Dry bulk shipping stocks have been woeful performers. The solid bulk cargo carriers that saw their fortunes rise during the high tides of the industry prior to the global recession have struggled in recent years. Are there any signs that this unfavored industry will make a comeback, and if so, when? (For more information on how to value stocks, check out Fundamental Analysis For Traders)
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Glimmers of Life
On Tuesday, June 14th, the dry bulk shipping stock index posted a 1.7% increase for the day. This might not seem significant, and longer term it may be nothing but a blip, but given the dry bulk stocks previous one month minus of about 13% performance, it's at least a slowing of the falling knife, or in this case, the metaphorical sinking of the vessels.
Also, the Baltic Dry Index, which measures dry bulk shipping activity, has recently crept back up into the 1,400 range. This is a far cry from the even 3,000 and higher it had reached and fell from a year ago, or the well over 11,000 it reached in 2008. But, after falling to nearly the 1,000 level earlier this year, it's an encouraging, albeit mild, rebound. (To learn more about the Baltic Dry Index, read The Baltic Dry Index: Evaluating An Economic Recovery.)
Highly Volatile Sector
Dry bulk shippers are highly leveraged and subject to the fates of the commodities they ship, so stocks in this industry are not for conservative risk-averse investors. Still, many investors whose portfolios are largely low or medium risk in design, if not actuality, allocate a small portion to highly speculative areas such as this. Investors who do this should still invest carefully, not blindly, and attempt to know what they're getting into.
Industry demand for shipping iron ore, coal, steel, grain and other lucrative goods plunged after the downturn of 2008.With the business fundamentals of the dry shippers, though, vessel oversupply continues to be a problem. In what has to be regarded as not the best business judgment by the shippers, industry fleets are expected to expand by more than 10% each year this year and next. So daily lease rates will continue to be pressured.
Not every company in the sector, though, followed the expansion model. Diana Shipping (NYSE:DSX) held onto and gathered additional cash and now has nearly a half billion dollars in cash and available credit. Diana also pre-negotiated its rates rather than left things to the spot market. The stock trades at around $11.00, not far from its 52-week low, at a trailing P/E of 6.7. Navios Maritime Holdings (NYSE:NM) insures its charter contracts, which has dampened some of the heavy risks from the industry downturn that has shelled other companies. (With so many investment opportunity in the shipping industry it may be hard choosing the right investment for your portfolio. For more help, read 4 Steps To Picking A Stock.)
Genco Shipping & Trading Limited (NYSE:GNK) also trades near its 52-week low. Its gross margins have been under pressure, but the stock carries a trailing P/E of roughly 2 and is trading near 0.20 price to book, so investors have pretty much beaten it into submission. Eagle Bulk Shipping (Nasdaq:EGLE) and Excel Maritime Carriers (NYSE:EXM) trade similarly, at price to book close to 0.26 and 0.16 respectively. It's no secret, this is an industry that isn't only cyclical, but those who hit bottom the hardest are often not expected to survive.
The Bottom Line
As you can gather from even a quick survey of these companies and the industry, buying these stocks is not for the faint of heart. That said, if you feel you want to step in or just can't help yourself and the industry turnaround upside may pay off big in the face of the heavy risks-- Diana would be the most likely to thrive with Navios a distant second candidate. (To help you determine if these stock are turn around stock, check out Turnaround Stocks: U-Turn To High Returns.)
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