The reality of geopolitical turmoil sets in after a strong January showing.
Investors in Zim Integrated Shipping Services (ZIM 1.26%) can't be blamed for feeling a little seasick. Fresh off a January where the stock was up 52%, shares of Zim headed in the other direction in February, falling 20.6% for the month, according to data provided by S&P Global Market Intelligence.
Both the surge and the subsequent drop are tied to the ongoing troubles in the Middle East, with bulls and bears battling over what those issues will mean for shippers like Zim.
Shipping stocks can't sail away from rough waters
Zim is an owner and operator of cargo ships. The stock spent most of 2023 caught in a downdraft as global uncertainty and rising inflation led to a cutback in cargo demand and decreasing volumes.
Investors perceived Zim as particularly vulnerable to a downturn because of its relatively high debt load.
That all changed in January after attacks on Red Sea shipping lanes by groups based in Yemen disrupted global trade and caused shippers to reroute shipments. Shipping rates spiked higher as a result, leading investors to hope Zim's cash flow would improve and a feared debt crisis could be averted.
February has not been so kind to the stock. Zim shares traded down early in the month on talk of a potential ceasefire in Gaza, which could in turn lead to a suspension of hostilities in the Red Sea. Zim rival Maersk also put a damper on the enthusiasm, warning of higher expenses due to rerouted ships and delays at major ports.
Maersk also predicted that if higher rates are sustained, it would lead to a lot of older vessels returning to service, which would help balance supply and demand and could put a cap on how much pricing power companies like Zim will have in 2024.
Is Zim stock a buy after a turbulent start to 2024?
Investors will get a chance to hear from Zim directly on March 13 when the company is expected to report earnings. Analysts are expecting a significant year-over-year decline. Management will get a chance to update the markets on demand, pricing, and total debt, but in truth they are unlikely to clear up much of the uncertainty surrounding Zim and other shipping stocks.
Few predicted the current crisis in the Red Sea, and there is almost no way to say how long it will last. Even if it does last into the second half of 2024, as some fear, Maersk noted it is hard to predict what impact it will have on pricing. Those buying and selling based on geopolitical headlines need to brace for volatility.
For long-term focused investors who don't want to have to follow day-to-day headlines, there are better options among transportation stock than Zim.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Zim Integrated Shipping Services. The Motley Fool has a disclosure policy.
