Sail on with the dry shippers!
Back in August, I hypothesized that the dry shipping industry was one of the last undervalued sectors in the current market. With a rising economy as witnessed by GDP growth all Euro countries, Canada, US, and China - we should begin to see a growing demand in shipping of raw materials, especially to asian countries.
My sector pick across the dry bulk index showed fairly decent performance in the last couple of weeks, as it seems that the Baltic Dry Index (which tracks a key profitability indicator - shipping contract rates) has been rising parabolically, on a fairly nice trend up hitting a new 2009 high this week.
NMM Navios Maritime 8/14/2009 +27.93
NM Navios Maritime Holdings, Inc. 8/14/2009 +26.19
DSX Diana Shipping, Inc. 8/14/2009 +20.94
GNK Genco Shipping & Trading Limited 8/14/2009 +18.34
DAC Danaos Corp 8/14/2009 +17.97
EGLE Eagle Bulk Shipping, Inc. 8/14/2009 +17.23
PRGN PARAGON SHIPPING, Inc. 8/14/2009 +12.92
TBSI TBS International Limited 8/14/2009 +12.76
SB Safe Bulkers 8/14/2009 +5.48
EXM Excel Maritime Carriers Ltd 8/14/2009 +0.40
DRYS DryShips, Inc. 8/14/2009 -0.30
ESEA Euroseas Ltd. 8/14/2009 -1.28
SBLK Star Bulk Carriers 8/14/2009 -4.83
Most all of the sector has risen together, with the the "healthiest" of the pack leading the way up. DSX is a good example of a "healthy" (lower debt, less over-purchasing of new ships) shipper, while DRYS is an example of a deeply sick shipbuilder (I think I read today that they had even bought more new ships regardless of their current debt burden).
I invested with real money in EGLE around this time at $5.00/share - and have seen a 32.35% return on my investment so far. Not bad! 很好 ！ 我是高兴! (Very good, I am happy!) I chose EGLE because they pursue long term contracts, so they had a pricing floor (they won't benefit from shipping rate increases as quickly, however, unless through new ships they add to the fleet), and they use the smaller ships in the trade. These are less overbuilt than the large ships such in the "Capesize" category.
If the world wide economic recovery proceeds, even at a slow pace, that will mean a stabilization of the shipping contract rates and better tidings for the next quarters for the dry shippers. Some, the foolish and idiotic ones, may likely still go under (I'm looking at you, DRYS!).
I plan on staying invested for the next several months, and hope to enjoy a nice ride up. The P/E of most of these companies is still lower single digits, and their price/book is also absurd. (However, they mark their assets higher than perhaps is reasonable - as their assets are their ships, and if ships get overbuilt - I doubt many could sell at the prices they have booked).