Why Scorpio Tankers Stock Popped 10% Today


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What happened

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.

Red oil tanker at sea.

Image source: Getty Images.

So what

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.

Now what

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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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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