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Sail on with the dry shippers!

Recs

6

November 18, 2009 – Comments (7)

十一月十八号。

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.

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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).  

再见!  

 -Rof 

7 Comments – Post Your Own

#1) On November 18, 2009 at 11:21 PM, scoobamang (< 20) wrote:

I suspect that this recent rise in drybulk stocks is just a bump for the holidays. After that it will become apparent that nobody is using these things. EGLE may have a long-term contract with a company but if that company goes bankrupt, oh well! Not to mention that 12% of the fleet's just chillin off of Singapore with nothing to do. And most of these companies have gigantic debt loads. I bought SBLK and PRGN in real life as 2 of my first purchases, thinking I was very clever, and I suspect that they will drop down much further than they are right now, at which point it will be a buying bonanza...if anybody has the cash to do it. As of now I think that nobody's going to be shipping much compared to how they did in the past, and the ships, while very big and impressive, are overvalued because they can not be utilized.

I'm waiting for the next big crash before I load up, but if I were you I'd get out now!

 http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html

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#2) On November 18, 2009 at 11:41 PM, Tacomatight (73.19) wrote:

Hey Rof,

Nice post. You have a error on your chinese though ha. You said- wo shi hen gaoxing-I am very happy. When you use an adjective to modify a noun dont use shi(to be). Just the noun followed by the adjective. So should be-Wo hen gaoxing. Literal translation -I very happy!

 I got burned on these shippers cause everyone was predicting an end of summer bounce (I no happy). 6mos. later think it will be true(I now happy). I just bought NM and DSX. I'll be looking to add to my positions over the coming month.

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#3) On November 18, 2009 at 11:42 PM, rofgile (99.29) wrote:

scoobamang,

 I'm aware of all the "headwinds" against the dry shippers - damaged shipping trade, over purchasing of ships, and a possible longterm global recession.  That's what everyone is seeing right now.

 What I've been investing on this last year has been a recovery of the economies of the world, beginning in Q3 and Q4 of 2009.  

 I'm betting against the prevailing fear of a dry shipper apocalypse.  Still, I am investing with a dry shipper that has good traits vs a crappy scam dry shipper.

 I've seen the "Ghost fleet" pictures before from Alstry.  Its interesting, and all.  But, those are CONTAINER ships mostly.  That's a big difference.  Dry ships carry bulk cargo.  CONTAINER ships can die a horrible death with a 10% or more decrease in consumer spending.  Bulk ships can see lots of value in a world with a Chinese society having strong construction and production.

 Pretty soon China might be overproducing all sorts of materials: Aluminum, Steel, etc - all in an effort to keep high employment.  We are dealing with a communist society that has a state planned economy. They care about making sure that everyone is highly employed, not whether it makes sense to over produce aluminum, steel, silicon, etc.

 -Rof 

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#4) On November 18, 2009 at 11:45 PM, rofgile (99.29) wrote:

Tacomatight!   Thanks for the correction!

  我说的不好!  But I'm getting better (thanks to my Nintendo DS Chinese tutor..)

 -Rof 

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#5) On November 19, 2009 at 1:26 AM, scoobamang (< 20) wrote:

I've done a little research rogile, and I still disagree with you, at least on the point that EGLE is a good drybulk company. According to EGLE's most recent quarterly report...

They had a 20% revenue DROP from the previous quarter. Traditionally the third quarter has been the second best of the year! I suppose that recovery's going to be coming a little later than you think!

On the $41 million they managed to bring in, they squeezed out a profit of $500,000! Oh boy that should just about pay all of the accountants they'll need to keep track of their $836 million in debt, and $100 million in 'other liabilities'! 

They're also due to take delivery of 22 ships in the next 3 years that will deliver a total of $91 million in revenue a year over 10 years! I guess that's good because revenue on their current ships just decreased by 20% like I said before! And it's not like companies have been RENEGOTIATING shipping contracts lately or anything! HA! I wouldn't count on China saving you either because as others on CAPS have pointed out they're simply stashing everything they produce.

 

 

 

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#6) On November 19, 2009 at 9:07 AM, chk999 (99.97) wrote:

Interesting. This is a business where profits (and hence stock prices) are extremely volatile. Hence better than average analysis can yield amazing CAGR.

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#7) On November 19, 2009 at 9:36 AM, rofgile (99.29) wrote:

scoobamang:

 Its a gamble, but I expect their profits to be higher in Q4 (the Q3 0.51 million profit is quite low compared to previous quarters and previous year - but coincides with the recent low period of the baltic index).  Just Q2 of this year saw huge revenues and and profits - so there is quite some volatility quarter-quarter right now.

 Its possible that all the future ships to be delivered never will be.  I expect EGLE to take their ships and add on debt - this is a dangerous thing if we don't see an economic recovery, but will be good if there is a continuing rise in shipping rates.  A bad investment now would be the shipbuilding companies - they are going to run out of work soon + possibly be stuck with ships that companies can't pay for anymore.

 -Rof 

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