Not All Shippers are a Poor Investment
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is well known that shipping is currently in a bear market. The market has seen a continued decline in the Baltic Dry Index over of the past couple years and an increase in dry tonnage. Over the near term the majority of shipping stocks are not a great investment although there are still a select number of stocks like Kirby Corp (NYSE: KEX) which show promise.
As Warren Buffet advises one ought to be fearful when others are greedy and greedy when others are fearful. The best time to learn and study an industry is not in the midst of the bull market but during the bear market. It is estimated that dry bulk shipping will come out of its' bear market in 2014 or 2015. Now is a great time to start studying the industry so that when it turns around then you will be ready to position yourself in the most profitable companies. Being a long term investor is about more than just investing in stocks for the long term. A long term investor also needs to educate themself for the long term. Just because you cannot use newly acquired knowledge immediately it does not mean that it is not useful.
Kirby Corp (NYSE: KEX) owns a fleet of barges and a diesel engine re-manufacturing operation which operates throughout the United States. As the above charts shows even as dry bulk shippers show serious volatility in their operating income and margins this company has maintained their profits and margins. The company has acquired a number of barges, tugboats, petroleum storage facilities, and a parts and equipment company for the oil and gas industry. These acquisitions increased their Debt to Equity Ratio to around .5.
With the recent drought in the U.S. the company did have a decrease in revenue and EPS in the second quarter of 2012. The stock has been hammered along with the rest of shippers during the first half of 2012. Currently the PE ratio is around 14 which is slightly below the S&P 500 mean of 15. This company is more akin to an infrastructure company than a shipping company. They are based in America and not as subject to the whims of international trade to the degree that dry bulk shippers are. Though there is instability in Europe and Asia, America will still use their domestic transportation networks. Over the past couple years Kirby Corp has been able to increase earnings and maintain margins. I believe this stock deserves a place on your watch list. If insiders start to buy then that would be a green light to take a serious look at placing this stock in your portfolio.
Dry bulk shippers are in a serious bear market. Week demand and increasing supply are placing a great amount of pressure on spot rates. DryShips, Inc. (NASDAQ: DRYS) is one stock to avoid. As the above charts show the company faces great volatility in earnings from operations and an increasing debt load. Navios Maritime Partners L.P. (NYSE: NMM) is another dryshipper which ought to be avoided. As stated in the 20-F Navios Maritime Partners L.P. (NYSE: NMM) the general parter and its' affilates are highly involved with Navios Maritime Holdings, Inc. (NYSE: NM) and have significant conflicts of interest. NMM can be used as a dumping ground to help NM. These companies are not based in the United States and as such rights for common investors are questionable. Diana Shipping, Inc. (NYSE: DSX) is a Greek dry bulk shipper which should be avoided for the current time. Like the majority of dry bulk shippers a great number of their contracts are set to expire between 2012 and 2015, in the middle of continued supply increase. This company and industry is set for another couple years of pain before the supply and demand situation rectifies itself.
As the above chart shows there is a great amount of volatility amongst shipping company. Even in the midst of a downturn there are some companies like Kirby Corp (NYSE: KEX) which offer stable income and an attractive PE ratio. Dry bulk shipping has a delayed reaction between supply and demand. During upturns it is not uncommon for ship builders to have backlogs of 2 to 3 years. The inability to quickly produce new ships to deal with increased demand mean that there are sharp swings in profitability. As long term buy and hold investors now is the time to start studying the industry and understand which companies are to be avoided and which are not. When shipping comes out of the bear market around 2014 or 2015 one can invest right before demand snaps back and there is a severe lack of vessels.
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