This Trump Cabinet Member’s Global Shipping Bet Could Soar 150%
On Feb. 27, the U.S. Senate approved private-equity billionaire Wilbur Ross as U.S. Commerce Secretary.
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Nicknamed the “King of Bankruptcy” for his experience in buying down-and-out companies, Ross is one of Wall Street’s leading experts in distressed investing.
Real estate magnate and fellow billionaire Leonard Stern described Ross as “one of the best bottom feeders in the business.”
Ross bought bankrupt steelmaker LTV for $325 million in 2002 -- and sold it for $4.5 billion two years later to ArcelorMittal. Ross made $2.5 billion for his firm and $300 million for himself.
Ross also is a long-time friend of President Donald Trump. They connected at Trump’s Mar-a-Lago country club in Palm Beach.
Ross was an early supporter of Trump's campaign. Surprisingly, Ross was a registered Democrat for many years. He only became a registered Republican in November 2016 when Donald Trump nominated him to be Commerce Secretary. As a condition of his appointment, Ross resigned as chairman and chief strategy officer of his firm, WL Ross & Co.
From Aspiring Writer to Billionaire to Commerce Secretary
The son of a judge, Wilbur Ross grew up in New Jersey and attended a Jesuit military academy in Manhattan. While studying at Yale University, Ross wanted to be a creative writer.
Ross ended up on Wall Street instead. He later earned an MBA at Harvard Business School. He worked for 25 years at the investment bank, Rothschild. On April Fools’ Day in 2000, Ross went into business for himself, founding his private equity firm, WL Ross & Co.
By 2005, Forbes magazine listed Ross as one of the world’s billionaires. He is currently ranked #232 in the Forbes list of the 400 richest Americans. His net worth is $2.5 billion.
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Wilbur Ross’ Contrarian Bet on Global Shipping
The global shipping business is not for the fainthearted.
When the global trade is expanding, shipping companies make money hand over fist.
But when traffic slows, the shipping business is the picture of Darwinian ruthlessness.
As cash flows shrivel, shipping companies go bankrupt with remarkable regularity.
Almost like clockwork, shipping companies place orders for too many ships at the top of the trade cycle.
When the cycle turns, shipping companies are left servicing massive debt on fleets they can’t use.
So why would anyone ever want to risk money betting on global shipping?
Enter Wilbur Ross, one of Wall Street’s top contrarian investors.
After examining the sector carefully, Ross concluded that he could wring profits even as other investors “abandon ship.”
Here’s how Ross put it:
“We’re in the business not so much of being contrarians deliberately, but rather we like to take perceived risk instead of actual risk. And what I mean by that is that you get paid for taking a risk that people think is risky, you particularly don’t get paid for taking actual risk.”
Navigator Holdings’ Superior Business Model
Ross made his first investment in the London-based shipping company Navigator Holdings Inc. (NVGS) in November 2011, after bringing the company out of bankruptcy.
He became the majority shareholder in May 2012. Today, WL Ross & Co. owns 39.4% of Navigator Holdings' shares.
Early on, Ross recognized Navigator Holdings’ superior business model compared to conventional dry goods shippers.
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Fracking and other technologies had unleashed an energy revolution across the globe. Production of LNG (liquid natural gas), LPG (liquid petroleum gas), ethane and ethylene exploded in North America, the Middle East and Russia.
As demand for volatile oil and gas products soared, so did the need for broad-based shippers able to transport them.
Navigator Holdings was just such a specialist shipping company
Despite this edge, Navigator Holdings sold at the same discount to underlying value as its long-suffering dry goods shippers.
Since Ross holds nearly 40% of the company’s shares, it ensures he will not let Navigator Holdings make poor investments at the top of the shipping cycle.
David Butters, the CEO of the business, is also the seond-largest shareholder and owns 3.5% of the company’s stock. So Navigator Holdings’ senior management is fully on board with maximizing the value of the business
A Value Play With 150% Upside Potential
W.L. Ross’ restructuring efforts at Navigator Holdings are paying off.
On March 1, the company announced a profit of $0.14 per share in the prior quarter. That result was double Wall Street expectations of $0.07 per share.
The stock soared a whopping 27.27% percent the very next day.
Navigator Holdings (NVGS) versus the S&P 500. Even after its recent run-up, Navigator Holdings remains a very cheap stock.
It currently trades at a low price-to-earnings (P/E) ratio of 12.39x. Its price to book value ratio is a lowly 0.79.
Even a conservative assumption that Navigator Holdings should trade at its book value would drive the stock up 27% from current levels.
But I’m betting that W.L. Ross is shooting for much higher returns.
W.L. Ross knows that many shipping companies hit peak valuations around 2x book value at the top of the economic cycle. That means Navigator Holdings could trade as high as $34.00, almost 150% above its current levels.
Wilbur Ross did not become a billionaire by accident. He is one of the world’s top private equity and contrarian investors.
When smart money like Wilbur Ross bets big on a single company like Navigator Holdings, it’s a strong vote of confidence.
And it's a stock that you may want to add to your portfolio.
P.S. I recommended my subscribers to Smart Money Masters buy Navigator Holdings (NVGS) on Feb. 10. Since then, the stock has soared 18.94%
In Smart Money Masters, I make recommendations based on the latest and best “smart money” strategies.
The current Smart Money Masters portfolio includes both Warren Buffett’s and George Soros’ top investment bet, as well as those of lesser-known, but potentially even more successful hedge fund investors. Click this link to find out more.
In case you missed it, I encourage you to read my e-letter from last week about the private equity strategy of hedge-fund manager Bill Ackman.
Nicholas A. Vardy
Editor, The Global Guru
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