It depends on your strategy, of course, but generally speaking I like what I see in Textainer stock. I would consider it a decent purchase on a slight pullback with a long-term horizon — that is, 18 months or more — for shares.
First things first: TGH is a thinly traded issue with less than 250,000 shares traded daily. That means even an order of modest size could move the stock price, so always use a limit order when making a trade here. That’s the best way to protect yourself.
Other facts worth knowing is that Textainer is a small-cap operation, worth about $2.2 billion, and pays a volatile dividend like most shippers. Based on its last payout of 45 cents in February, the annualized yield is 4.7%.
Textainer is an interesting business. The company owns and leases cargo containers; not the ships, mind you, but the containers. It operates a “fleet” of almost 2 million shipping containers worldwide, leasing and selling them and even managing the shipping process for clients.
Needless to say, TGH is a cyclical business. As cargo trends pick up, it’s good for the company. When it drops due to a weak global economy, Textainer suffers. And right now, I think the time might be right for a long-term position in this stock on the hopes of a pickup in cargo traffic late this year and across 2014.
I’m admittedly bearish about the short-term — U.S. GDP is lackluster, and so is China GDP for that matter. But I do not think the global economy is going to fall into depression … just struggle through this year before finding a foothold down the road. The dry bulk shipping business has a strong baseline demand from agricultural commodities and other materials, so it’s not like the business will evaporate overnight if things sour further on the global economic front.
Another bonus: Textainer manages some intermodal equipment leasing by the Military’s Surface Deployment and Distribution Command. In other words, as long as the U.S. is shipping military gear worldwide then Textainer will have a stable revenue stream as its foundation.
Besides, a stock like Textainer gives you a great opportunity for income while you wait. Though the dividend is admittedly unreliable and changes every quarter, it has gone up for 13 straight quarters. A collapse in revenue or profits could change that, but the track record is significant.
Furthermore, owning the containers and not the ships is a much more flexible and much less capital-intensive enterprise. If Textainer needs to adjust its capacity or “fleet” of containers, that’s easier than a shipping stock like Diana (NYSE:DSX), Navios Maritime (NYSE:NM) or DryShips (NASDAQ:DRYS) unloading a Panamax vessel for tens of millions of dollars or suffering through with a glut of capacity it’s not using.
With a forward P/E of about 8.5, TGH is fairly valued with peers in the space — what few there are. So I think it’s worth taking a shot on if you’re a long-term investor now that it has rolled back a bit from 52-week highs.
Anyway, just my two cents on this pick.
- Could Textainer join the S&P 500 soon? (Forbes)
- Jim Cramer likes shipping stock Diana. (CNBC)
- On the other side, why investors may want to be cautious about shipping. (The Motley Fool)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.