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Stock Strategist

With These Stocks, It's Time to Abandon Ship

International waterway stocks have had a great run, but now it's time to sell.

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International marine transportation forms the backbone of the global economy. As the middlemen of worldwide trade, shipping companies move 90% of internationally traded cargo. In 2006 alone, more than $10.5 trillion in imports and exports were shuffled across the oceans, up nearly 60% from 2003. This rising tide has lifted all shipping companies, with pricing, demand, and stock values near all-time highs across the industry.

But could these favorable trends be reversing? In 2006, the carrying capacity of the world merchant fleet reached all-time highs, and with shipbuilders' order books backlogged, this cyclical industry could be approaching oversupply. Can investors expect the excellent returns on invested capital that shippers have generated in the recent past to continue into the foreseeable future? More importantly, what do today's market valuations assume about future economic wealth generation? By diving into the three major sectors of waterborne shipping--tankers, dry-bulk, and container ships--we'll help you navigate this industry's often treacherous waters.

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Adam Fleck does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.