samstevens (60.15)

7 Comments – Post Your Own

#1) On November 07, 2009 at 8:07 AM, fmahnke (97.41) wrote:

I've swore off these stocks because its become so difficult to figure out the underperformance of this sector, I first invested in Drys at $10 three years ago.  Watched it go to $120.  Shorted it at $110. I closed both poistions around $50, and although I've made alot of money, I also missed out on about half the profits,

 A couple of thoughts,  I used to gauge the Dry Bulk Index (available of the Dryships website) and the general indicator of the stock market to determine daily movements in equity prices,  I've since learned that the dry bulk futures index is a better baraometer,

The market tends to treat all these stocks in a similiar fashion, despite the fact that companies like PRGN have much of their fleet locked uo in long-term charters. I've never understood this. 

I will never buy Drys again,  Over the years, I've been appaled by the self dealing of their CEO and find them to be less than shareholder friendly.

I plan on listening to some confernce calls next week to see if I can get a better feel for what is going on,  My gut tells me that the nonperformance of these stocks is a statement by the market that the recovery is not as real as some believe or that more ships will be coming on soon, but  as I said,  I can't figure it out.

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#2) On November 07, 2009 at 9:54 AM, davejh23 (< 20) wrote:

"So unless their becomes a glut of ship space, and the companies can utilize 95%+ of thier fleet (SBLK is right now), then they're set and are bound to make money. Their income seems to be very reliable since i believe the rates are fixed (not entirely sure about this)."

I don't follow the industry at all, but I've read several articles recently indicating that a "glut of ship space" is expected over the next couple of years...many new ships were ordered that will be completed, have to be paid for, and do not have charter contracts yet.  As it is, I believe the articles said the price to charter these ships has dropped by something like 80% over the last year or two.  So, even if your picks aren't ones that are facing this "glut of ship space", declining shipping revenues are very likely.  Based on fmahnke's statement that "the market tends to treat all these stocks in a similar fashion", the glut of space might affect your picks whether they're facing these problems or not.  US growth may be dependent on Asian exports, but I believe this is going to change...at least enough to affect shipping significantly.  Also, I believe growth in India/China is not as dependant on imports/shipping.  Based on what I've read, this could be good or bad for shipping...these shippers could be poised for growth, or set up for years of excess capacity and weak business...it will depend on the global recovery.  In any case, from what I've read, I believe there are good reasons for these stock prices to go "lower, and lower, and lower."

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#3) On November 07, 2009 at 11:04 AM, Teacherman1 (95.08) wrote:

I am very high on Dry Bulk for the longer term (2-3 years), but they do go up and down because they are a cyclical business. Most have switched over to a combination of Spot and Long Term Charters. Some have done Long Term Charters with a profit sharing and finance sharing aspect.

They are not all equal, but most have taken steps to make arrangements with their banks to adjust their financing to keep the long term debt from being a significant "gotcha".

If you will go to their web sites, you can get a better feel for what they are doing to weather what many consider to be the bottom, or near bottom of the cycle.

The best of breed for my money, are NM and DSX, but with the exception of DRY Ships, I don't consider any to be "dogs". Dry Ships may do fine, but as stated above, their CEO plays fast and loose with the company to the detriment of the share holders.

The key is to buy them at the right price. This limits your down side, but it also means they are out of favor and it will take time and patience for them to pay off. When they do pay off, it is likely to be big.

Some pay a dividend for you to hold until there is enough of a sustained recovery to get to that point.

What most don't seem to appreciate is that the majority of these companies have not really been around that long, and it takes time to mature.

Some of these also operate in a sort of sub set within the industry, based on the mix and size of the vessels. The smaller ones (vessels) tend to ship more grain then iron ore and other basic materials.

If you are looking to get into this (I haven't looked to see if you currently are), then I would suggest that you study them in more detail, pick a target price, buy a percentage of what you want your ultimate holding to be, then buy more on the down ticks.

I have also made some purchases in the Tanker and Container area, but most are Dry Bulk.

I do not claim to be an expert in the shipping business, but many years ago when I was in banking, I used to finance the "trip" costs of what was then the only U.S. Flag bulk shipping company. This was the fuel, provisions, crew costs, etc.

As a result I spent a lot of time visiting with the companies CFO and visiting the ships with him, and did get some kind of education into how it all works.

Good luck on whatever you plan to do.

JMO and worth exactly what I am charging for it. 

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#4) On November 08, 2009 at 11:50 PM, samstevens (60.15) wrote:

Alright. Good stuff. Yeah i'm a total novice in all this so i'm just learning.

I can definitely see how the market groups them all together, as some Dry Bulks are doing much better than others but their charts look the same.

Not knowing how to set a "target price" i guess i'd just have to guess that $5 or less is pretty low compared to the $120 it once was but i definitely agree it could take a long time for them to come out of the hole.

Unless of course there's a big glut of ships and companies can't fill all thier contracts, it seems to me that this would just kill these companies.

If one banked on Asian market, or any markets for that matter, always growing faster than people think (which is a pretty lofty asumption that i'm not entirely sure i'm ready to make, which more years of wisdom and experience could better judge) then one would believe prices on charters would jump back up after the glut of ships-scare subsided. 

The good news is that i'm not investing any real money at this point, so i can see how my current optimism plays out on Caps and keep the result in mind for the future.

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#5) On November 09, 2009 at 5:54 PM, imacg5 (< 20) wrote:

 Wow, I don't want to be mean, but there is a huge hole in your research. I have a fascination with dry bulk too, I made a lot of money with it in 2007, but I'll stay clear for at least a year. And each company's situation, and way of doing business is very different.

  Yes, the world will continue to ship raw materials, but the fleet is expected to expand by 75% over the next three years. Global growth is expected to increase by maybe 8% per year. There will be way too many ships, and it will depress rates. 

 The big glut is here. 

  "SBLK and PRGN are basically just making more and more money"

  No, they aren't.  All of the dry bulk companies have had falling earnings for three quarters, and most of them will continue to fall, especially SBLK, PRGN, and TBSI. EXM has bogus reports that claim the revenue that is "Amortization of below market charters". In other words writing off low charters.

 DSX will start to have better revenue next quarter, and they have little debt. Debt is a serious problem for most DB. NM will have new ships coming and has financing arranged, they will be adding to earnings next quarter.

 SBLK may have "locked up" charters for 2009-10, but that didn't stop their charters from failing, and being reset at much lower rates, many of the resets took place this summer, and will show on this quarters, and next earnings. SBLK only has 12 ships, one, the Star Alpha, will be sold, and that revenue will be gone. Five other SBLK ships have reset charters much lower. The Star Ypsilon had it's charter reduced from $92,000 per day to $43,250 per day. It's right in the earnings reports.

  PRGN had the same problem, and will be making $9 million less revenue per quarter by early 2010. TBSI keeps losing more and more money, and has a fleet of very old small ships. The six new ships will have to be paid for by selling shares.

 DRYS had 31 million shares when it was $120, it now has 254 million shares outstanding 310 after the preferred convert to common, and with massive debt, will probably have to sell more shares. 

 OCNF is also diluting from 16 million shares to 425 million shares

 EGLE should have to be diluted, they have 22 new ships coming that will have to be paid for. 

 Each company has a Fleet deployment page that tells you how much money their ships get paid each day. Except TBSI. You may have to look back to other SEC filings to see what the ship was earning before, this is how you estimate whether the  earnings will be up or down. 

 Most of these companies are in breach of loan covenants, which means that their ships have fallen in value. Those ships are held as collateral against their loans, and the ship value is required to be 125% of the debt. If not, the debt must be paid down. Most will have no choice but to dilute. Ship values, and new ship arrivals, can be found at www.brs-paris.com and www.cotzias.gr 

www.drewry.co.uk

www.weberseas.com

www.worldyards.com

www.lloydslist.com

www.fearnleys.com

www.nilimar.com

www.platou.com

www.steelguru.com

www.tradewinds.no

www.capitalink.com 

 And www.drybulkindex.com will help you find all info pertinent to the dry bulk sector, including the demand from China's steel mills, their stockpiles and whether the demand for steel can justify the tremendous amount being produced and stockpiled.

 Also look into the fleet of ships that Vale is purchasing, Vale is the largest Iron Ore producer in the world and has bought 20 Capes and VLOC's this year. They have also ordered 28 more 400,000 DWT capacity VLOC's to be built. When they are shipping a majority of their own ore, that will be a huge loss in business for the independent shippers.

It's just way too early to get into dry bulk as an investment, it is however a trade.  

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#6) On November 09, 2009 at 6:21 PM, IIcx (67.73) wrote:

http://shipping.capitallink.com/ 

The shipping sector is one of the few sectors left that is an honest look at real trade. Having said that, the glut of new ships will completely undermine the profits of any individual company and thus eliminate the BDI as anything more then confused greed.

One will under bid the next to survive until none are worth the cost of the shares. 

Many think the shipping space will be the cause of next crash. The ships are financed and insured in the millions. Most are currently anchored in the path of the next Typhoon.

Tomorrow's bids from the East will tell the 4th quarter.

This isn't a sector to play with lightly and is one to watch carefully if you are long. 

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#7) On November 09, 2009 at 6:42 PM, IIcx (67.73) wrote:

Food for thought -- if you do the research you'll see what is being shipped and if you're like me you'll be very confused.

'sup with LNG in a zero dollar market for natural gas -- or do they see something we're missing?

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