All Eyes On Greece and its Shippers
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While Greece is pushing back on Germany’s demand for more cuts, Greek ocean transportation company Dryships (NASDAQ: DRYS) has been exploding with volume after the recent announcement of its drilling unit, Ocean Rig UDW, winning a contract to drill 15 wells in the Norwegian Shelf.
While there has been increased scrutiny of George Economou’s private company, Cardiff, and whether the company could survive the economic downturn, I have been a bull on the stock even before the last earnings surprise when Dryships beat earnings by $0.02. The company was also able to sustain its short-term debt obligations on its loan covenants that it used to improve its vessels. In my humble opinion, the pessimism from investors was geared more towards the intertwined debt issues of PIIGS rather than anything company-specific. DryBulk Index is currently trading at 52-week low of 648, so the company’s diversified drilling business and its $653 revenue projection from the Norwegian Continental Shelf should provide some earnings stability. With the recent price spike above $3.00, it is hard to tell if the stock will rally on earnings day of Feb. 13 even if it does beat analyst consensus. On the flipside, it could rally further if Greece finally reaches a definitive deal on its austerity measures.
Diana Shipping Inc. (NYSE: DSX) is another one of my favorites that has been oversold from double digit levels in 2011 with the Dry Baltic Index slide. This $727 million Greek dry bulk shipper has a P/E ratio below the Water Transportation industry average and has normally reported in-line earnings that were in the range of analysts’ consensus with only one negative surprise back in the second quarter of 2011. With a book value per share of $14.46 and a ROE of 10.3%, I find the stock to be oversold at current levels. I’m also keeping a close eye on the company’s short ratio interest of 4.8, which is far below the industry average of 14.9. Per Journal of Commerce, carriers will continue to reduce capacity in the near term due to weak cargo demand in the Asia-Europe trade and trans-Pacific and should idle chartered ships before their own vessels. Still, global container ship capacity is expected to rise from 14 million TEUs (ton equivalent unit) in 2010 to above 19 million in 2014.
If you’re not risk averse, a micro cap that offers more risk and potentially upside is Eagle Bulk Shipping Inc. (NASDAQ: EGLE). After a lengthy dreadful one year sell-off from $4.00 to $1.00, this $116 million stock is finally turning around, surprising investors with a 74% year to date gain. That goes to show how incorrect analysts' forecasts are time and time again, especially since last month the stock was downgraded by Jefferies to a “hold” rating from a “buy”. The company has been reducing its liabilities and recently introduced the Sandpiper vessel that entered into a three-year charter at a rate of $17,650 per day and is projected to contribute over $19 million in minimum revenue. As global recovery continues to improve, these shippers should be the first in line to jump higher.
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