Anyone who has been following closely the major equity and debt indexes has probably missed a spike in the Baltic Dry Index, which follows the sea freight rates, up 5.7 percent on Monday, and more than 100 percent for the year. The catalyst?
A rebound in the Chinese economy-the manufacturing base of the world economy, confirmed by two recent government reports. The first report published by The General Administration And Accounting Office over the weekend showed that China's trade turned the corner last month. Exports rose by 5.1, exceeding the 2 percent median analyst estimate. Shipments to Europe-China's largest export market rose were on a strong. Imports rose by 11 percent.
The second report published by the National Bureau of Statistics overlast weekend showed that The Purchasing Manager's Index (PMI) reached a 16-month high of 51.0 in August, up from 50.3 in July, beating market expectations of 50.6 in a Reuters poll-a reading above 50 indicates an expanding economy.
How can investors benefit from a spike in sea freight rates?
Buy shipping companies. But which companies offer the best appreciation potential? Technically speaking, Dryships (DRYS). The stock is trading well above its 100 and 200-day moving averages with unusually high volume. Nonetheless, its fundamentals are not that impressing--its debt to equity ratio is 117, among the highest in the industry. That's why it is for speculative investors only.
Fundamentally speaking, Navios Maritime Partners (NMM), a diverse operator of dry cargo ships has the best appreciation potential. The company enjoys a 37.42 percent operating margin and a 4.80 percent quarterly revenue growth. In addition, NMM pays a hefty 11.71 percent dividend.
The secret? Long and medium leases that have sheltered the company from the wild fluctuations in the Baltic Dry Index. That's not an accident. NMM is run by an experienced management team (Frangos family), which holds a 20 percent in the company. The Frangos family furthermore has a long tradition in the Greek shipping industry - which leads the world shipping industry, both in terms of number of vessels and tonnage.
Nordic American Tankers (NAT)
Tsakos Navigation (TNP)
Diana Shipping (DSX)
Navios Maritime Partners (NM)
Navios Maritime Partners
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A few words of caution: China's economic growth faces several headwinds both at home and overseas. At home, the headwinds come from a massive waste of economic resources in construction projects pursued for the purpose of creating jobs rather than serving a felt consumer need. Overseas, the headwinds come from anemic growth in Europe, China's largest export market.