Is General Maritime Corp. a Stock for the Long Term? (FRO, GMR, OSG, TK)
March 8, 2011 | Comments (0)
Is General Maritime Corp. a Stock for the Long Term?
March 8, 2011 | Comments (0)
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Being able to retire rich, or at least comfortable, is the goal of almost any investor. However, it's much easier said than done. In a recent Wells Fargo survey, respondents between the ages of 50-59 said that they had, on average, about $29,000 saved up. With pensions all but gone, and Social Security targeted for cuts in the future, it's hard to count on anyone but yourself. But $29,000 isn't going to cut it for most people, so you've got to get involved in the stock market in order to grow that nest egg. Getting in the game is the easy part; choosing the right stocks is the hard part.
Making prudent decisions
Generally speaking, I look for four traits in a retirement stock:
Generally speaking, I look for four traits in a retirement stock:
- Valuation: Investors of all ages want to make sure they're not overpaying for a stock, but this matters even more in retirement. Retirees don't have the long time horizon that younger investors have, so it's essential to make sure you don't overpay in the short term.
- Dividends: Most retirees need a combination of both growth and income, as they'll be depending more and more on their portfolio to help with everyday expenses. Companies that pay dividends not only offer immediate income, but they've also proven to outperform non-paying dividend companies over long periods of time.
- Growth: Investors love dividends, but everyone wants to see their stocks rise over time. Growth can be as big a part of your portfolio as a steady dividend. It's important to note that you don't need a high-flying stock that's going to shoot to the moon; a company that can grow and outperform the market is hard enough to find, so steady growth is highly covetable.
- Low Volatility: Retirees want to invest in great growth stocks just as much as anyone else, but they also want to be able to rest well knowing that their portfolio won't be taking them on a roller-coaster ride. At the end of the day, most retirees would rather own a sturdy company that lets them sleep at night than a company that whips up and down with the gyrations of the market.
Although some companies are definitely more geared toward retirees, which companies you choose to invest in will be dictated largely by what you already have in your portfolio. Small, mid, and large caps can all play a role in your investing strategy, so I chose to evaluate all varieties of stocks in this regular series.
So how does General Maritime stack up?
In order to check out the valuation of General Maritime (NYSE: GMR), we don't want to look at only its P/E ratio of NM. That may seem unhelpful because it's hard to draw context for a company with no current P/E. However, if a company doesn't have a P/E, it's usually because it had negative earnings that year, which in itself tells us that something hasn't quite been right. Normally we'd look at the historical five-year average P/E and compare it to the current one, but since we don't have one, that action is rather fruitless. Over the last five years, General Maritime's average P/E ratio has been 10.8, which is less than the current ratio. This suggests that investors may be paying more than they've had to in the past, so it's important to find out why the price tag might be a bit higher today.
In order to check out the valuation of General Maritime (NYSE: GMR), we don't want to look at only its P/E ratio of NM. That may seem unhelpful because it's hard to draw context for a company with no current P/E. However, if a company doesn't have a P/E, it's usually because it had negative earnings that year, which in itself tells us that something hasn't quite been right. Normally we'd look at the historical five-year average P/E and compare it to the current one, but since we don't have one, that action is rather fruitless. Over the last five years, General Maritime's average P/E ratio has been 10.8, which is less than the current ratio. This suggests that investors may be paying more than they've had to in the past, so it's important to find out why the price tag might be a bit higher today.
General Maritime's dividend is 1.5%. This might not seem like a whole lot right now, but that dividend has room to grow, so I wouldn't discount its importance. Getting a dividend at all shows a company's dedication to its shareholders, and that's significant.
Next, we want to ensure that General Maritime's stock has the ability to rise over the next five, 10, or 20 years. A company that's growing its net income has the best possible chance to see its share price rise over time. Of course, we can't predict the future, but we can look back to get an idea of how the company has performed in the past in order to try to ensure future earnings growth. We cannot tell how much General Maritime has grown its net income by over the past five years, so it's difficult to gauge what they might do in the near future. Past growth doesn't necessarily dictate what will happen next, but it is nice to see historical trends. In this particular instance, we'll have to live without having an actual number for net income; however, revenue has been down over the last five years, and that's never a good sign.
One of the best measures of volatility is called beta. Beta measures the impact that the movement of the stock market will have on a particular stock. For instance, a beta of 1.0 signifies that General Maritime will move in tandem with the market; a beta of 2.0 means that the stock will move up twice as much as the general market, and vice versa. In this particular case, General Maritime has a beta of 1.26, which isn't necessarily outrageous, but it's not that low either. This beta falls in the grey area and it really depends on each individual investor to decide how willing they are to take on that added volatility.
Let's look at the competition
We've taken a look at General Maritime, and maybe you think it's passed all the tests, or maybe you just don't feel comfortable with the results. Either way, it's beneficial to see how a company stacks up in its industry, because it's just as important to understand a company's competitors as it to understand that particular company. Here are General Maritime's stats when compared to three of its closest competitors:
We've taken a look at General Maritime, and maybe you think it's passed all the tests, or maybe you just don't feel comfortable with the results. Either way, it's beneficial to see how a company stacks up in its industry, because it's just as important to understand a company's competitors as it to understand that particular company. Here are General Maritime's stats when compared to three of its closest competitors:
Company | Current P/E | Dividend Yield | 5-Year Net Income CAGR | 1-Year Beta |
|---|---|---|---|---|
| General Maritime | NM | 1.5% | N/A | 1.3 |
| Frontline Ltd. (NYSE: FRO) | 11.9 | 1.5% | (28.8%) | 1.6 |
| Teekay Corporation (NYSE:TK) | NM | 3.7% | N/A | 1.3 |
| Overseas Shipholding Group(NYSE: OSG) | NM | 5.0% | N/A | 1.8 |
Source: Capital IQ, a division of Standard & Poor's.
Each company has traits to like and traits left to be desired. Either way, it's beneficial to look at the industry picture and not just General Maritime in isolation.
Of course, I can't decide for you whether or not this is the best stock for retirement, but it has only passed one of the four tests, so I wouldn't be that bullish on this particular stock for someone near or entering retirement. Not that it doesn't have its own merits, but I'm quite certain you could find more bang for your retirement buck elsewhere.
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