What is NAT and how does it pay people 12%?

NAT, is Nordic American Tanker Shipping, Ltd. The name says it all-- double hull oil tankers, based in Bermuda, with shares on the NYSE, yielding more than 12%. On first gulp, it appears to peg the TGTBT meter (or the instrument that whispers, "is this to good to be true?" in our ear).

Recently (July, 2006) NAT's revs were up 20% from last year, as a shipping CEO explained on CNBC. It appears that "old tankers are being phased out..." and "the demand for oil is rising....". NAT's CEO has a streaming video on the company's website.

Moreover, the world's largest shipping banks just gave NAT 500 million line of credit to buy more boats (we know, we know "ships"). The company's PR suggests this is a positive thing, and not like giving a strange man rope with which he may or may not hang himself.

So why has NAT taken a beating over the last few weeks, along with its peers? Grandpa used to say: "don't tell me who you are, tell me who your friends are," which is an important insight here. NAT's peers are companies such as FRO, GMR, OMM, OSG, TNP and VLCCF, some of which yield a lot and some which don't.

A "C-level" executive of Genco (GSTL, which is forking over wopping 10% yields) was on CNBC Friday the 23rd of September after a presentation at Jefferies, pounding the table on his sector, and underlying the difference between changes in the price of gas, and the underlying demand that drives the tanker biz. His thesis was the same as NAT's CEO: the demand for oil (China and India of the 4 BRIC coutries) remains the strong whether it's 77 or 55 dollars a bucket, which means that tankers will do well for the next several quarters.


On the other hand, there is plenty' O bad press on dry bulk shipping and tankers alike. For example, take Stephan Ellis' comments at The Motely Fool. Stephan is holding his nose at a newly minted Dry Shipping company called DryShips in a report with a catchy title called, "Dry Ships: An Investing Ship Wreck", which sounds a little personal with respect to the CEO head honcho of General Marine. Ellis quoted someone, who was quoting someone, who heard the guy say that he took his company public because American investors are stupid, making it as good a time as any to sell off the company to the saps. But is this a good reason to stay behind your 10 foot pole on these babies?

On the charts, NAT has been beaten down to China Town. Other have made notes about it. For example, a man calling himself "Oliver Schwinder" on the website SeekingAlpha.com (which also offers "Free Canadian Stock Reports" on its homepage ) has pointed out, and gone so far as to predict a rebound in the sector, whether or not the democrats take the congress and Cramer likes his oatmeal. This story actually was fed to yahoo and posted as a headline story under NAT and his peers "News" section. Oliver's "Disclosure: The author has long positions in FRO, GMR, OMM, OSG, TNP and VLCCF."

Alot has been said that reflects on the danger to the dividend, but here at the hoe, we try to dig a little deeper on these things. So how does NAT look next to his peers on the basis of earnings, profit margins, revenue growth, debt ratios and the host of fundimentals that count to those who count? Well, we are working on a new way to table these kinds of insights, but for now, let's just lay it out, like Astro Turf in the New Orleans Supadome:
NAT is rocking a 42% (net margin) with a P/E ratio of 9.4, versus. its peers (from top to bottom by market cap)
Symbol (Net Margin); P/E

• TK (16%); 10
• FRO (43%); 5.9
• OSG (37%); 6.4
• CKH (17%); 9.5
• TNP (43%); 5.1
• GSTL (47%); 9
• VLCCF (31%); 10.5

So NAT is no more stinky than the rest of the class with respect to how much it keeps and how much an investor will pay per dollar of earnings.

How does Revenue growth calculations look for NAT, versus its class? NAT's revenue growth has been around, 100% with EBIT Margin of more than 60%, which leads the field. CKH is as high, but CKH's Ebit Margin is nowhere near NAT. So NAT also looks good in the gross earnings and all vital growth areas. FRO, TK GMR, BULK and VLCCF are shoing negative growth, so if you are looking collect yield in any of these, understand that their revenue growth is trailing the field. OSG is growing, albeit slowly, as is TNP, OMM, TBSI and MCX, which all have solid Earnings yield.

NAT profit margins, versus its 5 year profit margins rock the 40% to 50% range, as do VLCCF, TRMO, EXM, FRO, TNP, OSG, GMR and OMM. Again, NAT looks great.

Who holds NAT? Click here to see. It is always a good idea to see who may be ponying up with. Major holders include some big brand name Mutual funds, such as Royce, Penn, Kayne Anderson, and American Century. Big institutions include Bank of America, UBS, and Morgan Stanley.

So there is NAT, bouncing off its bottom Prof. Bollinger band, with its moving averages crossing over each other like pigtails, kicking off 12.90% yield. So if you are thinking of loading the boat on NAT (stop me before I pun again), remember those stop limit orders to protect any yield you do manage to extract from the high seas here, and of course, options are also tools to lock up the yield that Nordic American Tankers pays investors to wait. Now, if we would only take our own advise, we might be okay.