As investors, we all want to find the cheapest stocks out there, and one sector I find intriguing is shipping. This space is quite volatile, but stock volatility is OK as long as you pay a good price and concentrate on business performance over the long haul.
Commodities such as iron ore, coal, and various other bulk goods have enjoyed strong demand and performed quite well over the past year. So it stands to reason that dry bulk shippers, the companies that transport those items, would also do well.
Here's a look at seven dry bulk shipping companies as of July 7, 2010.
|
Company
|
Trailing Price-to-Earnings
|
Price-to-Book Value
|
Close Price
|
| Diana Shipping (NYSE: DSX ) |
8.3 |
0.94 |
$12.00 |
| Genco Shipping (NYSE: GNK ) |
3.5 |
0.51 |
$15.57 |
| Paragon Shipping (NYSE: PRGN ) |
2.9 |
0.39 |
$3.56 |
| Safe Bulkers (NYSE: SB ) |
2.9 |
2.39 |
$7.12 |
| Eagle Bulk Shipping (Nasdaq: EGLE ) |
12.1 |
0.41 |
$4.14 |
| Navios Maritime Holdings (NYSE: NM ) |
6.0 |
0.50 |
$4.80 |
| Excel Maritime Carriers (NYSE: EXM ) |
1.3 |
0.25 |
$4.89 |
Source: Capital IQ, a division of Standard & Poor's.
These companies appear cheap across the board. Six had single-digit P/E ratios, and six traded below book value.
Now let's see how things look for these same companies a year later:
|
Company
|
Trailing Price-to-Earnings
|
Price-to-Book Value
|
Close Price
|
1 Year Stock Performance
|
| Diana Shipping |
6.8 |
0.79 |
$11.08 |
(7.7%) |
| Genco Shipping |
2.2 |
0.23 |
$7.49 |
(51.9%) |
| Paragon Shipping |
5.7 |
0.24 |
$2.02 |
(43.3%) |
| Safe Bulkers |
5.0 |
2.15 |
$7.92 |
11.2% |
| Eagle Bulk Shipping |
9.2 |
0.23 |
$2.48 |
(40.1%) |
| Navios Maritime Holdings |
7.8 |
0.51 |
$5.17 |
7.7% |
| Excel Maritime Carriers |
1.4 |
0.15 |
$3.22 |
(34.2%) |
Source: Capital IQ, a division of Standard & Poor's.
All seven companies now trade at single-digit P/E ratios, and six trade below book value. Five of them also lost value over the past year. How is it that a group of cheap-looking stocks could collectively perform so poorly, especially during the recent commodity boom?
Looking in the right places
When examining companies, it's important to study industry fundamentals. The dry bulk shipping industry currently faces an oversupply problem that began when these companies got overly optimistic about their prospects during the housing boom. They started ordering large numbers of ships in an attempt to expand as rapidly as possible. Now they have too many ships to be able to charter them all at good prices, and a lot of them are saddled with debt from buying vessels they no longer need.
So why watch these debt-ridden companies that are facing oversupply problems? Because oversupply doesn’t last forever. Eventually, this situation will turn around, and when it does, you'd do well to be ready to pounce opportunistically.
Foolish bottom line
One important part of investing is knowing your companies and the prices at which they represent attractive investments. That's the idea behind a well-stocked watchlist. These companies appear cheap at first glance, but you'll need to do more work to determine their suitability for your portfolio. If you find that they're indeed cheap, then you can buy them at a lower price than you could a year ago.
Interested in these dry bulk shippers? Add them to your Foolish watchlist.
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