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Player Avatar TMFEldrehad (99.99) Submitted: 7/19/2007 3:03:51 PM : Underperform Start Price: $9.08 DRYS Score: +19.02

Okay, it's time I finally entered a pitch for this stock. I initially made this pick as a result of TMFOtter's pitch - but since I'm getting absolutely slaughtered so far (score well below -500, and getting worse lately as of this writing) I thought Fools might want to know why I haven't ended the pain yet.

Here's a little example of why:

Economou says DryShips' management owns 47% of its shares and that helps generate enough cash flow.

Huh? How, exactly, does the fact that management owns shares help generate cash flow? Silly me, I guess I always thought cash flow was generated by the business - you know, shipping stuff. Think the ships, or the people who hire the ships, care who owns the shares?

But it goes on.

"We do not intend to sell shares," he said. This means the company can put a big part of equity back into buying vessels. Economou added: "We can deliver more money for every dollar invested in the company."

Okay, I like to think I'm a relatively bright guy, but I'm left scratching my head here. How does not selling shares translate into more equity with which to buy more ships? If management sells shares, or doesn't, the same amount of equity remains within the company. Of course selling shares in a secondary offering will result in more equity with which to buy ships, but that's not what he's saying - he's saying not selling shares translates into more equity. I need some Dramamine, because my head feels like it's spinning from trying to understand this.

I could end there, but I won't.

During the summer of 2006, when rates declined, DryShips' stock price fell to less than 9 a share, one-fifth of its current price near 54.

Economou says people's reaction to the volatility of the market was harder to deal with than the lower rate itself.

"When the market is low, people tend to panic," he said. "Investors and bankers are less willing to listen to the company." Borrowing money during the period was particularly difficult, he says.

Oh, now I get it. Never mind that rates declined at the time and the company's fortunes are closely tied to the spot market rates. We should all just be sheep and listen to the company!

DryShips is also looking for a chief financial officer from outside the company, but within the industry, he says. Its CFO resigned in May.

Pure speculation on my part, but maybe the CFO left because he got too confused all the time by trying to figure out what in the heck Economou was saying. I know I sure did.

Source for quotes: http://biz.yahoo.com/ibd/070713/newamer.html?.v=1

Report this Post 22 Replies
Member Avatar fransgeraedts (99.92) Submitted: 9/30/2007 4:42:59 AM
Recs: 3

Dear Eldrehad.I symphatize. The comments of the CEO are .. a bit difficult to understand.I think however that i know what he wants to say. Probably that is because i am a Dutchman and a soccerfan. Dutch soccerfans of three generations have had the privilige of watching Johan Cruyff. First as a player (one of the three best players ever) then as a trainer (one of the ten best ever) and then in his last reincarnation as a soccersage speaking through the media. Johan Cruyff is probably the most knowledgeable person on this earth when it comes to soccer. But...he speaks like the CEO you quote.When Johan Cruyff speaks about soccer he says things that at first sight do not make sense at all. The grammar is all over the place, the metaphores are being mangled, there seems to be no logic at work and even in terms of the game itself he seems to be plain wrong. However he is almost invariably right in what he says...and usually we lesser souls figure out after a while what he meant ...and why we are wrong.Three things combine to produce the unique Cruyff way of speaking. (1)The man has a deep understanding of a very complex game and has to explain that to people who think they understand it - but don't. (2) The man is very intelligent but has no formal education. (3) He had to become a self made man when it comes to language -because there were no words to express his insights -and because even if there were, nobody had taught them to him.Could it be that your CEO is such a man as well? Very knowledgable about shipping, very intelligent, no formal education, a language mangler? What i think he is saying is this: I run a company that is 50% owned by its directors. Thank God for that! That makes it possible to reinvest every nickel and dime of profit. So there will be no share buyback's, folks, just that you know. We are in our industry at the moment in the enviable poition that every dollar reinvested is very profitable indeed. And by the way, our industry is extremely complex. You need to be experienced to be able to foresee and correctly navigate the choppy seas of rate hikes and slumps. Last time for example that the rate for bulk shipping dropped i could not for the love of god explain to those banker types that i was certain that it would be just a short hiccup in a very long bull run. But hey, thats part of this business right?I hope this translation helps!small bow,soccer fan and Cruyff watcherfransgeraedts

Member Avatar leohath (< 20) Submitted: 10/2/2007 10:57:10 AM
Recs: 0

whilst all your points are valid i think you are wrong, Dry bulk in general is a buy e.g. EGLE and EXM with port congestion and higher prices being paid to rent these boats and DRYS fleet being modern and new ships this means it is the perfect climate for them to do well. Also orders for dry bulk are increasing and they are in a perfect market position to capitalise on this. yes its structure e.g owners ship is set up in a precarious way but still i believe there is still money to be made from this stock and sector.

the recent shipping route index who's number came out recently suggestted that drybulk carriage is in a very good upwards trend at least untill the end of 2008.

Member Avatar FoolishChemist (96.74) Submitted: 10/8/2007 5:44:05 PM
Recs: 0

Congratulations on making it to the -1000 club. At least it's not real money.

Member Avatar TDRH (99.66) Submitted: 10/9/2007 11:03:25 AM
Recs: 0

When dayrates drop and this stock corrects he is going up like a rocket.

Member Avatar Mookini (51.20) Submitted: 10/10/2007 1:36:50 AM
Recs: 0

Hey TD, is that sarcasm? I can't tell.I agree that the rise has been explosive, but isn't is justified buy the rates going up and the value of each ship increasing? I am a new Fool, so I have no idea how high or far a stock like this can go. Would you be selling it now (real $) if you had a 125% gain? Or would you hold it?aloha.

Member Avatar TDRH (99.66) Submitted: 10/11/2007 11:50:38 AM
Recs: 0

It was not intended to be sarcastic. If and when the stock corrects he is really going to take off. Painful to watch though. I am the wrong person to ask when to buy and when to sell. My timing is not the best. One thing I try and do is secure part of the gains with stop losses. If a stock has a run up and I think it may be due for a correction, I put in a stop loss to take some of my money off the table, and stay in the game with the house's money. This has worked in the past, but I underestimated the momentum in several stocks this year. I took some money off the table with MDR and Nvdia that would have gone on to double again. The investments that I moved the money in to have not been successful short term.

Member Avatar imacg5 (< 20) Submitted: 10/11/2007 5:14:53 PM
Recs: 0

Unlike most companies, where you have no idea how well they are doing until they give quarterly earnings. You can find out every day how much they are getting for chartering their fleet. The Baltic Dry Index is posted every day on the DRYS website. As long as that number goes up every day to record highs, then you know that DRYS will go up, except when there is panic in the whole market. Many of you talk about how many ships are going yo be built, well they won't be ready until 2010, and then alot of old ships will need to be scrapped. This is simply a supply and demand issue, and way too many people who are actually in China and India, say that they are building cities with steel and cement, they are building coal-fired electric plants, and there is no end in sight.

Member Avatar MRTShorts (99.27) Submitted: 10/17/2007 2:36:24 PM
Recs: 0

just wait for it. this seems eerily similar to the 1980s japan boom. increasing marketshare in a time where it comes at a premium, increasing players to the market, people believing in future results based on a historic anomaly over the past year, more and more people following the trend, and finally late comers trying to get a piece of the action at a premium price.

it's interesting because when things do go down, there will be a lot of overlap on it. just keep tracking the BDI like everyone else now, and wait to see what happens when everyone sees the top, and rushes to get out.

Member Avatar TDRH (99.66) Submitted: 10/17/2007 11:33:27 PM
Recs: 0

Doylidoff,
Hope I did not offend you with my reply, my timing is poor, but still profitable.

MRTShorts,
Where do you anticipate the top? Drilling company day rates have doubled as well, yet their stocks have not increased at the same rate as dryships?

The market will turn eventually. (Hope I am not offending anyone.) When it does, imagine Eld will shoot up dramatically.

James

Member Avatar MRTShorts (99.27) Submitted: 10/18/2007 11:39:56 AM
Recs: 0

I'd say after 15-30 days of average BDI increases that are <0 we would hit top. But that is something so vague and broad it says everything and nothing.

and if I'm wrong, then DRYS is one hell of an amazing stock. I just wouldnt see any rationale in buying it now.

Member Avatar MRTShorts (99.27) Submitted: 10/19/2007 5:12:00 PM
Recs: 0

another cute little thing here: notice how 20 of the last 150 picks have been underperform AND how at least10% of the current active picks were made withing the past week. the word is out.

Member Avatar Allstar13913 (99.82) Submitted: 10/29/2007 11:39:02 AM
Recs: 0

Hey Eldrehad,

I'm holding on until the bitter end too. I'm currently negative 600 with room to go up :)

Member Avatar TMFEldrehad (99.99) Submitted: 10/30/2007 5:08:19 PM
Recs: 0

For those interested, a more recent update of my thinking behind this call can be found here:
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=21261&t=01004277408378353444

Member Avatar kristm (99.75) Submitted: 10/30/2007 8:21:41 PM
Recs: 0

BURN BABY BURN!!@! I moved up the ranks by 600 places today when DRYS lost 17%. This floater has been banging around against the sides of my toilet for way way too long and it's time to see it go away.

Anyone else notice that every positive reply or outperform pitch for this company seems to be coming from the same script? A diverse variety of opinions on why it's bad, but the voices saying why it's good all seem to be thinking with the exact same mind - or be the same person. Fishy. Another good reason to give it a red thumb and hang on tight.

Member Avatar MHAS (< 20) Submitted: 1/10/2008 12:11:26 AM
Recs: 0

I was optimistic in my last pitch of DRYS, based on its seeming picture upon the fundamentals and valuation. Yeah, as most of great-thumbing, I was impressed by its growth rate and price rate.

I was comfortable with all the DRYS datas from website, and imagined that DRYS would have a long-term bright future, except for One Thing. One Thing comfused me alot is its deal to acquire for 30.4% of Ocean Rig ASA (ORA). It seems brilliant and smart in my first browse. After yesterday I had enough time to review the acquisition and all the information I could get from the internet, I'm really questioning and scared. Why did DRYS spend 405m including about 60% debt to acquire for 30.4% shares of ORA? How about ORA? 405m of 30.4% means ORA was valued at about 1332m of its total shares. Is that an impressive value?

Untill the third quarter of 2007, ORA recorded 72m net income of Q3 and 57m net income of Q2. But in 2006, they lost. I don't know how it performed in last several years, but according to the performance of relative industry, it couldn't be good enough in the last few years. Although, can we imagine ORA may record 300m net income in full 2007? It could be the best picture upon their current and planned contracts. However, facing to their numbers in Balance Sheet, you will find out it's not such good picture as we like. Their total assets floating in recent years was recored at 1088m till Q3 in 2007, including 671m long-term liabilities and 311m owners' equity, both of the numbers were also floating yearly. There are the other useful informations you can find out on the website of ORA and Oslo Stock Exchange.

Definitely, I, on my own, can't define ORA as a valuable and stable growth company. Even, spending 405m for 30.4% with 60% debt, which means net rate of return may be just above 10% annually after the deduction of interest cost. May be DRYS is waiting for the appreciation of the book value of this investment. But regarding to ORA's historical record, I don't trust. I need more information about the deal to be convinced. If the 405m was totally pocketed by ORA former shareholders, that would be even worse.

I can't agree that this was a smart deal till now. I'm sorry that I haven't done more detailed research on that for who read this pitch. But for me, it's done. Especially at this time, I mean at this certained period of dry bulk industry, which will surely have a 3-5 year bright future. I will feel much more comfortable if DRYS spent this budget on purchasing more carriers, which in their main business brought them over 30% growth rate annually in their company history.

At this stage, I'm wondering about DRYS performance in the stock market. In long-term, if DRYS can prove that ORA deal is smart and agressive, it will surely win.

I'm new Fool, and looking forward to anyone who can provide me more details about the ORA deal, which can make me judge more accurately.

Member Avatar MRTShorts (99.27) Submitted: 1/15/2008 12:26:48 PM
Recs: 0

god, im really getting tired of the undervalued talk. the stock is up 200%, just because it came down from the heights of 700% YoY doesnt mean it is "oversold" or undervalued. i also think its hilarious how so many people green thumbing at this point also have crap scores.

Member Avatar LurkyLurky (99.81) Submitted: 1/30/2008 6:07:29 PM
Recs: 0

I lost hundreds of points on my DRYS red thumb pick: I finally gave up and ended my pick -- right before the downturn! Man...Anyway, check out this very interesting article that abitarecatania posted in a caps blog:http://www.weedenco.com/welling/archive/sb/v07i04sblogo.asp

Member Avatar ResearchLover (40.70) Submitted: 4/15/2008 5:12:23 PM
Recs: 0

This fits with DRYS funding online advertising of the drybulk sector, citing capacity shortfalls before it popped. I think dry bulk shipping is to be heaepd in with rail freight as a hedge against eternally high petro prices, and that justified the moves they made, at least early on, say up to $35.

Member Avatar martyolsen (< 20) Submitted: 5/16/2008 10:11:56 PM
Recs: 1

Maybe I'm missing something but this "top bear pitch" is a little dated isn't it. Attention readers this post is dated July 2007. A whole lot has changed since like maybe a housing melt down, credit crunch, recession and oh ya an earthquake. Bulk shipping rates are at an all time high. Please delete this irrelevant posting and let's move on to now!!!

Member Avatar leohath (< 20) Submitted: 7/30/2008 5:55:04 PM
Recs: 0

you said back in 07 to me welcome to the -1000 club, oh how very wrong you were, can't win em all i guess

Member Avatar SwordAgain (< 20) Submitted: 12/8/2008 8:48:24 PM
Recs: 0

Wow,what a ride you took!

Member Avatar TMFEldrehad (99.99) Submitted: 2/13/2009 3:42:46 PM
Recs: 0

Indeed, I did take a ride on this one. I think my score was -1,500 at one point on this call alone....And to think I closed it solidly in positive territory not much more than a year later!

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