In short: Owned earlier in the year; now the worked example for tankers as a hedge, not an outright long. "Where names like STNG trade right now… the highest levels of the year… around 87. But when you actually look at its valuation… only like five times EBITDA… it's going to do a billion and a half of free cash flow this year… It's a 33% free cash flow yield… this company could pay a 30% dividend if it wanted to. Right now it's only paying a 2% dividend… it's going to raise its dividend and… buy back shares." In Q&A: "I think of tanker stocks as basically a hedge to the portfolio… the market is only expecting one year of super high earnings… if they were to generate as much cash… next year… they would be able to pay 20, 30% one-time dividends… I wouldn't add them now as an outright long. I would add them as… one of the few ways to actually benefit from the war extending… they don't even need tanker rates to go higher… just… the older contracts to roll off at higher rates."
Scorpio Tankers owns a large fleet of tankers that carry refined fuels. Its shares are at their highest of the year, around $87, but measured against its cash it still looks very cheap: it is on track to generate about $1.5 billion of free cash this year, roughly a third of its stock market value, while paying only a 2% dividend. Singh expects it to raise the dividend and buy back shares.
The market prices the shares as if today's record shipping rates last only about a year. If the war and the rerouting around Africa continue into 2027, companies like this could pay off all their debt and still pay one-off dividends worth 20-30% of the share price — and as old, cheaper contracts expire and are renewed at today's rates, profits rise even if rates stop climbing. That is why Singh does not recommend buying tankers now as a simple bet, but as a hedge: one of the few investments that do better the longer the war lasts.
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