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Safe To Swim With Ship Finance


SFL's fleet is one of the largest in the world, with a total cargo capacity of more than 11 million dwt.


The Discovery Channel's Shark Week started on Sunday. Man, I love Shark Week.

I can't help but think back to the summer of 1975, when Jaws came out and kept everyone out of the water for months. For my money, the best scene of the movie came in the galley of The Orca when Quint, played by the scene-stealing Robert Shaw, went into a spellbinding soliloquy about The USS Indianapolis: ", eleven hundred men went into the water, three hundred and sixteen men come out, the sharks took the rest, June the 29th, 1945..."

I bring this up because I have a trading idea that stems from this celluloid nostalgia.

Ship Finance (SFL) is a major vessel-owning company. Including new buildings, Ship Finance owns a fleet consisting of 65 vessels, including 37 crude oil tankers, 12 container vessels and 3 dry bulk carriers. Its fleet is one of the largest in the world, with a total cargo capacity of more than 11 million dwt (deadweight tonnage).

Although economic growth is slowing in the United States, the need for goods has never been greater in some of the developing economies of the world. It is not just an oil story either, as 2Q worldwide PC shipments totaled 61.1 mln units, up 12% y/y.

When SFL made a 52-week high earlier this month at $31.78, it meant the stock had basically doubled since last summer, when it was trading with a $16 handle. That being said, we are now in the midst of the first meaningful correction since the start of the 13 month move higher.

Headline earnings with SFL tends to be a bit of an adventure. On May 30 it reported 1Q EPS of $0.72 with the Street looking for around $0.32. On February 27 SFL reported 4Q EPS of $0.79 with the Street looking for $0.91. So we may want to wait and see what the 2Q brings when it reports on or around August 22.

It looks as though SFL may have a tad more room on the downside, but with an 8.00% dividend yield things become compelling in the low $20's.

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No positions in stocks mentioned.

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