ZIM Integrated Shipping (ZIM 0.83%) stock got hit for a 14.5% loss through 10:20 a.m. ET Tuesday, after analysts at Jefferies warned that elevated container shipping rates may soon fall.
On Monday, the United Nations Security Council passed a resolution urging Israel and Hamas to cease hostilities in Gaza. Jefferies points out that if peace suddenly breaks out in the Middle East, it could be safe for shipping companies like ZIM to use the Suez Canal again, shortening shipping routes, increasing shipping capacity -- and causing shipping companies' revenues to decline.
Good news could be bad news for ZIM
Investors are facing a situation where objectively good news (world peace) could be bad news for their stocks. But here's the good news about the bad news about the good news: A lot of things must go right for this to be bad news for ZIM stock.
First, Israel and Hamas must agree to take the United Nations' advice -- something that hasn't been a habit of either side in this conflict for the past seven decades. Second, the Houthis in Yemen, who have been shooting at ships in the Red Sea to support Hamas (and presumably prioritizing Israeli-owned ZIM ships), must decide they, too, will let peace reign.
Finally, shipping companies will have to have enough confidence that peace will hold to change their shipping routes, once again. They would then take the Suez shortcut, rather than sailing around the Cape of Good Hope when traveling from Asia to Europe.
Is ZIM stock a sell?
I lack confidence that all those pieces are going to fall into place anytime soon. And so, perversely, good news for peace probably isn't going to be bad news for ZIM stock.
Even if I'm wrong, though (and I hope I am), ZIM stock could still thrive in a peaceful world. Valued at just 2.5x trailing free cash flow or even 6.5x adjusted for debt, ZIM offers a generous 4.5% dividend yield. While investing in cyclical shipping stocks is always tricky, ZIM stock looks cheap.
I think investors can give peace a chance on this one.
