In my previous article, "Is it Time to loads the boat on DryShips?" I shared my thesis on the shipping industry and why I thought DryShips Inc. (DRYS) would go to new yearly highs. The stock is trading up 35% since November 12th. That article can be viewed here.
Shipping is one of a few industries that did not participate in the rally of the last four years. With the economy improving, some shipping stocks are looking at smooth sailing ahead.
On December 20th, DryShips Inc, parent of Ocean Rig UDW (ORIG), took delivery of deep water rig Skyros, the sixth new build Ultra deep water drillship to be delivered in the last 2 years. The company is executing its strategy, the last new build cleared sea trials in a record time of 76 days. Skyros is being deployed to Angola for a 187M project and a letter of award that would keep the rig on contract through 2020 with a 1.26B contract backlog.
Double top Breakout?
In the 240-week chart below you can see a long painful march down to the bottom, one can see a two year saucer that appears to breaking out as this report is written. This is historically one of the strongest types of chart formations for big gains.
Does the chart match the improving fundamentals? I believe it does. The BDIY is near a multi-year high. Tanker rates for Suezmax and Aframax ships have risen over 11 fold in the last few months. Harsh weather and fog for the month of January can cause ships to be delayed up to a month, which can push rates even higher. DryShips has 4 new Suezmax ships and 6 Aframax on spot. With rates around $60k per day, you can expect the company to maximize profits going forward.
Let's take a moment and go back to the chart. You can see converging trend lines around the $6-dollar mark. That is the next near-term target. I believe the improving economy and the recent spike in suezmax rates will lift profits substantially in the first quarter of 2014. DryShips is in a great position to take advantage of the current market environment.
A look at recent history.
The volatile Baltic Dry Index (BDIY) made a low of 652 on February 2, 2012, seven months later, on September 11th that low was retested, holding at 662. Day rates for all classes of ships remained at multi-decade lows for the remainder of 2012 and into the first half of 2013. The index currently sits at 2277 as of December 24th, up over 300 percent.
In 2012 shipping stocks followed, hitting multi-year lows. Rates plunged to a 25-year low, with "Capes" earning a mere $3600 a day. DryShips Inc. stock fell to an all-time low of $1.46 a share, from a high of $132 a share in 2007. On July 24th, 2012, Diana Shipping Inc. (DSX) fell to a new all-time low of $5.89 from a high of $42 in 2007. Both have begun the recovery process.
DryShips Inc. was trading at $3.50 when I wrote my article, now is the time to buy DryShips. The company had just announced that they were suspending the ATM equity offering of 200M. they had announced in the Q3 report that they had sold around 5M shares at a price of $3.51, you can view that article here.
We are clearly seeing a turnaround in the industry and the companies that are executing their strategy will be the ones to survive and thrive in the years ahead. I Believe DryShip's 59.4 % ownership of Ocean Rig UDW, along with rising rates will continue to propel this stock forward in the future. I urge you to do your own research, make sound unemotional decisions, and have an exit strategy in place. Happy Holidays!