Frontline Ltd.: Profiting with short-term contracts over long hauls

Analysts like the fact that Frontline is well-positioned to further benefit from strong conditions for very large crude carriers (VLCCs) and Suezmax tankers. Day rates have remained firm in 2008, despite a 60-90% price increase in 2007. Analysts also like Frontline's large spot market business (more than 60% of its fleet), which allows the company to benefit from dayrate fee increases.

Finally, after reviewing emerging market economic growth projections, there's a sense that the anticipated flattening of global oil demand will not occur as quickly as current models predict, a development that should lead to a F2009 upside revenue/earnings surprise for FRO.

The risks? A sustained, substantial decline in global oil consumption would hurt Frontline's results in a big way. (Don't look for that market condition, any time soon.)

The First Call mean rating for FRO is: Hold [22 firms]. Mean 2008 target: $57 [high: $66, low: $45].

Stock Analysis: Frontline Ltd. is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from FRO's shares. Note: More-cautious investors may wish to wait for Frontline to pull-back to the $52-$54 level, but keep in mind that FRO may not retreat to that level. Sell/Stop Loss if you were to purchase shares in this company: $43.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.