Horror On The High Seas
The shipping trade is among the oldest businesses in history. So it comes as no surprise that the industry can trace its origins to ancient Greece.
But what might surprise you is that some of the industry’s major players remain headquartered in Athens! DryShips , run by billionaire George Economou, is among them.
Considering shipping has survived for thousands of years, it seems reasonable to assume that the industry can weather the current economic storm. But what about individual companies? Dryships stock has declined from $116 to $4 in a little over half a year.
Is something very wrong with the company or is this a fantastic buying opportunity?
Before you make a long or short play, it’s important to understand what’s driving the company’s stock. Fast Money’s Karen Finerman has some thoughts.
#1: Historical Dry Bulk Shipping Rates
Global shipping is facing its worst crisis in decades. In just a few months, dry cargo rates have fallen by more than 90 percent as a five-year boom has turned to bust. But that’s not all. Daily rates went from $200,000 down to $1,000 for capesize ships.
#2: Bulk Fleet Additions
The overall size of DryShips fleet has increased 5-fold from about 3 years ago – which is way too much capacity.
#3: Asia Steel Index vs. Dry Bulk Rate
Sinking steel prices (the main commodity shipped on these vessels) has dragged down the dry bulk rate.
#4: Shipping Stocks over Last 6 Months
DryShips, Excel, Genco & Diana - all down more than 80%.
What’s the bottom line?
Despite trading at $4 this stock is not cheap, counsels Karen Finerman. Stay away.
And according to Forbe’s there are other bad signs for investors. “Last month, DryShips said in a filing with the U.S. Securities and Exchange Commission that it planned to sell as many as 25.0 million new shares, a move that could significantly dilute existing shareholders. It also warned it may breach its loan covenants if the current low charter rates in the dry bulk market continue.”
If you’re looking for a trade in the sector check out Diana Shipping . Finerman is long because she thinks it has a solid balance sheet.
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Trader disclosure: On Dec. 2nd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (SDS); Macke Is Short (YHOO); Adami Owns (AGU), (BTU), (C), (GS), (MSFT), (INTC), (NUE); Finerman's Firm Owns (DSX),(MSFT); Finerman's Firm Is Short (IYR), (IJR), (IWM), (SPY), (MDY), (GNK), (USO), (BBT). (COF), (EXM); Pete Najarian Owns (UYG) Calls, (TLM) Calls
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