Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
For the last several years shipping stocks have been in the gutter due to low day rates and excess deadweight tonnage amongst other factors. However, in the last several months things appear to be turning. It may not stick and we may still see lower levels but the "triangulated" trends are worth considering.
Rates are on the rise. The chart of the Baltic index (see link) demonstrates this. Additionally, more specific rates on the Dryships (DRYS) website, which are reported daily and can be found here, are showing the same trend.
CEO commentary is worth considering. For years the comments in the earnings releases have been somber as the companies have been focused on cost cutting, debt restructuring, and ultimately survival. But now things appear to be changing and the tone has shifted to cautious optimism. We highlight the following quotes from recent EPS releases:
· DryShips, Inc (DRYS): "The drybulk market continues its recovery lately in the larger asset classes and as a result, asset prices across the board are rising. We are cautiously optimistic, expecting a sustainable recovery in 2014 and beyond."
· Eagle Bulk Shipping, Inc (EGLE): "During the third quarter the dry bulk market remained in a cyclical trough characterized by steady demand offset by excess tonnage capacity. While we see signs that this imbalance is improving over time, Eagle Bulk's focus remains unchanged: operational excellence, a flexible and revenue-maximizing chartering strategy and a diversified cargo mix that promotes stability through a range of market conditions."
· Globus Maritime Ltd. (GLBS): As we approach 2014, the fundamentals of the dry bulk market improved significantly and the market has already shown some signs of a potential recovery. We witnessed the Baltic Dry Index (BDI) record its highest quarterly average since the fourth quarter of 2011, due in large part to the run-up in Capesize rates, largely as a result of an increase in Brazilian iron ore exports."
· Tsakos Energy Navigation Ltd (TNP): "With rates on the mend and operating expenses on the decline, our bottom line for another quarter exhibited a significant shift for the better when compared to the same quarter of 2012. The same goes for the nine month period of 2013."
· Ardmore Shipping Corp (ASC): "We are pleased with the Company's third quarter results, as the market continued to trend up and the vessels delivered year-to-date contributed to EBITDA growth."
· Euroseas Ltd (ESEA): "During the third quarter and through October of 2013, the containership market showed some signs of improvement, especially, in the small vessel sizes that we operate, however the market should still be characterized as depressed. On the contrary, drybulk rates increased significantly in September and early October driven by the strength of the Capesize market only to decline later but they remain at higher levels than earlier in the year, especially, for Panamax size vessels like ours. We expect to benefit from the higher rates as our vessels roll-over their existing charters."We are guardedly optimistic for 2014 for both sectors, as we see supply pressures moderating and the focus shifting to demand and economic growth."
· Kirby Corp (KEX): "For both our inland and coastal marine transportation markets, strong demand, high tank barge utilization levels and favorable pricing trends continued during the third quarter."
Not all executives have been as positive but these comments demonstrate a turn has certainly begun, whether or not it is sustainable remains to be seen.
Prices for a lot of the stocks have gone up considerably in the past few months. In many cases, price levels from the mid-2000s are still substantially above current prices. Of course, this line of thinking doesn't consider sales, earnings, margins, multiples, and a host of other considerations, but again, it is worth mentioning/considering.
Available deadweight tonnage remains the wild card. Tracking this in aggregate certainly is easier said than done and most articles and executive comments indicate there remains considerable capacity out there.
In aggregate, stock prices are rising, executive comments are cautiously optimistic for the first time in years, and select shipping rates and the Baltic index are rising. That isn't to say it can't all reverse but the trends are definitely worth considering after years of poor performance.