Plenty of vertical industries will see increases in volatility when and if oil prices begin to move away from the cyclical lows they currently trade at. While some investors might see volatility as potentially dangerous, those who have been in the stock market long enough understand that volatility allows money to be made as long as the original idea behind a trade is sound enough.
Today, there are plenty of tailwinds behind oil and the rest of the energy sector. These tailwinds could send oil prices back to levels not seen since 2022. One of the main factors for a bullish oil case is that the United States Federal Reserve (the Fed) has started to cut interest rates along with other major central banks worldwide.
As a result, lower rates and cheaper money will likely boost the business cycle higher, and that’s always a proxy for more oil demand. Now, if this thesis is correct, and more countries start to demand more oil, transportation stocks (shipping in particular) will be called upon to deliver the needed commodity. This is where names like Star Bulk Carriers Corp. (NASDAQ: SBLK), ZIM Integrated Ltd. (NYSE: ZIM), and even Tidewater Inc. (NYSE: TDW) come into play.
Why Analysts See Double-Digit Upside Potential for Star Bulk Carriers Stock
While not a direct crude oil transport name, Star Bulk Carriers does have exposure to the sort of commodities and basic materials that come in high demand when higher oil prices come alongside higher oil prices. So, in one way or another, success in the energy sector will likely be tied to the success of Star Bulk Carrier stock’s earnings.
Knowing this, investors shouldn’t be surprised to see Wall Street analysts place a higher valuation on the stock today. Particularly, those at Jefferies Financial Group reiterated their Buy rating on this company, this time with a price target leading the consensus at a high of $28 a share.
To prove these new views right, Star Bulk Carriers stock would need to rally by as much as 47.3% from where it trades today, not to mention make a new high for the past 12 months in the company. Knowing that the fundamental tailwinds are starting to take on momentum right now, other market participants have shown their recognition of this upside.
Bearish traders have started to retreat from their short positions, as investors can judge by the nearly 1% short interest decline over the past month alone. This shows signs of bearish capitulation in front of all this potential upside. More than this, shareholders are offered a $2.8 a share payout.
On an annualized basis, this translates into a 14.8% dividend yield, which will beat any inflation pressures that might come from this renewed business cycle.
ZIM Integrated: A High-Risk, High-Reward Play with Earnings Upside at a Discount
ZIM’s shipping routes are highly exposed to Israel’s proximity and, by extension, to the several geopolitical conflicts and wild cards being driven in that region at the moment. This will place two major factors in the stock: one in favor of it and one against it.
The factor against ZIM Integrated stock is the potential risks that might arise from the region, threatening the company’s fleet and routes, which would, in turn, threaten the earning power of the brand in the future if that were to happen.
The factor in favor has to do with pricing power, as more demand from these tighter routes could enable ZIM to command higher prices in exchange for taking the risk of these routes. All of this is reflected in the stock’s valuation metrics, which can offer investors an entry point.
Starting with the price-to-book ratios (P/B) ratio, where ZIM Integrated stock calls for a 1.3x multiple, investors can notice a significant discount to peers. The broader transportation sector’s average valuation of 2.2x today would mean investors can gain exposure to this higher pricing power for less.
Tidewater Stock: A Direct Energy Transport Play with Triple-Digit Upside Potential
This shipping stock directly impacts the transport of these energy commodities, including crude oil and natural gas. These two foundational energy materials for any economy that’s coming back online will make business activity for Tidewater stock rise along with it.
Wall Street analysts know this since the consensus price target is now set at a high price of $102.25 a share, calling for a net upside of as much as 103% from where it trades today. More than that, some institutions have done their homework and realized this stock is a Buy today.
As recently as November 2024, those at State Street justified boosting their Tidewater stock holdings by 1.9%. After this new allocation, the bank’s net position has reached a high of $134 million today, or 3.6% ownership in the company. Like ZIM Integrated, Tidewater stock trades at a P/B ratio of 2.6x, which is also below the overall transportation sector’s average valuation today.
