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XMFSinchiruna (28.62)

How to Navigate the DryBulk Crisis

Recs

42

February 17, 2011 – Comments (21) | RELATED TICKERS: DSX , BALT , DRYS

I'm not sure how many of you know this, but I have some direct backround in the maritime industries. I once worked for the Liberian ship registry, back when it was the largest registry in the world. Some of the documents I drafted then are still circulated aboard cargo ships today. I studied maritime law and the business of shipping as sub-specialties within my marine-focused university curriculum. And many years later, I pursued a shift in trajectory by earning my captain's license, and operating private sailing yachts for a spell. 

If there's one sector that my life's training would appear to have positioned me to focus upon, it would be shipping. I'm not for a moment second-guessing my primary focus on precious metal stocks, but rather pointing out that my coverage of the dry bulk world is far more than a mere afterthought.

In my latest article on the sector, I have revealed my own three picks for Dry Bulk exposure, which I consider very complimentary to each other in forming an ideal investment formula. If this were a recipe, I might describe the ingredients as 1-part Diana, 1-part Baltic, and a teaspoon of Dryships for spicy flavor.

Diana gives you the long-term charter exposure with a balance sheet that can survive anything this oversupply condition can dish out. Baltic adds a strong income component immediately once hire rates crawl out from wherever the bottom may be. And DryShips is like a 'dollar-yo' in craps ... you bet no more than you're wiolling to lose outright, and you cross your fingers for a multi-fold payout.

I'm curious to know what you Fools think. I think it's a winning strategy. The three combined still amount to less than 2% of my portfolio (I'm still about 85% metals, 5% energy, 5% cash, and 5% misc. like drybulk). Over time, however, and especially if this weakness persists through another profitable round of precious-metal strength, I may begin to increase my allocation to this three-part recipe.

How to Navigate the DryBulk Crisis

http://www.fool.com/investing/general/2011/02/16/how-to-navigate-the-dry-bulk-crisis.aspx

Thanks for reading, reccing (at the source), and for sharing your invaluable thoughts.

Sinchi

21 Comments – Post Your Own

#1) On February 17, 2011 at 10:20 AM, pj19 (< 20) wrote:

What you think about SBLK?

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#2) On February 17, 2011 at 10:27 AM, XMFSinchiruna (28.62) wrote:

The last time I really delved into SBLK about a year ago, I saw enough red flags to leave me with little interest in following ths stock closely. But let me take a fresh look at them later today and get back to you.

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#3) On February 17, 2011 at 10:47 AM, TheLastYetti21 (32.93) wrote:

Any thoughts on GNK? They appear to be the most undervalued?

 

Thanks!

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#4) On February 17, 2011 at 11:11 AM, XMFSinchiruna (28.62) wrote:

By the way, Copper Fox is on the move again. :)

TheLastYetti,

GNK has been attacked by concerted short interest lately ... some heavy-handed market players appear to smell blood. I have been generally impressed with the company's performance through the crisis thus far, but for me personally I'm resolved to wait and see what may have prompted this put-option surge in a way that so clearly singled out GNK.

Those puts are targeting $10 for the shares. Perhaps there I could feel more comfortable initiating a small stake.

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#5) On February 17, 2011 at 11:39 AM, willmaster01 (98.22) wrote:

I donno 'TheLast' Safe Bulkers - SB seems to be pretty good too.

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#6) On February 17, 2011 at 1:59 PM, kdakota630 (36.92) wrote:

TMFSinchiruna

Any particular reason it would shoot up today?

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#7) On February 17, 2011 at 3:21 PM, XMFSinchiruna (28.62) wrote:

kdakota,

Sure, how about 3 press releases in as many days. :)

http://www.copperfoxmetals.com/s/NewsReleases.asp

The third one, out today, priced shares at $1.25 (granted, with 1/2 warrant per share additional). Nothing like an above-the-market offering to stoke a share price.

:)

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#8) On February 17, 2011 at 3:23 PM, kdakota630 (36.92) wrote:

Ahhh, I didn't see the one from today until now.  Thanks.

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#9) On February 17, 2011 at 3:57 PM, XMFSinchiruna (28.62) wrote:

I found this very interesting ... maybe you will to?

http://dollarwisefl.wordpress.com/2011/01/16/diana-containerships-dcix-a-spin-off-with-the-right-kind-of-problems/

 

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#10) On February 17, 2011 at 3:57 PM, XMFSinchiruna (28.62) wrote:

... :)  too?

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#11) On February 17, 2011 at 6:00 PM, soycapital (< 20) wrote:

Good infoTMF, I generally don't mess with this sector because I know nothing about it but read an article on ESEA a couple of months ago (can't find it now). Bought 400 ESEA, it went down just after bought it and decided get 400 more shares. Pays 6% divi (since 2006). Stock has been stronger last few weeks. Comments anyone? Cost basis about $3.75.

Euroseas Ltd.(NasdaqGS: ESEA )

After Hours: 0.00 N/A (N/A) 10:00PM EST

Last Trade:3.94Trade Time:3:59PM ESTChange: 0.04 (1.03%)Prev Close:3.90Open:3.90Bid:3.70 x 200Ask:4.00 x 10001y Target Est:4.50Day's Range:3.90 - 3.9952wk Range:3.02 - 4.18Volume:95,328Avg Vol (3m):63,486Market Cap:121.87MP/E (ttm):N/AEPS (ttm):-0.71Div & Yield:0.24 (6.30%

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#12) On February 17, 2011 at 7:31 PM, awallejr (82.59) wrote:

I've been eying the shippers too, but I got nervous about the Korean Line Corporation filing for bankruptcy.  I did pick up some FRO at around $25 and am content to hold that one for years since it does return cash to shareholders, the better the business the more it gives.

I was eyeing EGLE, DSX and even DRYS.  My main interest in DRYS was more as a rig play.

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#13) On February 17, 2011 at 9:07 PM, Munchies101 (99.44) wrote:

http://seekingalpha.com/instablog/813201-falseconviction/128411-genco-shipping-overvalued-and-overleveraged-in-a-collapsing-market

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#14) On February 17, 2011 at 11:25 PM, Momentum21 (98.23) wrote:

Nice work here Sinch...I need to process this info. 

I am long GNK...like DSX

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#15) On February 18, 2011 at 10:12 AM, Gonzhouse (68.02) wrote:

  TMFSinchiruna

The ride on Copper Fox Metals is continuing today:  up another 11% at the opening.

Sinch, excellent recommendation (as usual).

If someone is interested in precious metals, your blog is turning into a 1-stop shop.

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#16) On February 18, 2011 at 10:33 AM, TMFBabo (100.00) wrote:

Hard to argue against Diana - that's as close to buy and forget as it gets in dry bulk. 

I still own a position in GNK, but I'm waiting to see what is disclosed during the Q4 earnings release.  The link from Munchies101 had very great arguments that Genco is potentially straying from its 75% long-term charter strategy. 

I remember from previous conference calls that Genco expected better rates in Q4 and that they would fix ships long-term at that point.  There were a good number of ships that came off charter in Q4, so I'm waiting to see if management holds true to what it said in the past.  Any deviation from that strategy and I'm likely to reconsider GNK as a long-term holding in favor of DSX or another company. 

The last thing I want is a company taking a large gamble by taking on debt to acquire ship after ship and then stray from its previously stated goals (which I endorsed).  I'm fine with the ships that were acquired, but I'm not fine with the potential abandonment of its commitment to fix 75% of its ships long-term.

The strategy to keep acquiring ships seeks me a bit as empire building.  The "grow at any costs" mentality is somewhat reminiscent of CHK back in the day, which turned CHK off in the eyes of many an analyst.

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#17) On February 19, 2011 at 8:57 PM, memoandstitch (< 20) wrote:

I have been looking at dry bulk and DSX for about two years now. I'm afraid there will be no winner in this shipping market. It's like the flash memory market. It's a valid business but the oversupply condition just drains profit out of every firm. I'm sure DSX will survive but will they make money? Given that you have the expertise in this area, you should be able to tell when the rates will go up before other people. Isn't it better to wait until there's money on the table before taking a gamble?

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#18) On February 19, 2011 at 9:31 PM, dragonLZ (99.32) wrote:

I like DAC, Danaos Corp.

I think once DAC starts moving (and it already has a little), it will be unstoppable.

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#19) On February 23, 2011 at 8:52 AM, Matt8265 (56.60) wrote:

Thank you for a very well written piece. I have 60K into DRYS and they are my only shipping stock. There will be mergers, and their advancements into oil sets them off from the rest. They have shown ability to raise cash and have the greatest sales of all shippers. I "like" them, because most don't... and most are wrong. If the oil hauling strategy works, they will be buying up small competitors and again, own the world. 

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#20) On February 23, 2011 at 10:14 PM, TruffelPig (< 20) wrote:

Not dry bulk, but just a related question: I got some luck with KSP recently. How will they do long-term? They seem to have a solid fleet (90% with double hull) and increasing business.

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