Many mutual fund and other fund investors are restricted by their own covenants from buying securities based upon both the overall market value of the company and the actual stock price. Usually, funds are restricted from purchasing stocks that have a market price below $5, though exceptions exist. As a consequence, there is far less institutional and news coverage of these lower priced equities and a lower number of buyers. Additionally, many advisors cannot suggest equities below $5 to certain clients, as some compliance standards consider them penny stocks. Those funds might then start accumulating those equities if they appreciate above that level, and also then start recommending them.
Currently, numerous shippers are below this $5 threshold, with most also trading at deep discounts to their perceived book values. The shipping industry has been riddled with holes since the 2008 financial crisis. Prior to it, many of them increased their fleets at great expense. Subsequently, most of these shippers have suffered with decreased demand for their fleets, creating ship overcapacity and high debt levels that many are now struggling to pay.
Below are seven shippers currently trading below $5 per share and also below half of their book value, though not necessarily tangible book.
Below are seven shippers currently trading below $5 per share and also below half of their book value, though not necessarily tangible book.
DryShips (DRYS)
- Price to book: 0.32
- Beta: 3.36
Eagle Bulk Shipping (EGLE)
- Price to book: 0.17
- Beta: 2.28
Excel Maritime Carrier (EXM)
- Price to book: 0.1
- Beta: 2.91
Navios Maritime Holdings (NM)
- Price to book: 0.33
- Beta: 2.79
Paragon Shipping (PRGN)
- Price to book: 0.16
- Beta: 1.85
Star Bulk Carriers (SBLK)
- Price to book: 0.18
- Beta: 2.23
TBSI International (TBSI)
- Price to book: 0.13
- Beta: 2.04
This group has had a tough year, falling between about 40 and 70 percent since the start of 2011:
[Click all to enlarge]
About half of this descent has occurred over the last month, with equity losses between 20 and 55 percent. See one-month chart:
Volatility within this industry is also clear. Most have a beta above 2. Several were also up far more than the market, with several appreciating in the double digits. TBSI bucked the upward market trend, dropping over 7% after releasing a disappointing report. See the one-day chart:
There is no doubt that these shipping companies carry high risk/reward characteristics. Shippers have recently been hit by the speculation that global oil demand may stall. As a result, most have suffered significant recent declines that have usually outpaced the broader market and oil downward. And while it is true that some shippers may presently contain a decent dose of bankruptcy risk, there is a rich history of shipping goods and it is unlikely that we are near the end of it. Moreover, should any of these shippers actually go bankrupt, the loss of that competitor or competitors should help ease the overcapacity issue for the broader industry.
There is no doubt that these shipping companies carry high risk/reward characteristics. Shippers have recently been hit by the speculation that global oil demand may stall. As a result, most have suffered significant recent declines that have usually outpaced the broader market and oil downward. And while it is true that some shippers may presently contain a decent dose of bankruptcy risk, there is a rich history of shipping goods and it is unlikely that we are near the end of it. Moreover, should any of these shippers actually go bankrupt, the loss of that competitor or competitors should help ease the overcapacity issue for the broader industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
