Why These Dry Shipping Stocks Are Dropping Like Flies

 |  Includes: DRYS, DSX, EGLE, GNK, SB, SBLK
by: The Specialist

(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

The last week has been nothing but ugly for dry shippers. A week ago I warned investors to Abandon Ship Before These Dry Shippers Hit An Iceberg. Over the five trading days DryShips (NASDAQ:DRYS) dropped 16.2%, Star Bulk Carriers (NASDAQ:SBLK) dropped 6.2%, Genco Shipping & Trading Limited (NYSE:GNK) dropped 20.8%, Diana Shipping (NYSE:DSX) dropped 5.9%, Safe Bulkers (NYSE:SB) dropped 2.4%, and Eagle Bulk Shipping (NASDAQ:EGLE) dropped 19.3%.

There's been an all out slaughter in the daily spot rates for the Capesize, the largest vessels. In the last week alone, they have plunged by $7,505 a day to $21,363 or an incredible 26.0%. Total carnage is more than half since the Sept. 25 peak of $42,511. Panamax rates were also ugly, albeit not as brutal as Capesize. Panamax rates dropped 5.0% to $15,219. Supramax rates, however, continued to hit new highs up 3.2% to $13,150.

Two particular spooky things about this in the last full week before Halloween: First, the 26.0% drop in a single week is frightening enough. Two, Capesize rates are now within sight of the year-ago rates. The huge rally in Capesize rates compared to last year was what sparked the dry shipping stocks to rally in the first place. A dip to the year-ago would be a terrible headline and a wake-up call to the harsh reality of how bad of shape the fundamentals are collapsing for dry shippers. Imagine if the stock prices of dry shippers end up matching the year ago prices as well? Don't think it can't happen.

DryShips, Inc. traded the end couple of months last year below $2.00 and fell as low as $1.50. That leaves another 50% downside possible from here for DryShips.

Star Bulk Carriers traded in the $6-$8 range. At a current price just over $8.00 that's 0%-25% downside which isn't as bad as DryShips.

Genco Shipping & Trading ironically is now trading cheaper than it was this time last year, though it did trade in the low $1.00s earlier in 2013. A return to that for Genco Shipping & Trading would be on par with DryShips.

Diana Shipping traded in the $7-range or a 40% downside from here. Diana Shipping's downside headline risk therefore similar to DryShips and Genco Shipping & Trading.

Safe Bulkers toward the end of last year hovered around $3.50 per share or 53% lower. This puts Safe Bulkers in a potentially worse position than that of DryShips, Star Bulk Carriers, Genco Shipping, or Diana Shipping.

Eagle Bulk Shipping is up the most of the group so it has the most at risk when it comes to headlines. Eagle Bulk Shipping ironically has only seen its fundamentals improve from recent events since it only has Supramax ships which are at yearly high levels. Still, the headlines are beating up Eagle Bulk Shipping more than most as seen with the 19.3% drop last week alone. Last year Eagle Bulk Shipping finished the year crashing to around $2.00 which is a 66% drop.

Fear is driving the dry-shipping stocks based on the reality of collapsing rates for the largest and biggest revenue-generating ship, the Capesize. They say when it comes to the stock market that a rising tide lifts all ships. The opposite is also true. A lowering tide crashes all ships or in this case dry shipping stocks. If you like certain ones for the long term, my advice is to still get out for now until the storm passes as you will probably be able to buy back cheaper. If you insist on riding out the weather, go with Star Bulk Carriers. If nothing else, it has the least percentage of shares held at a profit over the last year which reduces the potential "I better grab my profit while I still have it" panic that could come across all dry shipping stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.