Buy, Sell, or Hold: Nordic American Tankers
When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons and decide whether its potential upside outweighs its risks. Let's take a look at Nordic American Tankers (NYS: NAT) today and see why you might want to buy, sell, or hold it.
The company operates crude-oil tankers ferrying oil around the world.
One reason you may want to buy Nordic American has nothing to do with its line of business -- it's the dividend. The stock was recently yielding almost 8%.
You might also like the fact that it's growing, having invested in upping its capacity significantly. Only about seven years ago, it had three tankers. It now has 20, up 33% from 15 just a year ago.
Another plus is the relative inevitability of its business: At least for the foreseeable future, we'll keep needing oil, and it will need to be transported. Demand won't rise in a perfect upward line, but oil tankers are not going to become obsolete anytime soon.
Demand for oil may be assured for quite some time, but it won't be consistent demand. The high price of oil in recent years, along with our troubled economy, has put pressure on demand, hurting the oil tanker business. Competition is another factor working against companies like Nordic American. There has been an oversupply of tankers recently, and that, too, has constricted profits. Another issue is the proliferation of oil exploration around the world. As more oil is discovered in more places, less oil may have to be transported long distances if users buy from suppliers closer to home.
Then there's Nordic American's dividend. It may be immensely attractive, but it has been reduced in recent years, and with the company recently operating in the red, it's not terribly sustainable over the long term unless the company gets back in the black. It's already been a problem -- and one that Nordic solved in a less-than-ideal way, issuing more stock in order to generate cash to pay dividends.
To compound matters, the company's debt load has risen over time, too. That's not unique to Nordic American, though; others, such as DryShips (NAS: DRYS) , also have worrisome debt levels. (On the plus side for DryShips is that it benefits from a hefty order backlog at its Ocean Rig subsidiary.)
Oh, and Nordic American isn't expected to grow at all by Wall Street on average over the next five years. Ouch.
You might want to put off deciding what to do about Nordic American and wait for industry conditions to improve. If you check out its competitors, you'll discover that the whole industry has struggled lately.
Frontline (NYS: FRO) shares are down about 71% over the past year, for example, recently surging due to an effective restructuring and a strengthening balance sheet. Wall Street research company Dahlman Rose recently upped its ratings for Frontline and Teekay Tankers (NYS: TNK) to "buy." That's auspicious, but note that Dahlman Rose doesn't have the best track record.
I think I'll be steering clear of Nordic American, at least for now. After all, there areplenty of compelling stocks out there.
If you want to make some big bucks off the steep price of oil, check out our special free report, "3 Stocks for $100 Oil," to be introduced to three promising candidates for your portfolio. Another related possibility is SeaDrill (NYS: SDRL) , operating deep-sea rigs, posting profits, and recently yielding more than 8%.
At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter here, owns shares of SeaDrill, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of SeaDrill. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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