Dry Bulk Shipping Stocks Break Out

A big move out of the dry bulk shipping stocks yesterday with several breaking out of consolidations with heavy volume. Excel Maritime (EXM) reclaimed support of its 50 day moving average in a big way. The dry bulk shippers have been on a wild ride over the past year and a half, many plummeting 80 - 90% from their peaks in late 2007. Since late November, this group has been stabilizing along with the overall market, seeing a big wave of institutional buying back in early December, another wave of buying in early January and now the trend continues with a big surge in the past two days.

DryShips (DRYS) has been in the news of late, taking traders on a wild ride. Last week the company was notified that it was in breach of its financial terms on a large chunk of debt and the company announced it would dump stock and cancel ship orders to preserve liquidity. The stock plummeted more than 50% in just 3 trading days….

On Tuesday, the stock got a reprieve when it announced an agreement with Piraeus Bank to restructure two of its loan facilities in order to regain compliance, resulting a swift recovery rally. DRYS is a favorite of traders, but I prefer to take a look at its competitors - TBSI International (TBSI), Diana Shipping (DSX), Excel Maritime (EXM) & Genco Shipping (GNK).

All broke out yesterday with heavy volume and could gap up this morning. Be very careful about chasing these particularly in this market. Be patient and wait for your price. Diana Shipping (DSX) is probably the safest of the group while Genco Shipping has problems of its own having recently suspended the dividend and share buyback. It should be noted that most of the shippers have suspended their dividend, but as far as I know Excel Maritime (EXM) is still paying out.

Yes, the shippers have problems but these are technical trades of a few weeks. They look quite bullish in the short term.

Disclaimer: I don’t currently own any of the stocks mentioned in this article.

Comments

[James Wilson:]

Have you noticed the Shorts following your articles ?

Feb 05 10:07 AM

[David White:]

DRYS has significantly reduced their financial exposure and their immediate term financial problems recently. They have cancelled their dividend temporarily. However, all of this really means that the company is in much better shape than in had been. Investors will eventually be handsomely rewarded when the deep sea oil drilling part of the business gets spun off. I am guessing this will not happen until at least next year though. The dividend may not come back until then either. However, you can be pretty sure that the CEO wants to pay himself a dividend also, so it is definitely coming back in the not too distant future.

Meanwhile the BDI continues to rise. It is up again today to 1498. The capesize spot price is now 26,495. This is a huge lift from early January. It looks to be in a strong trend higher. The news about a possible new stimulus package for China is likely helping it. Plus Australia chipped in for a $26B stimulus package. That couldn't hurt.

Feb 05 12:38 PM

[Ray Rez:]

Just because the BDI is up, does not mean that the dry bulk shippers are making a profit YET

Feb 05 02:44 PM

[elliot_mllr:]

DSX is not the safest of the dry bulkers. NMM and SB are safer.

Feb 05 03:16 PM

[PeteK:]

Ray Rez,
When BDI moving up from the bottom, it mean time to buy shipping stocks.
If and when ships making money and profit, you will pay 3 or 4 times more for the same share. That's the point. Remember not that long ago you can buy some of these shippings for under $2.00 ?

Feb 06 02:41 AM

[David White:]

DRYS sold one of their spot market panamaxes today. This should give them some extra cash. Plus it takes away a possibly idle ship from spot market exposure in this down economy. They will record a gain on this in a following quarter. This was a 14 year old Panamax. This is in keeping with DRYS's policy of selling its older ships for a profit (and eventually moving to newer ships).

The BDI is up again today to 1642. The capesize spot price is now up to $30,001. The dry bulk shipping prospects just keep looking up. DRYS and EXM should especially benefit from this.

Feb 06 09:10 AM

[David White:]

Ray Rez: many people have pointed that out. However, it is a good indicator of how things are going in the dry bulk shipping arena. Just look at how the dry bulk shippers' stock prices have followed the BDI in the last 6 months. It is clearly a haringer of better times for stock owners. Plus of nothing else it is a great negotiating tool. A higher BDI (and capesize spot price) helps the shippers get better rates for their ships. A higher BDI also helps the shippers avoid being pressured to renegotiate their higher priced long term contracts to lower prices. It is definitely good news that the BDI is heading steadily upward, even if there is not a one to one correlation between that and the shippers' business.

Feb 06 09:17 AM

[David White:]

Ray Rez: With Regard to today's rise, any day the capesize spot price goes up by more than 10% in a single day has to be considered a good day for big dry bulk shippers like DRYS, EXM, and GNK. All of these have more spot market expossure than some other shippers. They probably also have more leverage worries, which makes this even more of a blessing to them.

Further the BDI and capesize spot price rise does indicate in general a resurgence in interest in dry bulk shipping. Whatever this index's faults, it does reflect the demand and supply situation to a large extent (even if it is determined by a "few old men").

Feb 06 09:26 AM

[Saul:]

I am an amature with stocks. I bought into GNK at $12.19 a share. Should I sell now or should I hold? I'm up 65%
Also Starbucks I bought in at $9.42 a share.

Feb 06 12:38 PM

[FWallace:]

I bought NM yesterday after listening to a Bloomberg TV guest recommending a buy of this stock, and the sector...

Feb 06 03:32 PM

[einstein p ...:]

I've been trading the whole group since it bottomed and sold out about half of my position in EXM, PRGN, OCNF, NMM, and GNK when I caught a double. Was hoping to lay back and collect big dividends on a zero cost basis, but one by one they cut their dividends. I had noticed that DSX did very well after it shed it's dividend, so I've held the positions and I'm glad I did. More than likely EXM will cut ---- Once it does I would expect a short term sell off and then a big rally to the upside. GNK sank in the morning after the announcement and has been on fire since.

If you're a trader, there has been plenty of money to make in the dry bulk shippers. If you have a longer term horizon and can trade your positions around to a zero cost basis, why not stick around for the ride. The BDI is still trading under 1500, which is a fraction of where it was and where it was was not sustainable. Somewhere in the middle would make sense over time and you would expect the dry bulk shippers to return to their old model of dividend pay outs.

Feb 06 09:57 PM

[phubaiguy:]

Obviously dry bulk shipping is going up and for those who think ships that used to fetch a quarter million a day can cut costs enough for half the fleet to just sit idle in the harbor...sign on for the trip. Red sky in the morning better take warning mates because I don't think this can happen. I think you better get ready to jump when somebody pulls the rug out from under you. If any ship why not tankers? They're getting $75k a day to sit out there full of oil.

Feb 06 11:44 PM