beegdawg007

Marc Faber: Short Emerging Markets - Barron's

If in fact Faber's view of DRYS is as simple as he says... "tanker rates have plunged, while dry shippers have not", then he will be wrong about DRYS. The shipping rates for dry bulk shippers did drop quite a bit during Jan. But, that was do entirely to short term issues. For example, coal could not ship from Australia do to flooding. Iron ore was not shipping from South America because of some port issues. Etc. However the demand is clearly there. The Baltic Dry Index - a handy index which, on a daily basis, tracks the dry bulk charter rates for shipping for the major shipping routes - has been steadily increasing since late January.

www.dryships.com/index...

These dry bulk shippers break even at rates which are less than half the current charter rates. Analysts est. that DRYS will earn between $18 and $20/share this year. My own analysis is a bit higher. DRYS is currently trading with a forward PE of 4!!!

Now, short sellers have been all over DRYS recently, so perhaps Faber new something other than what he said! The earnings however are really quite easy to calculate. Many have done so. And, the lowest forecast I have seen to date for 2008 is $13/share. I figure EPS to be closer to $22/share. It is also worth noting that DRYS has recently put more of its ships under longer term charters. Now, 40% of the fleet is locked in for a year or more. The largest of the DRYS fleet, the cape size vessels, are now chartering for over $140,000 PER DAY!!

I should conclude by saying that thus far Faber has been right about shorting DRYS. So if his comment in Barron's was for the short term, he was right. However, if he meant to short this for the longer term, he will get burned by that short because there is no quetion that 2008 earnings for DRYS will be stupendous. FYI... DRYS earned over $4.00, during the fourth quarter of 2007.

3-Pronged Profits from China's Worst Winter

Another way to play China is with U.S. and Canadian mettalurgical coal. China's demand for met-coal combined with other factors - flooding in the coal mining area of Australia, extreme port congestion at the Aussie coal ports, etc. - will result in met-coal (vs. thermal coal, a completely different issue) 2008 - 2009 contract prices which are up from an average of $95/Tonne in 2007 to over $200 Tonne for 2008. Since the cost of mining the coal does not increase with the price of coal, all of that price increase flows directly to the bottom line. Met coal pricing is no longer a local issue. When the price of coal goes up in China, it goes up by just as much in Alabama, Calgary and West Verginia. An added benefit for U.S. miners is the weak dollar, which now makes U.S. coal looks very cheap when compared to the rest of the world. Some stocks which will benefit from China's need for coal are FDG, WLT, WTN.to, and TCK.

I own both WLT and WTN.to. WTN.to is located in Western Canada. I like this company now because it almost all of its production of coal for 2008 is free to price at the new rates. Many other companies can not benefit from the coal price increases until 2009, because of existing contracts at much lower prices for the current production. WTN.to also has access to a good port in Western Canada. Coal is shipped from this port to Asia for about the same cost of coal that is shipped from Australia.

WLT sells most of its coal to Europe and Brazil. But the price per ton will still be up over 100% this year. WLT also manufactures COKE from Coal. WLT's COKE is all being sold at 2008 prices in the range of $370/ton, vs. $225/ton in 2007.

Another play which results for the coal trade combined with the iron ore trade - the are mixed together in blast furnaces to create steel - is driving dry bulk shipping prices through the moon. Investors might be interested in looking at a few of the drybulk maritime shippers like GNK, DSX, EXM and DRYS. All of these companies are now bouncing off of recent lows after soaring in value last year. Very low PEs exist here. For example, both DRYS and EXM are trading at PEs that are less than 6 times 2008 estimates.