The stocks of petroleum transportation companies have benefited from strong global demand for their services, says Fidelity Portfolio Manager Matt Moulis, given the need to distribute gasoline, jet fuel, and diesel fuel around the world.
"Demand has been driven by a number of factors, including easing pandemic pressure, structural shifts in global refining capacity, and dislocation from Russia's invasion of Ukraine, all of which necessitate hauling refined petroleum products from the United States, Arabian Gulf, and elsewhere," explains Moulis, who manages Fidelity® Select Transportation Portfolio.
In helming the fund since 2012, Moulis favors firms that are consistent profit generators and have a strong management team that can produce returns above their cost of capital, efficiently convert new income to free cash flow, and/or capitalize on wide avenues for growth.
Beginning in 2022, Moulis built sizable stakes in a handful of companies specializing in the storage and transport of petroleum products, noting that the supply of tankers suitable for shipping crude oil and refined petroleum products had been constrained during the past decade by an uncertain regulatory environment and financial losses incurred by the industry.
Among the stocks Moulis has liked are Scorpio Tankers, Hafnia, Frontline, and International Seaways—all outsized holdings as of May 31.
One additional factor driving petroleum shippers is that they deal in consumable products, Moulis says. "Gasoline, jet fuel, and diesel fuel are all items for which there is ongoing demand, despite some variation due to fluctuation in broader economic activity."
According to Moulis, demand for several other commodities, such as iron ore, is much more uneven due to the lumpy nature of new construction and other sources of demand.
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