How DryShips Could Sail Higher in 2014

After doubling in 2013, DryShips has investors thinking that better times could be ahead in the shipping industry. But does DryShips have an advantage that Diana Shipping and Frontline don't? Find out about it here.

Jan 9, 2014 at 10:15AM

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.

Click here to add DryShips to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information