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How DryShips Could Sail Higher in 2014

DryShips (NASDAQ: DRYS  ) had a strong 2013, with shares doubling on hopes that a long-awaited rebound in the shipping industry might finally lead to a lasting recovery. Yet even as macroeconomic conditions appear to be improving worldwide, smart investors still have to decide whether DryShips is a better play on an industry rebound than dry-bulk specialist Diana Shipping (NYSE: DSX  ) or tanker company Frontline (NYSE: FRO  ) .

DryShips has survived through tough times, as both the dry bulk and tanker shipping segments have been vulnerable to a glut of shipping capacity for years. What has helped distinguish DryShips from its peers, though, has been its exposure to the deepwater drilling business, with subsidiary Ocean Rig (NASDAQ: ORIG  ) producing solid results that have provided DryShips with ongoing capital when necessary. If the rest of DryShips' business starts doing better as well, could the stock see even bigger gains this year? Let's take a closer look at DryShips' prospects for 2014.

Stats on DryShips

Average stock target price


Full-year 2013 EPS estimate


Full-year 2014 EPS estimate


Full-year 2013 sales growth estimate


Full-year 2014 sales growth estimate


Forward P/E


Source: Yahoo Finance.

What lies ahead for DryShips in 2014?
As you can see above, most analysts believe that DryShips has already overshot its most ambitious prospects, with their target price almost 30% below current share-price levels. That's also the case for Frontline, whose current share price is more than double analysts' targets, but Diana has a more realistic target that gives it some modest upside from current levels.

Behind those calls, though, there's deep division about the prospects for the shipping industry. On one hand, Morgan Stanley analysts argued recently that dry-bulk shipping in particular would push forward, helping DryShips, Diana, and other industry players profit from higher volumes of grain, iron ore, and other commodities. Yet bearish analysts believe that supply overhangs of newly built vessels will continue to weigh on the industry. Moreover, concerns about how sustainable the government-led Chinese recovery might be could spell trouble not just for dry-bulk shipping but also for the tankers that Frontline and DryShips both have.

It's still the deepwater business that seems to drive the most excitement about DryShips among investors. Late last month, the stock surged more than 6% simply from announcing that Ocean Rig had added a new drillship to its fleet of drilling vessels. Demand across the industry for deepwater-capable vessels remains extremely strong, and with high-profile areas like the Gulf of Mexico and the waters off the coasts of western Africa and Brazil teeming with promising oil and gas production areas, there's little evidence of that demand drying up anytime soon.

In addition, watch for share-price movements related to capital activity. On the first day of 2014, DryShips shares stumbled when the company said that it would resume its ongoing offering of up to $200 million in stock. Even with recent gains, offering shares at current prices dilutes the interests of many longtime shareholders, and it also limits the upside from any potential recovery in the industry looking forward. By contrast, Diana Shipping has a very strong track record of not diluting shareholders, with only minimal gains in share counts over the past three years.

How DryShips fares in 2014 will depend on all three of its major segments, with most of the marginal effect coming from the shipping sectors. Given the volatility in the sector, though, you can expect a wild ride from DryShips in 2014 regardless of where the stock ends up moving along the way.

Get on board with great stocks
DryShips was a good stock in 2013, but there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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Read/Post Comments (2) | Recommend This Article (4)

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 January 09, 2014, at 10:33 AM, EdFromOhio wrote:

    It sounds like someone is getting paid to pump up this stock. Constant articles trying to put a good light on a company well known to be run by highly unethical management.

  • Report this Comment On January 10, 2014, at 7:25 AM, Matt8265 wrote:

    George isn't honest. Can you trust your money in a company run by people lacking credibility?

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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Related Tickers

9/1/2015 3:59 PM
DRYS $0.44 Down -0.02 -3.53%
DryShips, Inc. CAPS Rating: ***
DSX $6.65 Down -0.15 -2.21%
Diana Shipping, In… CAPS Rating: ****
FRO $2.55 Down -0.11 -4.14%
Frontline Ltd. (US… CAPS Rating: **
ORIG $3.25 Down -0.22 -6.34%
Ocean Rig UDW Inc.… CAPS Rating: No stars