shipping stocks

[DOGS THAT BARK]

Kirk or anyone else following shipping sector--has been one of my fav sectors--been chaos there for past week per article below--any thoughts on jumping back in---



Market Scan
Shipping Stocks Sink



Dry-bulk shippers are being rocked by reports of a Chinese boycott of Brazilian iron ore and general global economic lassitude, which had investors fleeing the sector on Friday.

The Baltic Dry Index, which measures shipping rates on 40 routes across the world, fell 10.0%, or 417 points, to 3,746, on Friday -- its biggest one-day drop since it was instituted. (See ? Dry Bulk Breaks Swan Dive.?) Friday?s decline marks the fifth straight day the index headed south, and that's not the half of it. Before a brief, four-day respite, the index had declined for an almost unimaginable 20 straight trading days. (See " Shipping Rates End Dry Spell.?)

Dahlman Rose analyst Omar Nokta said that the forward freight agreements for ships have been slammed this week as well, with the fiscal year 2009 forward Capesize contract falling 40.0% since the end of last week and 60.0% in September. Capesize vessels are those so big they must go around the Cape of Good Hope and Cape Horn rather than through the Suez and Panama canals.

Pressure over the past month has come from Chinese steel mills duking it out with Vale (nyse: RIO - news - people )The Brazil-based miner is asking the steel mills to pay an additional 11.0% to 11.5% for iron ore over the initial 65.0%-to-71.0% price hike already agreed upon. Normally, iron ore contracts are negotiated once a year. (See ? Dry Bulk Drowns.?)

Jeffrey Landsberg, a freight options broker at Imarex, a shipping-related derivatives exchange, said that with reports coming out of China on Friday that it will boycott iron ore from Brazil and use domestic iron ore, the dry bulk shippers are on the rocks. Vale said the news was untrue, but the damage was done to the index notwithstanding.

At the same time as the total number of ships on the water is decreasing, investors are worried about the future of the global economy ? a double whammy that is putting additional pressure on shipping rates.

Meanwhile, Excel Maritime Carriers (nyse: EXM - news - people ) chief executive, Stamatis Molaris said the credit crunch is restricting global trade and some shipments are still in the docks, according to TradeTheNews.com. He added that new shipyards in emerging markets may fail if the crisis continues.

Landsberg said that just last week alone three separate South Korean shipyards announced they would likely have to cancel 40 big shps because they aren?t able to raise enough capital to finance construction. On Friday the South Korean government publicly stated that it was looking into a bailout plan for a wide array of businesses including small and medium-size shipyards, he said.

Landsberg expects that if there will be a rebound in freight rates it will be after the first week in October when China's Golden Week holdiay ends. If a rebound "doesn?t happen by the end of October that means Chinese demand has come off,? he said but he doesn?t think that?s likely to happen.

?I think freight rates are going to continue to fall in the short-term. But in the longer term the potential for a rebound is there,? Landsberg said. ?I think if and when the equity markets stabilize and the bailout plan becomes official confidence will be brought back to the dry bulk market.?

The dry bulk shippers drowned on Friday. DryShips (nasdaq: DRYS - news - people ) sank 8.9%, or $3.88, to $39.60 at the close, while Navios Maritime Holdings (nyse: NMWS - news - people ) tumbled 15.6%, or $1.05, to $5.67. Eagle Bulk Shipping (nasdaq: EGLE - news - people ) slid 9.0%, or $1.59, to $15.99. Excel Maritime Carriers plummetted 16.9%, or $3.34, to $16.39.

Focus On Citi, Wachovia Match-Up

 

[dawgball]

Personally, I would stay on the sidelines for a little longer. I don't think the entrance back into the sector will be as fast as the exit was, so a sign of an uptick by be a good entry point for a short term trade.

 

[DOGS THAT BARK]

Thanks dawg

Have made some good money on several and all paid hefty divs to boot.

Think I will get back in on one Monday--ESEA
price now-- Last Trade: 8.69



My maim reason for them is one of few with more cash than debt--book value greater than share price--and can't see hefty div of 14% going away considering it is only about a meager 50% payout raitio with debt to equity a very low 0.234.

 

[selkirk]

with the market trading like it is, believe many stocks get lumped in all together...and trade the same....

for instance take energy stocks they will all go down or up roughly the same percentage....even when news is reported negative or positive it makes little difference. now going forward this is important however in the last few months, these stocks trade as a group.

punched in esea along with four base mining companies, they all lost between 3.5-6% for the day. believe the shipping stocks will roughly follow (closely) the resources sector. especially base metals.

not sure what plan passes in Washington and how much it is changed or what it looks like, and even if their is a bounce or rebound it probably does not last long. there are so many questions.

when buying into this market would make sure you do it slowly, nothing like taking a position and losing another 10% in a day or two. stocks have been sold off so much especially in the resource field that have been thrown out.....still bear markets in the group can take stocks down to extremely cheap levels......

so would buy in slowly...
some of the shipping stocks will cut their dividends at least that is what the market believes...so only look at stocks that are generating the cash flow to support the dividend...and are covering the div... on an ongong basis...
the market often prices in a div cut but in this market will take the stocks down even furuther.

long term I like the shipping industry, only owned CP ships (taken over) the main concern was that in good times new ships would be built or come onto the routes they had.... that is not a concern since there is not capital available to build any ships....this is actually very bullish...as that is always my main concern, to much credit, capital and soon to many ships and prices drop like a rock.

agree with dawgball would use caution... if you buy in, do so slowly.... hope they bounce back as then resource stocks will also be doing the same, energy, especially base metals.

thanks
selkirk

 

[DOGS THAT BARK]

thanks kirk
Had taken head to your buy in slowly previously--which was right on--maybe just getting bored on sidelines --will certainly not go over board--been following these pretty closely for a couple years--and this is one of very few that has excellent cash position and low payout ratio.

Certainly agree on your--all drop as group regardless of news--can't ever remember seeing such a time when you can throw profit or other good news out the window.

Certainly makes it tough when you look for stocks cull out of your portfolio and and when you review the #'s you want to but more instead. Strange days indeed.

Patience is definately a virtue--but not one of my strong points

 

[cashflowmatters]

Take a look at FRO it is in the sector of your interest & it pays a great dividend.

 

[DOGS THAT BARK]

Had Fro for long several years with excellent returns--kept most of profit as sold on stop loss--never bought it back--primary reason I did not buy back was its debt to equity got extremely high around 5
and div payout ratio was about 100%--
very tough #s to continue paying high div--especially with recent down turn on shipping.

Prefer ESEA with more cash than debt and only paying out about 50% of profit in dividends with book value of company almost double stock price--FRO book value 1/4 stock price.