Looking Good: Genco in Particular, Shipping in General 32 comments
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Thanks to Gary, who contributed this comment on a post about the Baltic Dry Index a week ago -
What [a] great time to buy shipping stocks - before you know it demand will be back because pent-up demand will force products to ship. Stocks like Genco (GNK) and others will expode again.
Not sure about the “explosion” you’re anticipating, Gary, but I’ve got to agree with you on this point - demand for the dry bulk shippers will be back. Dry bulk goods, like metals and grains, are the foundation of economic growth - and even as the world’s economy shrinks in the short term, its population (and corresponding demand for food, energy, and consumer products) continue to grow in the long term. click to enlarge
If only I had paid attention to Gary’s advice on Friday afternoon and pulled the trigger on a dry bulk shipper. I’ve been tracking DryShips (NYSE:DRYS) for a while now, and it’s ugly - down 96% in the last six months. That’s a huge number, but in line with what’s happened to the Baltic Dry Index (down 92% in the same period). Since the BDI measures the price of shipping dry bulk goods, as this price bottoms out, so do the prospective earnings of companies like DryShips.
But the BDI may finally have hit bottom. It’s been pretty much flat since November 3rd…and it really can’t go much lower, so it's just a matter of time before the climb. I decided Monday to put in an order for some DryShips stock, since it was trading at $3.54 and a P/E of 0.17 at Friday’s market close - but it’s already too late for the first bounce, because the ask price at my broker was already up above $23.
I’m certainly not ready to give up the opportunity though - so if you do believe in shipping stocks, which one to pick? Here’s some of the companies to watch:
Key Companies in the Dry Bulk Shipping Industry
Zeroing in on one of these companies - Genco Shipping - you see the potential for explosive growth that has captivated investors like Gary. Revenues grew 235%, and net income almost 400%, between 2005 and 2008 as shipping rates reached incredible heights. The driver of the company’s growth has been Chinese demand, which spiked at 3 billion tons of dry bulk goods in 2007 - and that’s been part of the recent decline, too, as Chinese demand has dried up along with the global economic slowdown.
Let’s assume that Chinese demand will pick back up, and look at a few of the fundamentals of Genco’s stock and business. GNK earnings per share were $8.54, and P/E ratio was at 0.86 at market close on Friday. That’s eye-popping - but not so much as the $4.00 per share dividend, for a yield percentage of 54.6% according to Friday’s share value! You can be assured, though, that the dividend will decline this quarter since the stock price has rocketed south.
Genco’s current ratio (current assets to current liabilities) is over seven - rock solid as a measurement of the company’s ability to meet short-term debt obligations. But total debt-to-equity is less rosy, well over one, but that’s standard in an industry where the major fixed cost is ship-building, and companies often take on big debt obligations to grow in the short term. Also worrisome is Genco’s PEG ratio (a measure of potential for earnings growth) at just 0.11. This likely reflects the pain that the BDI and the industry as a whole have been feeling lately, and forecasts can change quickly if demand picks up again.
It’s just a snapshot - but I’ve got to think that the optimism surrounding these companies is pretty well grounded. At any rate, it's a good time to take shots at undervalued stocks, while prices scrape bottom - and with strong fundamentals, dry bulk shipping is a gamble you’re unlikely to regret.
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This article has 32 comments:
What the hell are you talking about ~ the ask above $23 ~ you must be retarded
" but it’s already too late for the first bounce, because the ask price at my broker was already up above $23." = amateur hour at Seeking Alpha.
There are several thousand vessels out there and above mentioned companies collectively own less than 200 of them. If you look at the 90's, you will find that the investors lost the money but the management of most companies went away with big smile on their faces and few vessels in the pockets.
Incidently, back then we had the "Asian Tigers" this time we have our hopes pinned on China.
_____________
THESE ARE NOT IGNORANT PEOPLE. THEY ARE PAID PUMPER!
SKRUMMY
On Nov 24 09:18 AM Cartledge wrote:
> Unbelievable that someone (even an internet site) would publish this
> nonsense.
>
> " but it’s already too late for the first bounce, because the ask
> price at my broker was already up above $23." = amateur hour at
> Seeking Alpha.
IT'S JUST A MATTER BEFORE THEIR DEBT KILLS SOME OF THESE COMPANIES.
THE PE AND DIVIDEND #'s YOU REPORT ARE BASED ON THE PAST.
IDIOT BLOGGER !!!!!!
Why don't we just make ALL shipping part of the U.S. Navy--you know, like the post office.
seekingalpha.com/artic...
Please note all the good piled up on harbors have to be shipped at some point of time. So the bounce of BDI will be sudden and fierce.
Simplified:
Your error is in calculating debt to equity based on July asset valuations. The ships in these companies are now worth 1/3 what they were in July. Current equity in most of these companies is now net negative or nearly so. The only exceptions are DSX and NM.
This may have been written on some kind of bet for laughs. Or, maybe the author is just really simple minded and thinks he has said something meaningful. If so, that's a shame.
And a chart with utterly useless 2006 and 2007 data?
The real problem here is that there may be someone influenced by this pathetic article, who might actually go out and buy some stock because of it. And that's sad.
If you believe that the Chinese economy will again drive the world's commodities markets, dry bulk shippers have excellent prospects.
Yes, good charters are important, but current cash is a survival issue. Genco is likely in violation of their loan covenants due to the drop in their asset values. So the question is, does their bank cut off credit? Does Genco have the cash to ride this out?
On Nov 24 08:14 AM buyforeclosures wrote:
> the QUESTION is which of these companies will STAY in business?
>
While I find the blog interesting I find the replies less than informative and many are quite insulting. Look guys- no need to get ugly just because you are losing your shirts in the current market- maybe it's because you refuse to give fair credence to opposing viewpoints.
I have owned DSX for several years and have been paid the current asking price just in dividends over that time. I went out and bought more just last week. I go for low debt and high dividends thus my choice in DSX. Also if you look at management- they have eliminated the dividend for the time being to position themselves- and I would rather they do that than go heavily into debt to pay for their needs.
Yeah maybe the ships are devalued and that may not look good on the balance sheet but they still float and they still carry goods and they still produce income. Your new car was worth $10,000 less after you drove it off the car lot but it will still get you to work for the next five years.
Too bad some of you would rather throw insults than intelligence .
>
>
======================
Do you apply the same logic to real estate??? Wanna buy my condo in Las Vegas?
There is no such thing as low debt in Shipping.
Agree with you 100%.
One must enter to win.
I think the explanation is yours to make. Why would your broker ask for $23 on a stock that you can buy at less than $6? Although the tone of the original comment was harsh, its reasoning was well-founded.
I also think the chart has no meaningful value.
On Nov 24 01:42 PM The Simplified Investor wrote:
> Hey sorry about the mistake on the $23 ask price - but rather than
> just call me an "amateur", would love an explanation of the concept
> and why I was misguided.
A major financial magazine (can't remember which of the ones I read had it) mentioned the shippers (many of them) are violating their loan covenants due to the asset values of their ships dropping - again due to over supply. This creates the problem where in order to get their value ratios back in line per their loan covenants, they sell ships - yup, you guessed it, that brings asset values down more, and the cycle has begun. Now throw in the fact that most ships operating at spot rates are doing so below cost and you have a real problem. Investors are pricing these companies as though they can't make their payments and keep their covenants in good standing - something that only a few will do. As one person commented, Diana is in the best position to survive with it's low debt. The other may be TBSI since they have a unique niche of smaller ships.
Still, you just didn't address any of this critical material in your blog/article which is why more than a few have flamed you for it. Next time, take the time to research the sector you write about and what is influencing it beyond the fact that the stock prices are down to ridiculous levels.
I for one won't buy ANY of these stocks until the carnage is over - and that means 1, probably 2, will bite the dust. My bet is DRYS could be the first, but with $1B in debt, GNK isn't looking all that great either.
Full Disclosure: I currently have no position in Genco. I may short the stock after further research.