly traded tanker company by market cap. Its shares have ripped higher by 42% since early February.

Shares of Frontline peer Overseas Shipholding (OSG) have risen in tandem, gaining about 20% over the same period, though it's been a rockier ride for OSG.

Shipping stocks in general are high-beta names, following the broader equities markets, but with an order of magnitude more intensity in either direction. With the Dow Jones Industrial Average breaking through 11,000, it's not entirely surprising that tanker stocks have risen to the degree they have. Further, many tanker stocks have heavy short interest, so whenever they experience a strong upside move, the squeeze is on.

But the bull run in the sector has both psychological and fundamental underpinnings. Shipping companies that specialize in moving crude across the oceans have benefited from rising rates for their services, buoyed by the recent run in the price of oil. The daily rate for a Very Large Crude Carrier, the biggest type of tanker ships in the world, has averaged about $50,000 a day in 2010. Late last year, some were predicting average rates for 2010 of $28,000 a day.

"All the bulls are coming out now," said Mike Reardon, vice president of research and marketing at Imarex, a clearinghouse of freight derivatives. "People were calling for Armageddon, and VLCC owners are out with champagne bottles right now."

Wall Street analysts have taken notice. Bears have turned into moderates. Moderates have morphed into bulls. And at least one bearish analyst, Martin Korsvold of the Norwegian investment house Pareto, flipped completely, upgrading the tanker sector last week. He lifted his rating on both Frontline and Overseas Shipholding's stock to buy from sell, writing, "The listed companies in our tanker universe are capitalized to weather choppy seas, hence the risk is on the upside."

Naysayers remain, however. And one such investor believes most stocks in the tankers sector are overbought, especially those companies who own no VLCCs, which is to say: every publicly traded tanker outfit except Frontline and Overseas Shipholding.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs