Monday, 18 April 2016 00:00

Trading Idea: Expecting Near-Term Upside For Teekay Tankers

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Trading Idea

Teekay Tankers (NYSE: TNK) is currently trading at $3.72 and I expect at least 15% to 20% upside for the stock in the next 1-2 months.

 

Teekay Tankers Price Movement 2016

 

Idea Rationale

First, Teekay Tankers has corrected by 46% in YTD16 and I believe that the stock has discounted concerns on new oil tanker supply in 2H16 and concerns related to relatively moderate spot rates.

Second, the failure of the Doha meet implies that oil is likely to trend lower and with Iran threatening to increase output, supply side pressure can potentially sustain. Lower oil prices are positive for spot rates as demand for storage of strategic oil reserves increases.

Third, as of March 2016, Teekay Tankers has 22 Suezmax tankers and as the chart in this link shows, Suezmax tanker rates have recovered marginally in the recent past. Further, 2Q is generally good for Suezmax tankers. This is likely to trigger some positive momentum in the near-term.

Fourth, in 2014 and 2015, Aframax and LR2 tanker rates have also improved towards the end of the second quarter and if this trend sustains, there are reasons to be bullish on higher spot rates for all tanker types in the foreseeable future.

 

Potential Spoiler

In my opinion, the broad markets are stretched and I expect correction in the next 3-6 months. Any deep correction in the near-term can take the stock further lower even if spot rates continue to improve.

 

Disclaimer: This basis of the idea discussed is my opinion and I suggest own research before exposure to the stock

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