I Eat Bear

A recent question was posed about the proposed success or failure of Dryships, and as somewhat of a follower of the shipping industry, I will briefly explain why that is not currently a pick for this portfolio.

Last year, Dryships had an incedible run up in it's stock price. I think they may have had to redesign some chart patterns to keep up with the near 1000% growth they accomplished in just a couple of months.

Personally, I never did own Dryships, but last year, I wish I had. Instead, I owned another shipping stock that did nearly as well, and that was TBSI. This one is not a current stock pick either, but it is a personal favorite, and well may be added later.

But, I do have three shipping stocks in this portfolio, and despite recent underperformance (but they are recovering), I still have faith in the shipping industry.

This is just my own personal opinion, of coarse, but I think the best management team in the industry goes to QMAR. They maintain one of the most modern fleets, but not the biggest by far. The thing against QMAR, is a very high debt level. And, it has been announced that QMAR will be merged with Excel Maritime. Excel got a heck of a deal in my opinion, if just in the management team they acquire in the merger, and in the longer term, I expect some good things from Excel. In the shorter term though, I will likely accept the $13 per share cash, and divest 50% of the Excel shares, until the growing pains of the merger are over. But, the QMAR philosophy, of share holders first, has made them a marvelous company to own stock in.

There are other good shipping companies too. Diana Shipping has taken a pounding lately, and it is in my portfolio today.This is another great management team, and the more than 5% dividend, shows they are concerned enough to make share holders happy. This was in addition to the more than 35% stock price growth they attained last year.. But three things have eroded most of that growth. First, the market as whole has taken a serious dive, and DSX got it's share of a hit there, right along with everyone else. Secondly, shipping is somewhat seasonal, and we are coming off of downturn months of that cycle, so I have some faith in some upcoming recovery. And lastly, has been the Chinese protest of shipping prices of iron ore. The Chinese can bouycott all they want, but it can not last indefinitely. The giant will fall to it's knees, and beg shippers to deliver the much needed ore, at most any price. And, I fully expect shippers to demand that price from them, in the near future. When they do, I will be giving serious thought to adding TBSI to this portfolio, as I do like their management, but compared to others in the industry, the TBSI yeild is just a little low compared to others in the industry, for the current risk of the market. But, both TBSI and DSX, in a good growth market, I expect will outperform the market as a whole. But, that is when the market is a little more risk tolerant, and it definitely is not right now. For now, I will stick with just the dividends on DSX, and hope for some stock price growth, that should follow in the coming months.

Another entry in this portfolio is ATW. I have not followed this one closely enough yet, but it has a near pristene balance sheet, and low debt made it worth the chance. That too says something about the management team, and I see that as a positive for this stock.

In short, you may have seen that I have based many of my decision on shipping stocks based on the management teams. I have not favored the management team of Dryships for some reason. I think they kind of blindly fell into the right spot, last year. The most recent acquistion of Dryships, was not more of what got them success last year, but a venture into to oil drilling. This is not showing me a great deal of dedication to their own industry. Now, I do not fault them for diversification, but I am not awarding them points for it right now either.

TBSI, GNK, EXM, and many other shippers, are actively increasing fleet sizes. Much less so with Dryships. Do they know something I don't? Well, I just don't see it that way. The time it takes to build new ships, well, I expect market demand to well exceed shipping capacity through at least 2011.

Do I like the shipping industry. ABSOLUTELY! But, it has taken a beating lately, and more than once I have been tempted to "jump ship". But, in the end, I still have to believe, "the water is just fine, c'mon in". Bulk up (drybulk) NOW, and enjoy the seasonal uptrend in stock prices that go with it, and consider a partial pullback, in maybe October.

But, I think there are better plays in the industry than Dryships. They will do OK too, but I far prefer DSX, TBSI, GNK and some others. I see hope for ATW, and yes EXM, in time. And, I will be sorry to see QMAR go, as I take my checks to the bank!

One unrelated item I must mention. I have been doing some load balancing on my portfolio, which included adding to some positions, and adding a few new stocks along the way. A lot of it is just getting this portfolio compliant, as it is a first time setup for me. But, in a few days, I will be updating those changes in this blog.

On the whole, the portfolio is a little down right now. I am not playing this as a game exactly, but more as a long term money manager. I think the dividends should hold me at par, or better in a rough market, like we have now. If the market gets over it's current attitude problem, I have some stocks in this portfolio that could do some fantastic growth runs too. For now, I think I have reasonable, but not excessive, diversity. In the end, I think I will still be competive. I may ride a few sectors (oil, gold and minerals, industrials, and yes, shipping are my favorites right now), but will not ride just a few stocks just to win a game. There just are not many "rockets" in the market right now, so we will hope we can get started with some "firecrackers", and build them into rockets as we go.

Comments: View Comments |  Friday February 8, 2008