A Rising Tide Will Raise DryShips - Barron's

Some of the reasons nervous investors cut DryShips shares (DRYS) in half this year? Global recession fears, and volatile day rates for chartered ships are down 30% to $130,000. Some also fret over-diversification after DryShips spent $405 million on a deep-sea oil-service company.

But Barron’s notes $64 DRYS shares trade at just 3.5 times average earnings projections of $18.18/share for 2008 and 5 times $12.22 for 2009.

Although rivals focus on stable, long-term contracts, versus DryShips' shorter ones, industry P/E’s are 50% higher. Even if profits fell 50%, a 7 times P/E would still pale next to previous 40 P/E levels for DryShips. The company earned $9.54/share in 2007 and its balance sheet is strong. Global dry-bulk trade may rise only 4% (vs. 5% in 2006-2007), but that’s hardly catastrophic. The stock seemingly discounts China and India shipping altogether, when CEO George Economou says Southeast Asia and China already account for 60% of the world's dry-bulk trade and growing.

Bulls concede day rates could fall to $90,000, but only a major contraction in global trade would keep them there. Merely mediocre growth should push the stock 25% higher by mid-2009.

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Note that DryShips has been hammered by relentless short selling; one quarter of the float is short. Raashid Haque notes dry bulk carriers are the primary transporter of iron ore, coal, grain, and fertilizer -- making them an attractive play for commodity bulls.

Comments

[Bhakta:]

I agree with this article. The trade in coal, iron, manganese, and so many industrial and agricultural materials is not dying due to the USA slowdown. Rather, I expect the governments of India and China to put the massive surpluses to use in infrastructure, and need to contstant replenishment of materials is not coming to an end. DRYS and others are quite over sold and I expect some short to be burned badly.

2008 Apr 06 12:01 PM

[BxCap:]

shipping.capitallink.c...

Since DRYS is mostly exposed to changes in the BPI. This like should be watched closely by DRYS investors.

2008 Apr 06 12:36 PM

[The Corret ...:]

Another chartered ship play is FREE.

We think it's undervalued big time and it pays a real nice dividend.

www.thecorrectcall.com...

2008 Apr 06 02:22 PM

[Lion is King:]

You'll need ships to move all those commodities around and Dryships has plenty of them. Long DRYS!!!

2008 Apr 06 02:43 PM

[Stephen Ros...:]

Short sellers took down several fabulous companies to absurd levels i.e. Apple at 116 and PCP at 94. Dryships is an example of a stock that has been battered despite having remarkable growth and earnings. I like to find stocks that are ready for a mighty comeback just as Apple has been doing. It is currently impossible to find any other stock out there with this low a PE and this high an earnings and revenue YOY growth.

2008 Apr 06 07:52 PM

[BigDogBlog:]

The article points out iron ore, grain and fertilizer. Company Vale (RIO) and Potash reflect this increasing commodity trade DRYS will continue to have for 2008 and 2009 leading them to reach there $18.18 earnings for 2008.

2008 Apr 07 08:18 AM

[egarl:]

Not many people realize that the weak dollar has made US coal a hot commodity on the international market. This is increasing dry bulk shipments from the US and is a big plus.

2008 Apr 07 12:05 PM

[jimmy46:]

""Short sellers took down several fabulous companies to absurd levels""

This is an ignorant comment, if those stocks are such values now,
why aren't you and others buying them on the cheap?

EVERY SHORT SALE ENDS WITH A BUY

Short selling just moderates the cycles so the
highs aren't so high, and THE LOWS AREN'T SO LOW.

Just what margin buyers would like.

2008 Apr 07 02:04 PM

[Lion is King:]

Up 7% today!!! that was a thing of beauty. Looks like the commodity demand can't be put on hold too long. Well, it will be in full effect now.
Who r you gonna call? Dryships w/ the largest fleet floating around.

2008 Apr 07 06:01 PM

[Gaucho:]

Another company the shorts have beat to death is CALM. It has 87% of the float shorted!!! Earnings last quarter wer3 over 3 times the year before and beat expectations by 20%. Do your own research this one will fly one day. The shorts have run out of shares to borrow.

2008 Apr 08 12:04 AM