Zim Integrated Shipping fell sharply Wednesday despite that the container ship operator beat first-quarter profit expectations early today. Still, the stock is forming a cup base and is today's IBD 50 Stocks to Watch pick.
Shipping stocks are coming off highs as anxieties deepen over the state of the economy. Concerns have grown about waning demand for ocean freight following a surge in profits last year, after the pandemic created bottlenecks up and down the supply chain that sent shipping costs higher. The Russia-Ukraine crisis had added to the supply crunch for ocean shipping.
Zim Integrated reported adjusted earnings of $14.19, well above expectations. Revenue of $3.72 billion was up 113% vs. a year earlier. Management reported first-quarter freight rates per TEU (20-foot equivalent unit) were $3,848 — a 100% increase over year-ago prices. Wall Street expected Zim to earn $12.57 per share, a 134% jump from a year ago.
Zim shares are attempting to climb the right side of a cup base, which shows a buy point at 79.05. Watch for a possible handle to form.
Shipping Stock Forms A Base
Zim's cup is a third-stage base, according to MarketSmith. Leading stocks normally form and break out of more than one base in the course of a long-term advance. If and when a stock reaches a third-stage base, it may be starting to run out of steam. IBD research shows the success rate for breakouts from third-stage bases is around 67%.
Judging from its relative strength line, which has hit new highs, Zim could be poised to reach its buy point and even move on to a fourth-stage base. But first, watch for the stock to recapture the 10-week line and spend more time above it.
The stock has a 97 Composite Rating and an EPS Rating of 80.
Based in Israel, Zim leases the vast majority of its container fleet through suppliers including Danaos, rather than owning the vessels outright. The stock went public in January of 2021 at $15 a share.
Zim, which ships goods across the Atlantic, Pacific, Asia and through the Suez Canal, has expanded its expedited e-commerce shipments service. It has also boosted its spending on shipping containers themselves.
Follow Michael Molinski on Twitter @IMmolinski
