Shares of Zim integrated shipping services (NYSE: ZIM) have more than doubled so far in 2024, fueled by geopolitical tensions that have caused shipping rates to rebound.
At least one analyst believes the rally is running out of steam. Zim shares fell 15% as of 10:30 a.m. ET afterward Citi Group has downgraded the stock to sell.
Is this as good as it gets?
Zim is one of the twenty largest shipping companies in the world. The stock fell into the doldrums last year due to weak demand and investor concerns about debt. But the company’s prospects improved in early 2024 as tensions in the Middle East disrupted key shipping lanes and sent shipping rates soaring.
The rally has continued into 2024, with Zim shares surging more than 100% on Thursday’s trading day.
Citi analyst Sathish Sivakumar calls a top. The analyst downgraded Zim stock to sell from neutral with a $13 price target, indicating more than 30% downside from current prices. Sivakumar wrote that the recent increase in spot freight rates of more than 70% is unlikely to continue in the second half of the year.
Is Now the Time to Sell Zim Stock?
Shipping is a difficult sector to invest in, because supply and demand are often not matched. Demand tends to develop quickly, while changes in supply take time as new ships are built or old ones are retired.
Last year, Zim shares fell as supply exceeded demand. This year the opposite 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 happens with tensions in the Middle East and how resilient the US economy will prove to be. But it’s hard to deny the cyclicality of the underlying business. Given Zim’s meteoric rise thus far in 2024, and the inevitability of a downturn at some point, investors would be wise to heed Sivakumar’s advice and cash in on prized Zim stock.
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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.
Why Zim Integrated Shipping Stock Is Down Today was originally published by The Motley Fool
