3 Stocks That Will Sail Away With Your Money

On May 16, 2008, DryShips (Nasdaq: DRYS  ) , one of the largest bulk shippers in the world, was sailing toward success. Its ships were hauling commodities across the globe, the company was raking in impressive revenue, and it expanded its fleet to keep up with demand. DryShips also paid a dividend, and the company's projected growth pushed its share price up to a near-record high of $110.74.

And then something terrible happened:

DRYS Chart

DRYS data by YCharts

Shiver me timbers! DryShips threw its dividend overboard, lost 98% of its share price value, and is currently trading at only $2.16. This company was certainly hit hard by the recession, but why hasn't it rebounded after four years?

Shipping ain't what it used to be
DryShips' initial decline had more to do with macroeconomics than mismanagement. Prior to the recession in late 2008, there was huge demand for "dry bulk" goods, which are commodities like cement, coal, and iron ore. With demand outweighing total shipping capacity in the first quarter of 2008, DryShips on average earned premium daily rates of more than $63,000 per vessel and purchased seven more ships for more than $770 million in order to meet increased demand.

After the economic downturn, the global demand for dry bulk decreased, and DryShips started canceling its new vessel acquisitions. This caused daily rates to plummet, and today DryShips earns 65% less in revenue per dry bulk vessel per voyage than it did four years ago. This lower rate has taken a heavy toll on the bottom line and contributed to the company's net losses of $70.1 million in fiscal 2011 and $47.5 million in Q1 of this year.

Did other companies walk the plank?
DryShips' main competitors, Diana Shipping (NYSE: DSX  ) and Navios Maritime Holdings (NYSE: NM  ) , were trapped in similar situations.

Company

Closing Price -- May 16, 2008

Closing Price -- July 16, 2012

Cash-to-Debt (MRQ)

Debt-to-Equity (MRQ)

DryShips $110.74 $2.16 0.04 112.83
Diana Shipping $39.00 $6.99 1.12 31.97
Navios Maritime Holdings $14.67 $3.33 0.11 126.54

Source: Yahoo! Finance. MRQ = most recent quarter.

The share prices of all three have taken a beating, and DryShips' and Navios' cash-to-debt ratios, at 0.04 and 0.11, respectively, make both stocks very risky investments. Diana Shipping, with a cash-to-debt ratio of 1.12 and a debt-to-equity ratio of almost 32, seems to have a manageable debt load and may look appealing, but is any company in the shipping industry a safe investment right now?

Jump ship
The Baltic Dry Index, which measures the global demand for bulk shipping versus the amount of shipping capacity that is available, is a good way to check the pulse of this sector. It sits at a lowly 1,102 points, a more than 90.7% drop compared to its all-time high in May 2008. Furthermore, a contracting European economy, weak U.S. economy, and recent evidence that China is also slowing down don't bode well for the future of dry bulk shipping.

Look for buried treasure in a different industry
This may have been a dynamic and exciting sector four years ago, but sometimes it's better to invest in more stable, long-term exchange-traded funds. To illustrate this point, let's compare the total return prices since 2008 for DryShips, Diana, Navios, and the SPDR S&P 500 (NYSE: SPY  ) .

DRYS Total Return Price Chart

DRYS Total Return Price data by YCharts

If this chart could talk, it would say: "Boring is sometimes better." These Greek shipping companies, much like the Greek economy, have been tanking. Exchange-traded funds like the SPDR S&P 500 won't make you a millionaire overnight, but they will help you to grow your wealth long-term.

If you're interested in exploring other exchange-traded funds, our analysts have selected three solid picks that will buoy your portfolio. Read this special FREE report today by clicking here: "3 ETFs Set to Soar During the Recovery."

Fool contributor Max Macaluso holds no position in any company mentioned. The Motley Fool has sold shares of SPDR Trust Series 1 short. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 18, 2012, at 11:39 AM, ryanalexanderson wrote:

    I'm sorry, but I don't understand the point of the chart, particularly with respect to Navios Maritime. If you expand the vertical axis for Navios, you will find a stock that bottomed way back in 2009 - along with the rest of the world - and pays a decent dividend and has a 5-star CAPS status. Isn't this throwing out the baby with the bathwater?

  • Report this Comment On July 21, 2012, at 9:25 AM, GW1000 wrote:

    While these companies are risky, there is also a potentially high reward. Now may be the time to buy one of these while the demand for dry bulk is low. Eventually the demand is bound to increase but who knows when, it may be one year, five or ten. One of these may be a good for a small, speculative holding. I do not own any of these yet however.

  • Report this Comment On July 24, 2012, at 9:40 AM, TMFMassimo wrote:

    Thanks for the comments!

    The chart might have been more effective if it displayed the percentage change of the total return price. This would show that DryShips has decreased 96.3% in the last five years, Diana is down 71.3%, Navios 70%, and the SPDR S&P 500 only decreased by 1.2%.

    Navios had a dramatic decline in 2008, but it hasn't rebounded since. In the last five years, Navios has been as low as $1.21 (11/20/2008) and as high as $7.38 (4/26/2010), but it's trading today at $3.34. I prefer to see sustainable growth and share price appreciation rather than big fluctuations.

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