Several High-Risk Shippers Start Q4 With Strong Share Gains

by: Zvi Bar

The fourth quarter of 2011 has started off rather well for several shippers, after coming off one of their worst months in what has been an abysmal year for most shippers. Many issues could affect shipping, including potential European failures, Asian recessions and further Middle East instability, among domestic and other risks. These risks, combined with shipping overcapacity due to recent fleet expansions, have hurt the shippers.

Nonetheless, several shippers have performed incredibly well over the last two weeks. Below are seven low-priced, high-beta shippers that I have previously identified, listed in alphabetical order. Five of these seven shippers have gained at least 20 percent over the last two weeks, with three gaining over 30 percent. I have provided their 2-week share performance rates, as well as their prior month 2011-to-date share price performances.

DryShips, Inc (NASDAQ:DRYS)

  • 2-weeks: 27.73%
  • Prior Month: -37.59%
  • 2011-to-date: -54.28%

Eagle Bulk Shipping, Inc. (NASDAQ:EGLE)

  • 2-weeks: 8.82%
  • Prior Month: -20.67%
  • 2011-to-date: -70.28%

Excel Maritime Carriers, Ltd. (NYSE:EXM)

  • 2-weeks: 40.70%
  • Prior Month: -2.67%
  • 2011-to-date: -50.27%

Genco Shipping & Trading Ltd. (NYSE:GNK)

  • 2-weeks: 34.60%
  • Prior Month: -9.78%
  • 2011-to-date: -38.39%

Navios Maritime Holdings Inc. (NYSE:NM)

  • 2-weeks: 21.14%
  • Prior Month: -17.60%
  • 2011-to-date: -31.62%

Overseas Shipholding Group Inc. (NYSE:OSG)

  • 2-weeks: -1.70%
  • Prior Month: -23.44%
  • 2011-to-date: -62.45%

Paragon Shipping Inc. (PRGN)

  • 2-weeks: 34.47%
  • Prior Month: -41.72%
  • 2011-to-date: -65.89%

As the 2-week chart below shows, several of these shippers have increased a considerable amount to start this fourth quarter. Only one of these seven shippers is not positive over the last two weeks, with the average gain being well above 20 percent. See the 2-week chart, below:

(click charts to expand)

Nonetheless, these shippers are all still down a significant level from their start of 2011 prices. The best performance since the start of 2011 for these seven companies was a loss of more than 30 percent, with five of the seven down more than 50 percent even after this strong start to the fourth quarter. See the 2011-to-date chart below:

Shipping suffered significant demand reductions and fleet increases just as the financial crisis began. Many shippers expanded fleets prior to the crisis. Shipping volumes have since declined and then stabilized, so far at least. The industry is left with the present overcapacity and concern over future demand, coupled with fears of a brewing global economic crisis.

Much of this overcapacity development was leveraged, leaving several competitors with problematic levels of debt and an aging, relatively unused fleet. This business cycle is common and usually results in some companies failing while others survive, stronger and/or with greater market share. The survivors are still unknown, which creates uncertainty and potentially undervalued equities. Nonetheless, the recent broad concerns over global growth and demand highlight the concerns and issues that have plagued the shippers.

These companies offer significant risk and potential returns. Their ownership should be limited, though exposure to shipping and transportation is generally considered appropriate in a broadly allocated portfolio.

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

Disclaimer: This article is intended to be informative and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.