2012 May Bode Well For High-Risk Shippers

by: Zvi Bar

So far in 2012, several of the shippers have outperformed the broader market. Along with homebuilders and financials, the shipping industry has been one of the best performing industries in the first three weeks of the year. This, of course, follows what will likely go down as one of the worst years for the shippers.

Within 2011, several shippers fell by as much as 80 percent. Shipping still remains one of the most volatile industries. Many shippers have high levels of debt and betas, with extreme sensitivity to changes in global demand.

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 (NYSE:OSG) and Paragon Shipping (PRGN). I have included their 1-week, 2012-to-date, 3-month and 6-month share performances. Despite a broadly negative week for these above-listed shippers, these companies have appreciated by an average rate of just over 13 percent so far in 2012. By far, the best performing listed shipper is EGLE, which has appreciated by a group leading 51.78 percent. Nonetheless, the group is down 21.4 percent over the last three months.

Continued economic stability should bode well for these companies, but any economic problem could push these companies right back down. Many issues could affect shipping, including potential continued European Union problems, Asian recessions and further Middle East instability, as well as domestic and other risks.

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.

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.