Over the past few weeks I have been scouring the markets for what I consider to be the most undervalued, high potential securities. The primary focal points of my search were to find low price to book ratios based upon tangible assets and extensive backgrounds of prior success. Excel Maritime Carriers Ltd. (NYSE:EXM) caught my attention immediately. For those of you not familiar with, it is a large shipping company engaged in the transportation services for dry-bulk cargo. They own a fleet of over 40 vessels and are headquartered in Athens, Greece with roughly 1200 employees.
On October 26, 2007, the stock reached an all time high of $76.70 due primarily to the economic growth in Asia and their need for dry bulk infrastructure. When the economy began to slow down on a global scale however, so did its revenue stream. Many saw the shipping industry as a dead investment, especially one whose headquarters was located in a country that was on the verge of bankruptcy. As a result, this same equity last week was trading at $0.45 and had a market cap of $50 million. So why all the sudden interest in what seems to be "just another dried up shipping company"? The answer is found on their balance sheet.
As of last quarter, EXM had $27.23 million in cash with over $2.6 billion in tangible assets. Compare this with only $1.14 billion in total liabilities and you have approximately $1.5 billion in shareholder equity. This gives us a price to book value of over $16 a share given its current conditions. Skeptics will argue the true value of these assets claiming that shipping vessels values are highly overrated, but let's assume 50% of these values. Even taking this into account the company has a liquidation value that is 10x greater than its current share price.
In addition to this severe price discrepancy, I would also like to highlight the recent stream of global stimulus being pumped into infrastructure throughout Europe, the U.S., and Asia. This will do nothing but boost the revenues of all shipping companies involved in dry bulk industries like iron, steel, and coal. It just so happens that these sectors in particular are Excel Maritime's primary markets. For this reason, I predict revenues will begin to double over the next year alone.
Lastly, I would like to point out that the momentum has already begun in this direction. Over the last 3 months the average daily volume for EXM has been slightly over 500,000 shares. The past five days however, have yielded volume spikes that have exceeded 4,000,000 shares and driving a price increase of 62%. This is a signal to me that investors are beginning to realize their opportunity for growth in the near future and are beginning to jump on board.