Tuesday, all of my favorite shippers mentioned in my previous article had what appeared to be a profit-taking pullback. Genco Shipping & Trading Limited (NYSE:GNK) was down 3.62%, Starbulk Carriers (NASDAQ:SBLK) was down 3.7% , DryShips (NASDAQ:DRYS) was down 3.89%, Navios Maritime Holdings (NYSE:NM) was down 4.78%, and Diana Shipping (NYSE:DSX) was down 1.18%. My first emotional instinct thought "oh no, the hype rally in dry shippers is over, here comes the crash."
Then I checked the dry shippers index. Much to my pleasant surprise, it moved in the opposite direction of the stock prices themselves, up another 63 points or 4.26%. Perhaps dry ship investors have gotten spoiled and used to big rallies in the rates of shipping prices, but what should be needless to point out: a 4.26% increase in a single day for a commodity, especially dry shipping rates, is yet again an enormous jump on top of the fantastic rise it's already been seeing. This just means dry shippers on average will make more gross profit, much more, and these increased rates they can charge will fall directly to the bottom line.
Now investors get to buy into these stocks at increased and more profitable rates and at cheaper prices than a day ago. It's a fundamental investors' dream!
What's even more interesting to note is that the rates for the Panamax vessels this time outpaced the Capesize vessel with a 6.8% rate increase in a day vs. a 4.6% rate increase for Capesize. The rate increases for Capesize had previously been outperforming the Panamax.
Genco Shipping & Trading Limited remains my favorite dry shipper. I mentioned in my previous article why I liked it a tad more than Starbulk:
[Starbulk] it doesn't currently own any Panamax vessels, it's less diversified and I consider it more risky than Genco Shipping.
Today solidifies that thesis a bit with the Panamax rates shooting straight up as well. Genco owns nine Capesize and eight Panamax vessels. With the rates shooting up today for both, and Genco specifically and strategically positioned to take advantage of short term positive upswings in rates, Genco remains my favorite horse of the group. Investors should again recall from Genco's latest quarterly release:
During the second quarter, management maintained an opportunistic time charter approach in a volatile rate environment. By employing a large majority of our vessels on short-term or spot market-related contracts, we expect to increase the Company's future earnings potential when market conditions improve while continuing to provide high quality service for our customers
There's always a risk of things changing for the worse just as quickly as they've been improving, so a keen investor should be constantly checking the daily shipping rates to confirm that the investing thesis is still intact. Dry shippers as a group have lost of lot of money over the last few years so this surge in rates needs to last or go higher for the turnaround to be solidly in shape. As for timing of when to buy, if an investor can stomach the risk, investors who liked the dry shipping stocks yesterday at lower rates should love them today with higher rates and cheaper stock prices. Good luck to all.
Disclosure: I am long GNK, SBLK, NM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.