Shares of Zim Integrated Shipping Services (NYSE: ZIM) have more than doubled so far in 2024, fueled by geopolitical tensions that have caused ocean shipping rates to rebound.
At least one analyst believes the rally is running out of steam. Shares of Zim traded down 15% as of 10:30 a.m. ET after Citigroup downgraded the stock to a sell.
Is this as good as it gets?
Zim is one of the world's 20 largest ocean shipping companies. The stock was caught in the doldrums last year due to weak demand and investor concerns about its debt. But the company's outlook improved in early 2024 as tensions in the Middle East disrupted key shipping lanes and caused shipping rates to climb.
The rally has continued through 2024, with Zim shares up more than 100% coming into Thursday's trading day.
Citi analyst Sathish Sivakumar is calling a top. The analyst downgraded Zim shares to sell from neutral with a price target of $13, suggesting more than 30% downside from current prices. Sivakumar wrote that the recent move in spot freight rates up more than 70% is unlikely to sustain into the second half of the year.
Is now the time to sell Zim shares?
Shipping is a difficult industry to invest in because of how often supply and demand are not aligned. Demand tends to move quickly, while changes in supply take time as new ships are built or old ones are taken out of service.
Last year, Zim shares sank because supply outweighed demand. This year, the reverse is true. Sivakumar's call is based in part on Citi's belief that the U.S. consumer is slowing, which would reduce demand and help ease pressure on rates.
There are a lot of wild cards here including what becomes of tensions in the Middle East and how resilient the U.S. economy will prove to be. But it is hard to deny the cyclicality of the underlying business. Given Zim's rapid rise so far in 2024, and the inevitability of a downturn at some point, investors would be wise to consider taking Sivakumar's advice and cashing out on appreciated Zim shares.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Zim Integrated Shipping Services. The Motley Fool has a disclosure policy.
