We are always a bit cautious on tanker shippers, as most companies have heavily leveraged balance sheets, and earnings are highly cyclical. NAT is a smaller company, with a market cap of $737M, its balance sheet is fairly healthy, but its cash flow and growth rates are highly cyclical. Valuations are low (5.7X forward P/E) which helps to offset some of the small-cap and cyclical risks, but a lot depends on the price of oil, and if oil prices are sustained at these high levels, producers may increase CAPEX, which can help the service sector. We view these companies mostly as trading vehicles rather than good long-term positions, and money can be made if one is careful and quick. We feel that with a 2-3 year timeframe, one will experience volatility and the underlying cyclicality of the industry. We would prefer a name like Pason Systems (PSI) that operates in the services part of the energy sector, but has much better price stability and a better balance sheet.
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