One of the promises I made to myself—and to all of you—is to always remain an investor first. The newsletter I now publish stems from my role as an investor, not the other way around.
That’s why today, I’m not presenting a new company. My goal is to highlight one company each month. It’s not that I didn’t find a company to present; in fact, the analysis and writing were already 90% complete. Still, I decided yesterday not to move forward with it. Although this may be a disappointment to some readers, it’s the right thing to do.
When I analyze and present a company, it’s because I want to buy it. Tracking 25 companies and constantly searching for new opportunities takes considerable time. Working on companies I don’t intend to buy would take time away from these essential tasks and force me to continue tracking them.
Now, let’s briefly discuss the company I initially selected.
Danaos Corporation
Danaos Corporation owns container and dry bulk ships, which it leases to shipping and liner companies. The company continues to expand its fleet with eco-friendly, methanol-ready vessels, positioning itself for future growth.
Danaos is one of the larger independent players in the leasing market, with 73 container ships currently in operation and 14 more under construction. Most of Danaos's competitors, by contrast, are tied to major shipping companies.
The recent acquisition of a total of 10 dry bulk ships provides diversification. Given the current overcapacity in container transport and the rising demand for raw materials, this seems like a strategic move.
Additionally, Danaos holds a stake in Star Bulk Carriers.
What attracted me?
Danaos is currently trading at a price-to-earnings ratio of 2.75 and an EV/EBIT of 3.03, which is inexpensive even compared to its competitors.
Of course, the sector is cyclical. Container shipping rates are currently favorable, partly due to ongoing issues in the Red Sea, which positively impact companies like Danaos as well. If their customers make money, they make money.
Additionally, many contracts are long-term, and we’re coming off a very strong period. We are not at the bottom of the cycle.
However, the company is trading at just 0.45 times its tangible book value. In other words, it would cost a competitor nearly double to acquire comparable ships rather than buying out Danaos entirely.
All ships are leased, and even most of the vessels still to be delivered already have contracts, making revenues relatively predictable.
Danaos is led by the founder’s son, with John Coustas having expanded the company from his father’s original three ships to its current scale—a definite positive factor.
Why am I not buying?
I could emphasize the volatility in container and dry bulk transport, which leads to highly fluctuating rates, along with the clear economic slowdown we're observing.
Additionally, increasingly stringent regulations are driving up costs. Not all Danaos ships yet meet future standards, which will require adjustments.
Danaos also relies on a handful of major clients that generate a significant portion of its revenue. If these clients face difficulties, they have the bargaining power to exert pressure on Danaos.
The diversification into dry bulk could also become a burden. The Baltic Dry Index, the primary benchmark for dry bulk shipping, is at a seven-year low and has dropped sharply due to the slowing economy.
Despite these factors, considering the low valuation of 0.45 times the tangible book value, I would usually accept these risks. Contrarian investing often means it gets worse before it gets better.
However, I ultimately decided not to include Danaos. This decision took time and only after almost all work had been done because one thought kept sticking with me:
"If it isn’t a clear yes, then it’s a clear no." – Greg McKeown
With Danaos, I kept having doubts. Its price-to-tangible-book ratio is currently 0.45, but in the past, it’s been even lower. Over the last decade, it fluctuated between 0.08 and 1.46. While the 0.08 was a low during the COVID-19 crisis, we also saw a low of 0.15 in 2018, for example.
Given the current phase in the cycle, there’s a chance the stock price could first drop by two-thirds before moving upward. As a result, I can’t give a wholehearted “yes” to the question, “Can I double my money in five years?” It may take longer.
When I look at my existing selection, I see companies where I can answer this question much more confidently with a positive “yes.”
So here are my top five stocks where I can confidently answer “yes” to whether I could double my money in five years.
Just to be clear: doubling in five years is the mindset I use, inspired by the title of my book (in Dutch). In practice, my goal is an annual growth of around 15%. A 50% return in three years, for example, also aligns with this approach.
Top Five
5. Tessenderlo Group
Tessenderlo Group is a diversified industrial group active in sectors such as machinery, agriculture, food, energy, water management, ...
For a detailed analysis, click here.
Despite its diverse activities, Tessenderlo is a cyclical company, with both Picanol’s looms and fertilizers currently in a challenging spot.
Many investors are also skeptical of CEO Luc Tack, resulting in a valuation of only 0.8 times book value. However, under Tack's leadership since 2014, book value has grown by approximately 10% per year.
Tack is often criticized for not paying much attention to smaller shareholders. While there may be some truth to this, he has never acted against their interests—unlike some family-owned businesses in Belgium, which generally aren’t penalized as harshly.
Tack is an excellent capital allocator; when not reinvesting in the company, he takes advantage of low valuations to buy back shares.
Over time, the market will recover, and attention will shift back to the company’s strengths and Tack’s capabilities, rather than his limitations as a communicator.
I estimate a cautious fair value of €43 per share.