So far in 2012, several of the worst performing shippers during the last two or three years have considerably outperformed the broader market. The shipping industry is one of the best performing industries through the first seven to eight weeks of the year.
Nonetheless, this does follow a period of significant contraction. During 2011, several shippers fell by as much as 80 percent, and several started off 2011 at a significant reduction to their valuations prior to the onset of global economic concerns in 2008 and 2009. Many shippers have high levels of debt and betas, with extreme sensitivity to changes in global demand, making shipping one of the most volatile industries
Below are equity performance review statistics for seven publicly traded, high beta, low price shippers: DryShips (NASDAQ:DRYS), Eagle Bulk Shipping (NASDAQ:EGLE), Excel Maritime Carriers (NYSE:EXM), Genco Shipping (NYSE:GNK), Navios Maritime Holdings (NYSE:NM), Overseas Shipholding (NYSEMKT:OSG) and Paragon Shipping (NASDAQ:PRGN). Several other comparable shippers certainly do exist. I have included their 1-week, 2012-to-date, 3-month and 1-year equity performance rates.Click to enlarge
So far in 2012, these listed shippers have appreciated by an average rate of 34.93 percent. By far, the best performing listed shipper is EGLE, which has appreciated by a group leading 90 percent, followed by DRYS, which is up 72 percent in 2012. Nonetheless, EGLE is still down 57.97 percent from its price a year ago, and DRYS is down 31.53 percent from a year ago. These extreme moves should highlight the capricious nature of these shippers' valuations.
Economic stability will likely bode well for these companies, but any economic problem on the horizon could push these companies right back down to their pre-2012 levels. Issues that could affect shipping include potential continued European Union problems, Asian recessions and further Middle East instability, among many others.
There is also a significant shipping overcapacity issue, due to fleet expansions, made three to five years ago, and which are now largely unwanted. Much of this overcapacity development was leveraged, leaving many shippers with problematic levels of debt and an aging yet relatively unused fleet. Several analysts have, for years, anticipated that these conditions may cause a few shippers to go bankrupt, and that their fall will help buoy the surviving 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.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.