Imagine you're a real estate investor. You don't run a hotel or a retail store yourself. Instead, you buy apartment buildings and lease them out to reliable tenants who pay you monthly rent. You focus on buying properties at good prices, locking in long-term leases, and managing your mortgage debt wisely.
Now, take that entire concept and put it on the ocean. That, in a nutshell, is Costamare.
Costamare is one of the world's largest independent owners of containerships. These aren't the small boats you see at the local marina; these are the colossal vessels that carry thousands of steel boxes—from iPhones made in China to coffee beans from Brazil—across the globe. They are the backbone of international trade. More recently, Costamare has also expanded into owning dry bulk carriers, the workhorses that transport raw materials like iron ore, coal, and grain.
Crucially, Costamare doesn't operate these ships in the way you might think. They don't handle the logistics for Amazon or Walmart. Instead, they act as the landlord. They own the ships (the “property”) and charter them out, typically on multi-year contracts, to the giant liner companies that do handle the logistics—names like Maersk, MSC, and Hapag-Lloyd. These companies are Costamare's “tenants.”
In return, Costamare receives a steady stream of “rent,” known in the industry as charter hire or day rates. Their business model is beautifully simple:
Acquire ships (the assets).
Secure long-term employment for those ships with creditworthy clients.
Collect the cash flow.
Use that cash flow to pay down debt, maintain the fleet, and return capital to shareholders.
> “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” - Benjamin Graham
This quote is profoundly relevant to a company like Costamare. The market's “vote” on its stock price can swing wildly with sentiment about global trade. But its long-run “weight” is the tangible, steel value of its massive fleet and its ability to generate cash over the full economic cycle.
For a value investor, a company like Costamare is fascinating because it forces a focus on first principles. It's a business that Benjamin Graham would have understood intimately. Here’s why it's a perfect case study for the value investing mindset:
Asset-Based Valuation: Unlike a software company whose value lies in intangible code, Costamare's value is overwhelmingly tangible. It's in the steel of its ships. This makes it a prime candidate for analysis based on
book_value and, more specifically, Net Asset Value (NAV)—the real-world market value of its fleet minus all its debts. A value investor can often buy the stock for less than this liquidation value, creating a significant
margin_of_safety. You're buying the ships for 70 or 80 cents on the dollar and getting the business operations for free.
The Ultimate Cyclical Test: The shipping industry is a brutal, clear-cut example of boom and bust. When the global economy soars, demand for shipping explodes, charter rates skyrocket, and companies like Costamare make enormous profits. When a recession hits, rates can plummet below the cost of even operating a ship. This volatility scares away many investors, but for a disciplined value investor, it creates opportunity. The goal is to buy during the pessimistic bust, when the stock is cheap relative to its assets, not during the euphoric boom, when high earnings make the stock look deceptively cheap on a
P/E basis.
Capital Allocation is King: In a cyclical, capital-intensive industry, management's skill in
capital_allocation is the single most important driver of long-term value. A great management team at a shipping company is counter-cyclical. They buy ships when blood is in the streets and prices are low. They resist the temptation to order expensive new ships at the peak of the market. They lock in long charter contracts when rates are high to provide visibility through the downturn. Analyzing how the Constantakopoulos family (Costamare's founding and controlling family) has navigated these cycles is a core part of the investment thesis.
A Clear View of Debt: Ships are incredibly expensive, so shipping companies always carry significant debt. This makes the balance sheet paramount. A value investor is drawn to analyzing the structure of this debt: When is it due? Is it fixed or floating rate? A strong balance sheet allows a company to survive the inevitable downturns and buy assets from weaker, over-leveraged competitors who are forced to sell.
Forget trying to predict next quarter's earnings per share. That's a fool's errand in the shipping industry. Instead, a value investor should approach Costamare like a detective examining the core evidence of its value.
A value investor is looking for a specific combination:
A Discount to NAV: The stock price should be meaningfully below your calculated NAV per share. This is your margin of safety.
A Healthy Backlog: The company should have enough contracted revenue to comfortably cover its operating expenses and debt service for the foreseeable future, even if the spot market for ships collapses tomorrow.
A Manageable Debt Load: The company should not be at risk of bankruptcy during a cyclical downturn.
A Rational Management Team: The team should have a history of buying low and selling high, not the other way around.
If you find this combination, you may have identified a compelling investment, regardless of what the market is screaming about global trade this week.
Let's illustrate with a hypothetical scenario involving two investors looking at “Oceanic Shipping Inc.” (our stand-in for Costamare) at two different points in the shipping cycle.
The Setting: Oceanic's fleet has a true Net Asset Value (NAV) of $25 per share. This value fluctuates, but slowly.
Scenario 1: The Peak of the Cycle (2021)
Global trade is booming. Charter rates are at all-time highs.
Oceanic is earning a massive $5 per share and paying a large dividend. Its P/E ratio is a tiny 3.0x ($15 stock price / $5 EPS).
Investor A (Mr. Momentum): Sees the low P/E and high dividend. He thinks, “This is the cheapest stock in the market!” He buys heavily at $15 per share. He is focused on the income statement.
Scenario 2: The Trough of the Cycle (2023)
A global slowdown has occurred. Charter rates have crashed.
Oceanic is now only earning $0.50 per share and has cut its dividend. The market is panicking about a recession. The stock price has fallen to $7 per share. The P/E ratio is now 14.0x ($7 / $0.50), which looks expensive.
Investor B (Ms. Value): Ignores the P/E ratio. She calculates the company's NAV is still around $22 per share (ships lose some value, but not 70%). She sees that she can buy the stock for $7, a 68% discount to the value of the assets. The company's long-term charter backlog ensures it can survive the downturn. She buys, focusing on the balance sheet.
The Outcome: As the cycle normalizes, Oceanic's earnings recover to a more normal $2 per share. The stock price recovers to trade closer to its NAV, rising to $18. Investor B has more than doubled her money. Investor A, who bought at $15, is still waiting to break even and has learned a painful lesson about buying cyclical companies based on peak earnings—a classic value_trap.