Hidden assets make this company in a hated sector a Buy
Let me begin by saying that I absolutely hate the shipping sector. For some reason, the shipping industry seems to be nothing more than the capital-destroying airline industry, just with dividends. I'm sure that one can make a lot of money timing a purchase in a shipper right, but eventually the companies in the sector never seem to be able to control themselves and they build to overcapacity.
Anyhow, having said that, I am going to write something bullish about a shipper, DryShips (DRYS). Why have I made DRYS an exception to my "no shippers" rule? Because the company has hidden assets, specifically Ocean Rig an UltraDeep Water driller. In a world where easy to reach oil reserves are becoming harder and harder to find, this is the hottest sector of the drilling industry.
Ocean Rig currently trades OTC in Norway. According to a recent research note by Sterne, Agee & Leach Ocean Rig's market cap implies a value of $5.32 per DRYS share. With a current share price of $3.93, this means that Mr. Market is assigning a valuation of negative $1.39 to DryShip's dry bulk and tanker fleet.
DryShips is holding a meeting with analysts next riday to announce what it plans to do with its drilling subsidiary. The catalyst that will unlock this hidden value is DRYS' plans to list shares of Ocean Rig in the U.S. later this year. When that happens, the market will realize that DRYS is undervalued.
Source: Don't Dock DryShips