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PreMarket Prep Stock Of The Day: Nordic American Tanker

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PreMarket Prep Stock Of The Day: Nordic American Tanker

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Although crude oil prices have crashed, some energy subsectors are thriving. 

While drillers, processors and producers are suffering due to dramatic decrease in demand, one segment is benefiting from the oversupply: the oil tanker sector.

With demand so low and supply so high, the excess oil has to be stored somewhere. Nordic American Tanker Ltd (NYSE: NAT), is well-positioned to take advantage of this new dynamic, making it the PreMarket Prep Stock of the Day.

Nordic's Horrible Long-Term Performance

Although it is difficult to make an exact comparison of crude oil prices versus the share price of the issue, it should be noted that Nordic and crude oil moved in unison until recently.

When adjusted for inflation, crude oil prices peaked in July 2008. This issue peaked well ahead of that in February 2005 at $56.55.

Since reaching its peak, Nordic has had steep declines and shallow recoveries followed by another steep decline. The stock has had poor performance relative to the broad market since 2005.

Nordic's Sneaky Low 

During the fall of 2019, the broad market was grinding higher, making new all-time-highs along the way. Nordic finally found a bottom in September at $1.66 and ended the month at $2.16. The rally continued until the end of 2019, with a December closing price of $4.92.

Throwing The Baby Out With The Bath Water

When oil prices and the broad market began to crash, so did shares of this issue. Perhaps when it bottomed at $2.30 in late March, savvy investors took a peek into the future and anticipated that slowdown in the world's economy from the COVID-19 crisis and the negative impact it would have on the demand for crude oil. If it's not being used, oil has to be stored. 

By the end March, Nordic had crept to the $5 level, but suffered another fall in early April. The stock formed a hard bottom in early April, with six consecutive lows above and below the $3.40 area.

Nordic's Rally Makes Sense

When the May crude oil prices for delivery went negative — meaning those accepting delivery would have to pay a huge premium for storage — Nordic's share price took off.

From its April 8 close of $3.50, it ended last week just under $6 at $5.85.

Nordic Adds Fuel To The Fire

When the Nordic American CEO appeared on Friday's "Mad Money" show and declared that "we are making a lot of money at this time," the share price had nowhere to go but up.

After a much higher open Monday, it had a brief retreat and was trading 18.63% higher at $6.94 at the time of publication. 

That marks the highest level for the issue since May 2017, when it reached $8.40.

Nordic Moving Forward

At this time, the company has a good "story" and strong momentum moving in its favor. In this market environment, with uncertainty over when the oil glut will begin to subside, there is no way to anticipate how high the issue may go. 

 

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