💼 Inside the Portfolio: Updates from our Swing Trading Desk

03 Jan 2025 - Insights, adjustments, and forecasts about our latest swing trades 💹

Position Updates:

• Lululemon Athletica Inc. (LULU): From relative strength to relative weakness, the stock broke to the downside, stopping us for a loss. While disappointing, this reinforces the importance of adhering to our stop-loss strategy to protect capital in uncertain market conditions.

• PepsiCo, Inc. (PEP): If the market enters a downtrend, this company could be a strong fit for a quality and defensive portfolio. However, in this case, we had to close the position for a loss. Despite the setback, we remain confident in the long-term potential of defensive plays like PEP.

New Positions and Subscriber Insights:

We are pleased that our two bets on Ecopetrol S.A. (EC) and ZIM Integrated Shipping Services Ltd. (ZIM) are delivering great results.

These positions already contribute positively to our portfolio, and we are optimistic about their continued performance. Additionally, we initiated one new position today and one yesterday, which we hope will further enhance the quality and diversification of our portfolio.

As always, entry points and specific details for these new positions were communicated in real time to our paid subscribers through our premium alert system via chat, ensuring they had the opportunity to execute trades promptly.

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1. Zim Integrated Shipping Services Ltd (ZIM)

ZIM Integrated Shipping Services Ltd. and its subsidiaries provide container shipping and related services in Israel and internationally. It provides door-to-door and port-to-port transportation services for various customers, including end-users, consolidators, and freight forwarders. The company also offers ZIMonitor, a premium reefer cargo tracking service. As of December 31, 2021, it operated a fleet of 118 vessels, which included 110 container vessels and 8 vehicle transport vessels, of which four vessels were owned by it and 114 vessels were chartered-in; and a network of 70 weekly lines. The company was incorporated in 1945 and is headquartered in Haifa, Israel.

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Fundamental Analysis

Key Catalysts:

1. Strong Q3 2024 Results:

   • ZIM reported better-than-expected earnings in Q3 2024, showcasing its ability to adapt to market conditions.

   • Revenue and profitability were supported by stable freight rates and operational efficiency.

2. Special Dividend Announcement:

   • ZIM declared a special dividend, reflecting its commitment to returning value to shareholders.

3. Kenon Holdings' Stake Sale:

   • Kenon, ZIM's largest shareholder, has been selling its stake in the company. This has temporarily pressured the stock price, but once Kenon completes its exit, the removal of this significant seller could allow the stock to rise.

   

4. Cost Savings in 2025:

   • ZIM is expected to achieve substantial cost reductions starting in 2025, driven by the redelivery of expensive chartered vessels. This will position ZIM as one of the most cost-competitive players in the industry.

Market Dynamics:

The global shipping industry is currently navigating a period of overcapacity, with a large number of new ships entering the market. This has led to increased competition and downward pressure on freight rates. However, ZIM's asset-light model allows it to adapt quickly to changing market conditions, and its focus on cost efficiency positions it well for long-term success.

Challenges:

The ongoing conflict in Gaza and potential ceasefire agreements could impact shipping routes and operations in the region.

Earnings Results:

In Q3 2024, ZIM delivered strong financial performance, beating analysts' expectations:

• Revenue: $1.3 billion, supported by stable freight rates and efficient operations.

• Adjusted EBITDA: $250 million, reflecting improved cost management.

• Net Income: $50 million, showcasing ZIM's ability to remain profitable despite industry challenges.

Risk/Reward Profile:

• Upside Potential

  • Completion of Kenon's stake sale could remove selling pressure and allow the stock to rise.

  • Significant cost savings in 2025 will enhance ZIM's profitability and competitiveness.

  • A potential recovery in freight rates could provide additional upside.

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Technical Analysis

• Entry Point: The stock was unable to breach the $18.20 weekly resistance level over three days, with trading volume declining each day, which led us to believe that selling pressure was nearing exhaustion. Furthermore, the $16-$18 price range has consistently served as a significant support zone over the past six to seven months, attracting substantial buying interest. From a risk-reward perspective, allocating $0.50 of downside risk to capture a potential multi-dollar upside in what we consider an undervalued sector represented a strategically sound decision. Additionally, the company's financial fundamentals appear robust, further reinforcing the attractiveness of the opportunity.

• Support and Resistance Levels: Support is currently established at $18.20 on the daily chart. The first resistance level is at 21.50 on the daily, then 25.00

• Additional Notes: Undervalued sector.

Entry Day: 23 December

Price: $18.96