What happens when conventional wisdom is just plain wrong? Take the dry-bulk shipping sector. Most industry observers argue that the shippers overbuilt during the last run and that the glut of new tonnage will continue to drive down prices. Nice theory, except it just hasn't happened. Dry freight rates, as tracked by the Baltic Dry Freight Index, have actually recovered since plunging last fall (see chart below, courtesy of investmenttools.com). The six month charts of the bulk shippers reflect this strength.
The strength probably comes from China. That country's voracious demand for raw materials appears to have soaked up the excess capacity everyone was concerned about. Also, as energy prices increase and scrap steel prices remain high, some inefficient older ships will likely head to the salvage yards.
I'm playing this variant perception through microcap bulk shipper Excel Maritime Carriers (NYSE:EXM). Excel earned $.23/share last quarter and has shown impressive growth over the past few years. Because most of its ships are not tied to long-term contracts, it should benefit from the recent rise in spot rates. I took a smallish position around $10.75 and intend to keep it as long as: (1) the Baltic DFI shows strength; and (2) EXM stays above its July lows.
DISCLOSURE: I am long EXM. Not a recommendation to buy or sell any security. For informational and educational purposes only.