The Greatest Gamble in Stocks
January 06, 2011
– Comments (9) |
RELATED TICKERS: DRYS
It's certainly not an investment for suitable for retirement or college funds, but for a small wager that one is completely willing to place at risk, the potential payoff on this one is pretty incredible. [Be sure to vote in the Motley Poll at the bottom of the article, and thanks for your rec if you like the content]
http://www.fool.com/investing/general/2011/01/06/the-greatest-gamble-in-stocks.aspx
DryShips (Nasdaq: DRYS) -- that enigmatic, much-transformed shipper with a vehemently loyal following -- provides the ideal example of a stock pick where perhaps both risk and potential reward approach the limits of the imagination. I have long considered this one of the scariest stocks from any sector, but lost between the lines is my corresponding acknowledgement of the potential reward.
Pondering the payday
Now that we've contemplated the ways one can lose with a bet on DryShips, it's time to consider the potential gains from a successful outcome for Economou's unabashed quest for countercyclical growth. After all, it was not long after I warned investors of the debt-driven dangers of Teck Resources (NYSE: TCK) that the stock catapulted straight through nine-bagger status to stand today at a 24-fold gain from its multiyear low. We wouldn't call it gambling if the potential gains were not substantial.
In a jackpot scenario where DryShips manages to build a backlog of contracts on these first four drillships, which could in turn funnel capital into the exercising of options on the additional vessels, a forward-looking Fool can begin to see just how massively undervalued this 78%-owned Ocean Rig venture may arguably be. If such conditions were to be accompanied over time by improving market conditions in both the dry bulk and oil tanker segments, one could conceivably see these embattled shares shooting for the moon. Since DryShips has already diluted its share count a gut-wrenching 11-fold during its first five years as a publicly traded company, one might tentatively surmise that the worst of that activity must certainly lie in the past.
In parting, I would remind Fools of the principal advantage inherent in a truly high-stakes bet: Even a modest wager that one is prepared to lose outright can conceivably deliver that delightful surprise with a legendary multibagger return. I will continue to rely upon far safer resource plays like Peabody Energy (NYSE: BTU) and BHP Billiton (NYSE: BHP) to form the conservative core of my commodity-related exposure, but risk-ready Fools seeking a high-octane vehicle for overlooked growth potential may wish to give DryShips' roulette wheel a spin.
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