The spot market rate for Frontline's very large crude carriers (VLCC) and Suezmax tankers is likely to stabilize, with a modest improvement in rates heading into the second half of 2010.
Critics counter that Frontline will struggle to achieve earnings estimates on continued decline in crude oil production and transport across oceans, due to sluggish demand. But counting on crude oil demand declining for three years in a row just seems to be a stretch: the calculation here argues that the strengthen global economy will increase demand, taking pressure off brimming inventories, and with that institutional investors will pile in to the stock. The First Call FY2009/FY2010 EPS estimates for FRO are $1.18 to $1.03.
Technically, Frontline's stock chart reflects that II uncertainty: the stock has cycled above and below the key, 50-day moving average, and basically traded in a $19-25 range for six months. If Frontline was in another sector, the aforementioned would be considered too many breaches of the 50-day MA support, and the Buy position would be closed. But we're talking about oil transport here, folks, hence the position retention.
Stock Analysis: Frontline Ltd. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in FRO now; then buy another 25% in one month, 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 December 2009. Sell/Stop Loss if you were to buy shares in this company: $7.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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