Double Your Money in 2011 Guaranteed … Again (Shipping)

By Travis Johnson, Stock Gumshoe, April 7, 2011

The Cabot folks have apparently taken a liking to the “double your money this year” promise as their version of a “money back guarantee” — no, they don’t make up the difference, but they promise you a refund if the pick doesn’t double. A better deal than most newsletters as far as refund policy goes … but still, it’s your money, what do they have to lose by promising to give it back to you? (Especially if they know you probably won’t really insist on the stock doubling, and probably won’t ask for a refund as long as you think the letter is reasonable).

But anyway, “Double Your Money” is what they pitched with the teaser for LDK Solar back in February, and so when they issued another teaser that was headlined “Double Your Money in 2011 Guaranteed” … well, I almost didn’t read it. I just assumed they were still guaranteeing a double in LDK … which, at this point, would be easier to achieve than it was in February (the stock is down about 10% from when they teased it).

But no, this time, as their April “Stock of the Month” (the teaser is for the Cabot Stock of the Month newsletter, which picks from among Cabot’s dozen or so letters for an idea each month), the “double” that’s promised is in ocean shipping — you can go back and check out their promise of a double in LDK Solar here if you like, but if you want to know about the new promise, well, let’s just get to it …

Last time they promised this kind of huge gain it was by saying that they had a big gainer that could be the next First Solar (FSLR) … which kind of made sense, given that both companies are in the solar business.

This time? The promise sounds familiar …

“Here at Cabot Stock of the Month, we’ve just targeted another big doubler that’s beginning to look a lot like First Solar, which landed us a 321% gain….

“Like First Solar, this company is also riding the wave of profit growth—but only in a little-known but highly lucrative sector: Ocean shipping.”

I don’t know about that “little known” bit — investors have certainly had love affairs with shipping companies before, particularly during the China-led boom of a few years ago when the dry bulk tankers and oil tankers were earning crazy money and pushing out massive yields to shareholders. Until the demand dropped, being massively indebted suddenly became a bad thing, and most of ’em had to sell boats and cut dividends. But yes, they’re certainly more “little-known” now than they were in 2007.

The Cabot folks are generally known for being growth-stock aficionados, looking for stocks that have strong technical growth indicators, which often means that they look expensive by conventional valuation metrics like the PE ratio. That’s not always the case, of course — LDK had a boom late last year and is now priced at a forward PE of about 4, which is certainly not expensive, but the stock still fell 10% after the earnings came out because the company didn’t project yet more massive revenue growth. So yes, apparently it is possible to have a forward PE in the mid-single-digits and yet be “priced for growth” in the minds of some investors.

So which ocean shipping stock are they teasing over at Cabot?

“Most investors don’t realize this, but ocean shipping is the blood supply of global growth. You see without ocean shipping, my friend, there would be no global trade.

“There would be no way to get copper from Brazil to China, or U.S. wheat to Russia, or Chinese steel, or Japanese cars, or China-built computers back to the U.S.

“With demand for ocean shipping soaring on the heels of the global recovery—especially in and out of China—there simply aren’t enough ships to handle the increased demand.

“That’s what makes my April Stock of the Month, a Chinese container shipping company, such a great play with 58 ships on long-term leases and 11 more ships to be delivered next year—all of which are committed to 12-year leases at today’s high rates.”

Huh … a container shipping company, not what I was expecting — after all, copper, wheat, steel and cars aren’t moving in containers (for the most part), though those “China-built computers” are. I was thinking we’d see a tease for dry bulk shipping, which got most of the attention last time around and is the cleanest play on Chinese demand for raw commodities from abroad, shiploads of iron ore, coal, and wheat (remember when even the folks at CNBC where talking about the Baltic Dry Index?)

So what other clues do we get about this container company?

“… stock price has risen 175% since July 2009 …

“… what I like best about this company is the fact that it is NOT a major player—but a small one with shrewd management and a long-track record of richly rewarding investors with stock profits and dividends….

“JP Morgan, Morgan Stanley and Bank of America, along with 17 other mutual funds and institutions, together own millions of shares….”

And, as you can imagine, they see demand growing … in their words, “there simply aren’t enough ships to handle China’s increasing shipping demand.”

The numbers have apparently been good, too:

“… you couldn’t ask for a better time to buy it either, as short-sighted investors took profits on the heels of last quarter’s 50% revenue and 79% earnings growth.

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“However, in the days since then, the stock has not only broken out of its 50-day moving average, but is now building an even stronger base.”

They’re expecting to see the stock 30-50% higher by June (which is only two months away now) … so who is it?

Well, toss that info into our M