Anything to worry about with Frontline? Not really

Posted Aug 25th 2009 5:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

During the Chicago Bulls' great run of NBA championships, Michael Jordan was once asked if he was worried about competing against an impressive Utah Jazz team in the finals one year.

"Not really," Jordan said.

Likewise with my stance toward Frontline Ltd. (NYSE: FRO). FRO has meandered somewhat since recommended on April 28, 2009 at $19.17, but just look on that as an extended buy opportunity. I'm reiterating my Buy rating for FRO.

Frontline is a shipping company that operates very large crude carriers (VLCCs) and Suezmax tankers. The company transports primarily crude oil products, but also raw materials (coal, iron ore). The First Call FY2009/FY2010 EPS estimates for FRO are $1.22 to $1.34.

Some argue that Frontline will struggle to achieve earnings estimates on a continued decline in crude oil production and transport across oceans, due to sluggish demand. Global crude oil demand declining for three years in a row? Yeah, that'll be the day.

Stock Analysis: Frontline is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in FRO now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your FRO position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $7.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: FRO, Frontline, oil tanker stocks, oil tankers, OilTankers, OilTankerStocks, tankers, vlcc