A Turnaround in Tankers?

The oil tanker business hasn’t been this bad since 1973. Rates are at or near seven- to 10-year lows, as OPEC tries to cut millions of barrels from the world’s daily production. But there are signs the industry is starting to turn up.

Cramer pointed to a Bloomberg.com article Monday that said supertanker rates are on the rise. Spot rates, or those for immediate payment, have been climbing in certain markets – 40% in just one week for ships headed to the East from the Middle East. There’s plenty of room still left for upside, too, because these rates had been taken down significantly before this recent rebound.

Another factor playing into a tanker turnaround: The supply of ships is dwindling. New orders are down, some tankers might be scrapped and still others might be temporarily banned. This is basic supply and demand at work here. Fewer ships mean higher prices.

Cramer also mentioned the positive change in the Baltic Dry Index. Now, this indicator doesn’t directly reflect any shift in oil tankers. But the trend higher suggests an overall increase in shipping demand, mostly to China, which also happens to be where a lot of the oil is headed.

So what’s the trade? After comparing the total returns of the top 10 largest tanker stocks over the last five years, Cramer chose Frontline and Nordic American Tanker , which were up 198% and 107%, respectively.

Frontline has the largest tanker fleet in the world, and the company already has a significant portion of its ships chartered out for 2009 and 2010. That will lend investors stability should the turnaround take a bit longer than expected. In the meantime, FRO offers a 5.7% dividend yield while you wait.

Nordic American is a play more on those spot rates because only 8% of its ships chartered for 2009 and none for 2010. With fewer tankers committed at a locked-in rate, the company will benefit more from an industry upswing. NAT pays out an 8.25% dividend yield. So again, investors pocket money while they wait for the turn.

Buy NAT or FRO if you believe in this industry’s rebound – Cramer does.

Questions for Cramer? [e-mail]

Questions, comments, suggestions for the Mad Money website? [e-mail]