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Dirt-Cheap Shipping Stocks - 66404 views
Despite its importance in signaling current global growth trends, the Baltic Dry bulk index is hardly talked about by financial media pundits.
The index, managed by the Baltic Exchange in London, covers dry bulk shipping rates and is an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a time-charter and voyage basis, the index covers supramax, panamax and capesize dry bulk carriers carrying a range of commodities, including coal, iron ore and grain.
Basically, the index signals how global trade and growth are currently fairing. And with the index down 30 or more consecutive days in a row, many market participants feel that global growth is indeed slowing.
The Baltic Dry index hit a high of 12,500 in July and is now trading at 1,809. Has global growth really slowed by 90%?
On Stockpickr.com, we created the Baltic Dry Index 101, portfolio that looks at stocks most dependent on the index. Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers.
The names in the portfolio are highly correlated with how the Baltic Dry index is trading. If the Baltic Dry index is near its highs, the companies in it are likely charging very high charter rates and so their margins are zooming, making them attractive stocks to own. Conversely, if the Baltic Dry index has dropped off substantially, the names in the index are most likely hurting and are possible shorts.
It's impossible to call a bottom in the index, but many of it stocks are cheap and worth looking at. Here are a few to start with:
Eagle Bulk Shipping (EGLE) is one of the major bulk shippers of iron ore (1.1 million tons), coal (983,119 million tons), various gains (901,790 million tons), cement (542,118 million tons), coke (529,858 million tons) and steel (617,589 million tons). It has an extremely young fleet of ships (average age of five), so Eagle won’t be affected by increases in commodity prices for some time. It trades with a forward P/E of 2.82.
Dry Ships (DRYS) is the leading shipper of iron ore, coal, and grain. DryShips currently owns a fleet of 46 dry bulk carriers with an aggregate carrying capacity of approximately 4.2 million deadweight tons, consisting of five capesize, 31 panamax, two supramax and eight new-building dry bulk vessels. Since the company’s inception, DryShips has 113% return on equity, with profit margins of 80%. It trades with a forward P/E of 1.
The company also has a very hot sub-company, mainly focused in the ultra-deep drilling market, which it is looking to spin off in the coming months.
Top Ships (TOPS) is exploring a possible sale to an affiliate of George Economou, the single largest shareholder and the CEO of DryShips, for $6 per share. A spokesperson for Tops said: “There might be other companies interested in buying Top Ships, once they look that it is up for sale. As of now, Economou has the first exclusive agreement. If he turns it down and someone else decides it's worth more, that could be a possibility.” Economou owns about 15% of Top Ships; DryShips management would be a perfect fit to replace current management in Top Ships.
For more dry bulk shipping stocks, including Excel Maritime (EXM), Genco Shipping & Trading (GNK) and Teekay (TK), check out the Baltic Dry Index 101 portfolio at Stockpickr.com.
Posted on Oct. 22, 2008