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Tickers in this Article: KEX, SEA, DRYS, ALEX, DSX, GNK, TGP, GLNG, FRO
The growing concern about a slowing global economy has caused a variety of sectors to see their fortunes fade over the last weeks. Prices for a variety of asset classes and stocks are now trading for bargain levels. For investors looking for values among the recent market wreckage, the global shipping sector could be one of those long-term values. As these developing countries continue to grow, increase their incomes and build out their infrastructure, more and more raw materials will be required to sustain that growth. A thirst for wheat, iron ore and coal, along with other commodities, will ultimately boost not only the commodities themselves, but how they are moved around the world. (To learn how you can add commodities to your portfolio, read How To Invest In Commodities.)

TUTORIAL: Commodities

The BDI as a Leading Indicator
One of the sectors feeling the real brunt of the slowing economy has been global shipping. Stocks in the sector saw their share prices plummet, as the slowdown concerns have reduced demand for raw materials. In addition, several shipping firms have suffered in the face of lower day rates, high debts and rising fuel costs. The average ship uses about $20,000 worth of fuel daily. Asia's largest shipping line, Nissan Yusan, recently said that these higher fuel costs were cutting into profits by $241 million for 2011. With so much grim news facing the sector, it's no wonder why shipping stocks have sold off heavily over the last few weeks.

However, things may not be as bad as they seem. The Baltic Dry Index, which measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea, could be a leading indicator for the global economy. Overall, the index has bottomed out around 1,250 and once again begun its climb upwards. The index still has plenty of room until it reaches its 3,000 peak of October, 2010.

Asia's continued thirst for all things commodity is also benefiting the shippers. Chinese demand for natural resources, such as iron ore, corn and coal, continues to grow, and the rebuilding efforts in Japan after its devastating March earthquake and tsunami will require untold amounts of raw materials, all which need to be transported by ship. Equally, newly expanding economies in the rest of the ASEAN markets will require more materials.

Finally, a new wave of M&A could be coming to the sector. The low interest rate environment and newly available credit is setting up 2011 to be a boom year for corporate transactions. Similar to the real estate sector, the shipping sector could see a wave of acquisitions as strong firms purchase the weaker ones. We've already begun to see this with Kirby's (NYSE:KEX) recent offer for K-Sea Transportation Partners. (For more on M&A, check out Mergers And Acquisitions: Understanding Takeovers.)

Getting Your Sea Legs
While the long term outlook for the sector is bullish, in the short term, the shipping sector may feel more pain if the global economy really slows down. Investors could use the recent market downturn to add a dose of the sector to a portfolio. The Guggenheim Shipping ETF (NYSE:SEA) follows a basket of 30 different shippers, including Alexander & Baldwin (NYSE:ALEX) and Seaspan Corp (NYSE:SSW), and could be used as a proxy for the market. However, some of the best gains could be in individual shippers. Here are some picks:

With its low debt and fiscally conservative management, Diana Shipping (NYSE:DSX) could be a great way to play the shipping industry. The company is down about 40% from its 52-week high. Analysts also point to Diana and fellow shipper Genco Shipping & Trading (NYSE:GNK) as being an acquisition targets as well.

Finally, with liquefied natural gas (LNG) exports set to skyrocket globally, both Teekay LNG Partners (NYSE:TGP) and Golar LNG (Nasdaq:GLNG) represent plays on shipping that gas to other markets. Day rates for LNG tankers continue to rise, and the pair will ultimately benefit from the continued expansion.

The Bottom Line
Investors looking for values among the beaten down market may want to give the shippers a go. Firms such as Frontline (NYSE:FRO) are trading well below their highs, and represent a great long-term play on developing markets. Investors can use the recent weakness to add to the sector. (For more on other long-term investment opportunities, see How To Make A Winning Long-Term Stock Pick.)

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