In order to appreciate the potential of this investment idea, you are going to have a long-term investment horizon and faith that the economy will get better.
In the meantime, the following suggestion has some very unique competitive advantages.
Government Approved Monopoly
Horizon Lines (NYSE:HRZ) is a Jones Act maritime shipping company. Simply stated, the Jones Act is a U.S. law that mandates that any ship that sails trade lines within the U.S. and its territories has to be built in the U.S. and manned by a U.S. crew. This is law meant to protect national security interests. It's been around for decades and it's not going anywhere.
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So, Horizon Lines is one of a few such shippers that qualify for Jones Act status. Horizon transports goods to Alaska, Hawaii, Puerto Rico and Guam. A much smaller competitor is Trailer Bridge (Nasdaq:TRBR) and the shipping arm of Alexander Baldwin (Nasdaq:ALEX) also sails the Jones Act routes.
Entrenched Position
Horizon is the nation's leading Jones Act container shipping company, accounting for nearly 40% of U.S. marine container shipments between the continental U.S. and Alaska, Hawaii, Guam and Puerto Rico.
What Horizon ships to these countries is important. Horizon ships things like car parts for Toyota (NYSE:TM), food and other basic goods for Wal-Mart (NYSE:WMT), and supplies for Lowe's (NYSE:LOW). Horizon even counts grocery giant Costco (Nasdaq:COST) as a customer. In short, Horizon ships essential products. (For more, check out The Ups And Downs Of Investing In Cyclical Stocks.)
Bad Timing for Now
The current problem, unsurprisingly, is Horizon's markets are all contracting right now. The economy in Puerto Rico is absolutely terrible; Hawaii, which is dependent on tourism, is obviously in pain, and Alaska, despite being oil rich is also taking a breather.
So until these markets show real signs of improvement, Horizon will slowly sail along. The shares at $6 today, were over $24 at the height of the economy when the company earned over $70 million in profit. Don't expect that share price anytime soon, but if the economy improves by 2011, shares could be much higher than the current price in anticipation of a recovery. The current market cap is just under $200 million.
Over $550 million in debt sits on the balance sheet, but management has been prudent in scaling back cap ex in order to navigate this choppy market.
The Bottom Line
Investing in Horizon will require patience, but it's a quality company with several unique advantages. The company has received numerous awards over the years for its quality and timely service. Considering the type of products Horizon transports, it should be first in line to benefit from an improvement in its respective market. (For related reading, check out Market Bottom: Are We There Yet?.)
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