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Shares of up-and-coming refined petroleum products transporter Scorpio Tankers (NYSE: STNG) jumped in Thursday trading, closing the day up 10.3% after analysts at B. Riley FBR announced they were adding the stock to their “Alpha Generator List.”
FBR already had a buy rating on the stock so couldn’t really upgrade it any more than it already had. In adding it to FBR’s internal list of stocks expected to generate “alpha” (above-average profits), though, the analyst basically did the next best thing.
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Why give any more kudos to Scorpio at all? According to SeekingAlpha , the reason is that the macroeconomic environment for oil shippers is improving, with demand on the rise (with rising oil prices ) but a “declining pace of new shipbuilding” to supply this demand.
Economics 101 teaches us that rising demand against a backdrop of flat supply is likely to result in rising prices — prices that should benefit Scorpio Tankers as an incumbent operator of oil tanker vessels.
FBR is predicting this will result in rising profit margins and free cash flow for Scorpio — which would be a good thing for shareholders, given that Scorpio has spent the last three years straight losing money.
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