Perhaps nothing so epitomized the bear market of 2008 than the precipitous crash of the Baltic Dry Freight Index (BDI), a somewhat arcane but highly relevant gauge of worldwide business activity.
Last year saw some very exaggerated readings on the BDI, both on the upside and down. Exactly one year ago, for instance, the index was setting extraordinary highs, topping out at over 11,700. Just a half year later, however, in December of 2008, it had fallen about 95% to 663. Since then there has been a recovery, and the gauge has risen by over 400%, and as of May 21 it stands at 2707.

IN PICTURES: Eight Ways To Survive A Market Downturn

The Rise and Fall (and Rise) of the Baltic Dry Index
For over two centuries, the offices of the Baltic Exchange in London have been recording the cost of moving commodities by sea, with both investors and economists using the BDI to determine the general health of global trade.

It works in the following way: when demand for cargo ships is high, demand for the raw materials they are transporting is also running at accelerated levels. This leads to higher readings on the BDI. Conversely, when there's little demand for commodities – and overall trade is contracting – prices for container ships fall along with the index.

The Fall of Lehman Brothers Creates a Financing Vacuum
Some point to the fall of Lehman Brothers, a New York based brokerage firm, to explain the damage done to the shipping business in the fall of 2008. Lehman supported a large proportion of letter of credit financing that's widely used in the shipping business. When they went under, it was difficult for contracting parties to find alternative sources of financing. Now, however, that liquidity has returned to the credit markets, a number of other players have stepped up to absorb the backlog left by Lehman's sudden departure. And in so doing, they've given life to a moribund sector of the investment world. Here are just three shippers who've seen calm seas and terrific sailing these last few months. (For more, read Case Study: The Collapse Of Lehman Brothers.)

Three Shippers with the Wind at Their Backs
Euroseas Ltd. (NASDAQ:ESEA) is up 180% since bottoming in November of last year. The stock yields 7.63%, has a P/E ratio of 6.76 and trades with a price/book ratio of only 0.66. The company beat analysts earnings estimates last week, announcing total net revenues of $15.3 million where Wall Street had expected only $14.0 million.

Tsakos Energy Navigation Ltd. (NYSE:TNP) has seen gains of over 65% in the last two months. Tsakos trades with a very low P/E of 3.81 and a dividend yield of 8.35%. It's currently on offer for less than book value, with a P/B of 0.84.

Ship Finance International Limited (NYSE:SFL) is another shipper with stellar fundamentals. The company pays an annual dividend of 10.43%, has a P/E of 5.09 and trades at a P/B ratio of 1.51. SFL stock has nearly tripled in the last 10 weeks. (Read Analyzing A Bank's Financial Statements to learn more about tools to enhance your analysis)

The Wrap
The shippers as a group are sporting impressive fundamentals. And after nearly drowning last year, it appears they're beginning to gather some steam. Wise investors would do well to consider weighing anchor with the above three issues.



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Tickers in this Article: ESEA, TNP, SFL

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