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Ted Eats Fish

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November 08, 2007 – Comments (4)

I gotta admit, I simply don't get it. Having read, World's Scariest Stock: DryShips by Rich "Cap'n Blood" Smith I'm confused about some stuff.

One of the things I'm confused about is the last line in the article; "Spread the word. Go to CAPS and rate it an underperformer now."

It made me wonder if Mr. Smith had lost his rear end playing this stock? I mean to me that was a very strange thing to say..."Go to CAPS and rate it [DRYS] an underperformer now". Why should people do that? It just all seems so [pause] sour grapes to me.

I appreciate that Mr. Smith has an opinion, and I think it's great that he is allowed to express it. I just thought it was a bit over the top not allowing folks to make up their own minds about the stock.

Needless to say, I have an opinion, not only about Mr. Smith's opinion, but about all of the stocks in Mr. Smith's article...and here it is.

First, I don't know Mr. Smith, or at least I don't think I've ever met him, or her. I did know some Smiths once, but I think they were from Perry County, Mississippi, and I don't think they had any kids named Mr.

There were some Smiths I met once on a bus. Seems like they had five kids. They were going to Nashville, that's in Tennessee, to be in the Grand Ole Opry. Or maybe they were going to clean the Grand Ole Opry or paint it, I'm not really sure anymore.

There was this little black headed girl I grew up with named Smith, but Smith was her first name, Etowah was her last name. She was actually a couple of years older than me, and used to tell me she was going to be a teacher same day. Then she would walk me into the woods behind her house...

[sigh]

So Mr. Smith's article pretty much says that this DryShips stock sux and if you buy any of it a big hand is going to come up from the depths and do less than pleasurable things to you. He also listed several other stocks in his article, which to me, seemed just as crappy an investment as DryShips.

DA RUNS

The first stock in the article was holding company DryShips, Inc. (Nasdaq: DRYS), a company that owns and operates a fleet of 35 dry bulk carriers, which are ships that take crap from one place in the world to another place in the world. Pretty exciting if you're into that sort of thing.

Based on the company's latest 10-K filing of December 2006, I have the stock on my watch list with a reasonable value of $3.50, a buy target of $1.75, a first sell target of $3.50, and a close target of $3.80.

The stock had a recent close of $106.20, with overhead resistance at $131.34, first support at $96.68, and second support at $50.99.

On the fundamentals side, the stock has a PE of 65, a Return on Invested Capital of 11%, free cash flow of ($0.11) , a tangible book value of $13.96, and a price to book ratio of 8.17.

I'm rating this one a RUNS, cause if you buy this one, the runs is what you're going to end up with.

DA SQUIRTS

Next up was holding company Diana Shipping, Inc. (NYSE: DSX), another company in the business of hauling someone else's crap from point A to point B.

Based on the company's latest 10-K filing of December 2006, I have the stock on my watch list with a reasonable value of $8.50, a buy target of $4.25, a first sell target of $8.00, and a close target of $8.80.

The stock had a recent close of $34.40, with overhead resistance at $45.15, first support at $31.85, and second support at $23.89.

On the fundamentals side, the stock has a PE of 35, a Return on Invested Capital of 16%, free cash flow of ($0.48) , a tangible book value of $7.34, and a price to book ratio of 5.85.

I'm rating this one a SQUIRTS, which is what you might get after eating fish.

DA WIPE

Excel Maritime Carriers, Ltd. (NYSE: EXM) was the next crap hauler in the article, and again, just like the prior two companies, this one is also a holding company.

Based on the company's latest 10-K filing of December 2006, I have the stock on my watch list with a reasonable value of $37, a buy target of $18.50, a first sell target of $36.00, and a close target of $40.

The stock had a recent close of $54.10, with overhead resistance at $59.29 and first support at $32.93.

On the fundamentals side, the stock has a PE of 38, a Return on Invested Capital of 13%, free cash flow of $4.15, a tangible book value of $16.07, and a price to book ratio of 3.68.

I'm rating this one a WIPE, ...hope you have something nice and soft to use.

DA BRICK

Eagle Bulk Shipping, Inc. (Nasdaq: EGLE) made the list of whatevers, and guess what? This company is another holding company! And guess what they do? They're another crap hauler just like the other companies! Who'd a guessed?

Based on the company's latest 10-K filing of December 2006, I have the stock on my watch list with a reasonable value of $6.50, a buy target of $3.25, a first sell target of $6.25, and a close target of $6.75.

The stock had a recent close of $31.15, with overhead resistance at $35.54, first support at $28.39, and second support at $23.45.

On the fundamentals side, the stock has a PE of 33, a Return on Invested Capital of 11%, free cash flow of ($0.06) , a tangible book value of $9.32, and a price to book ratio of 3.47.

I'm rating this one a BRICK, which is probably what you'll be passing if you buy this stock.

DA FLUSH

Last on the list of memories is Quintana Marine, Ltd. (Nasdaq: QMAR). Of all the companies I looked at, this one got my attention from the start when I read that the company had incorporated January 13, 2005, and that it paid a dividend.

At first I laughed thinking this one was going to be another crap hauler, and it is. And just like most of the other companies, the price to value ratio is worse than poor, there's more downside risk than upside reward, and the fundamentals suck!

Yet for some reason I was captivated. That's when it came to me. What I was doing was becoming impressed with this two year old company, a company I might add that owns and operates 29 ships, and between now and 2010 will take delivery of 8 more.

Once I got passed all of that and reminded myself that at the end of the day, the company hauls crap for somebody else from one place in the world to another, just like all the other companies do, I was finally able to get a grip.

Based on the company's latest 10-K filing of December 2006, I have the stock on my watch list with a reasonable value of $1.00, a buy target of $0.50, a first sell target of $1.00, and a close target of $1.25.

The stock had a recent close of $26.30, with overhead resistance at $29.00, first support at $22.50, and second support at $17.13.

On the fundamentals side, the stock has a PE of 74, a Return on Invested Capital of 6%, free cash flow of ($7.58) , a tangible book value of $12.24, and a price to book ratio of 2.22.

As I said, looking at my valuation metrics, the current trading environment for this stock, and my fundamentals for the company, then overlaying that against what the company appears to be doing...well something isn't adding up.

I'm rating this one a FLUSH, which is what you could be doing with your money if you buy this one sight unseen.

DA END

I told you had an opinion, just like I have an area with which all of my ratings are associated. [grin]

Wax

4 Comments – Post Your Own

#1) On November 08, 2007 at 10:56 PM, Dean47 (< 20) wrote:

"I gotta admit, I simply don't get it."

That part, you have right.

I am curious where you found the inflated P/E ratios?

Example, QMAR:

"On the fundamentals side, the stock has a PE of 74..."

No, it doesn't.  According to MSN Money, it has a P/E of 24.3.


Similarly, DRYS has a P/E of 18.6, quite a distance from your 65.


Yep. Hauling crap, it's a boring business.  That doesn't mean it's not profitable.


I got here from your pitch on CMC, which I thought was good.  You seemed (that is definitely past tense) reasonable.


Yeah, I let Fools talk me out of my DRYS...thankfully, I kept some other dry shippers.  They have made me money.  Over 300% is good in my book.  Anyone else's too I am sure.


You are spreading misinformation (bordering on simple lies) here.  I don't know why. 

 Welcome back to earth.  Let's haul some crap.

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#2) On November 09, 2007 at 6:51 AM, wax (97.03) wrote:

Dean, Dean, Dean. You know it really isn't very nice to say someone is spreading lies, they take offense to something like that.

I understand why you said that though, and I'm pretty sure you wouldn't have said it if you had read the post.

Because had you read the post Dean, you would have realized that just as I said I did, I used the latest ANNUAL financial data.

You on the other hand Dean went to MS Money and looked at quarterly data. Not good Dean because quartely financial data is seldom audited.

That really doesn't excuse you for saying I'm spreading lies Dean, but it does explain to me why you don't have a clue. 

Let's take a look Dean...come on, I'm happy to show you how I got my numbers. 

As I said throughtout my post, my information was based on the companies latest 10-K filing. Gosh Dean, I even provided the date of the filing so I wouldn't mislead anyone.

See Dean if you had a clue, you would have realized that 10-K filings are annual filings and that real investors prefer this information over quartley information because it has been audited by an independent auditing firm.

It's pretty simple the way they work actually. The company's year ends on December 31, 2006. That means that by about the end of March 2007, the 10-K must be filed with the SEC. That stands for Securities and Exchange Commission Dean.

So when I look up the information for DRYS, I find that the company earned $1.75 per share in fiscal 2006. The day before my post, the stock closed at $106.20, which I said in my post.

When I divide $106.20 by $1.75 which is the company's previous annual earnings, I get 60.3409, which is quite a difference from MSN Money's 18.6.

As to QMAR, same thing. According to the annual financial information I found, the company earned $0.37 for fiscal 2006. The stock closed the day before my post at $26.30. So when I divide the two numbers I get a PE of 71.081.

So see Dean, as I said, it appears to me you don't have a clue.

At any rate, while I certainly respect your right to an opinion Dean, what I don't respect is you saying that I'm spreading lies when the basis for my information was in right in front of your eyeballs, eyeballs that to me don't seem to be open when it comes to investing.

Wax 

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#3) On November 09, 2007 at 1:55 PM, Dean47 (< 20) wrote:

Well, I said bordering on simple lies. 

It is still misleading to the average reader, there is no question about that.  The dry shippers earnings are growing at a rapid rate.  Why use the old data?  (I will admit, I didn't see that you used the old annual data, unfortunately that explains a lot.)

The annual data is audited, but updated is quite nice too, and dramatically more relevant.  Relevance trumps audited reliability in this investing decision.

Not sure why so many Fools hate bulk shipping.  It does smell like sour grapes. 

Lies, no.  Relevant, no.  Misleading, I believe so.  Good day.

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#4) On November 09, 2007 at 4:27 PM, wax (97.03) wrote:

Dean;

The reason I use old data is twofold. First as we both point out, it is audited. Secondly, using annual data removes the cyclical nature of pricing.

The PE of DRYS for the quarter may indeed be as you said, I have no idea. But what changes are to be expected in the next quarter, or the quarter after that?

Using annual data, and going back for as many years as practical is just what a value investor does. The idea is to try and normalize earnings, sort of level them out. For while the earnings per share may change, the earnings as a percentage of sales should remain fairly consistent.

As to growth, I won't argue the growth point as I simply don't know enough about the bulk carrier business. But growth is a subjective thing. How many times have you seen a growth estimate of something, only to have it revised, up or down the next quarter? To me, considering growth is like trying to hit a jet airplane with a rock.

Anyway, I was happy to see that you had made some money with DRYS, and I hope, should the opportunity arise again, you're able to make some more.

At the end of the day that's the reason we all put our money at risk in the first place.

Thanx for your thoughts.

Wax

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