Why Star Bulk Carriers Corp. Stock Was in Rough Waters Last Week

The dip in share price may mean opportunity.

Feb 24, 2014 at 5:45PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Star Bulk Carriers Corp. (NASDAQ:SBLK) sprang a leak last week, falling as much as 6.7%, following a disappointing earnings report and cautious outlook from Diana Shipping (NYSE:DSX) regarding the dry shipping industry.

So what: Prior to last week, there was much optimism built into Star Bulk Carriers' stock. It was around 15% away from a new 52-week high. Star Bulk Carriers itself isn't scheduled to report until March 5, but the company's stock got hit when rival company Diana Shipping reported its earnings on Feb. 18.

It was this Diana Shipping report, and the speculation about the industry as a whole, that caused shares of Star Bulk Carriers to sink. Diana Shipping missed revenue and earnings estimates by a wide margin causing angst that Star Bulk Carriers may do the same. This is known on Wall Street as a "sympathy sell-off." 

It was during Diana Shipping's conference call especially that really spooked investors in Star Bulk Carriers and other dry shipping stocks. Diana Shipping presented a number of bearish views from analysts about the industry. One example cited worry about a vast credit bubble in China that may burst. If that happens, the concern is the domino effect of what reduced iron ore demand, reduced volume shipments, reduced shipping rates, and reduced fortunes for dry shipping companies such as Diana Shipping and Star Bulk Carriers. Diana Shipping further mentioned the possibility of "unthinkable" consequences for the industry, and this spooked some Star Bulk Carriers investors.

Now what: The concerns, whether valid or invalid, are nothing new. Diana Shipping was repeating several analyst reports which have already been public for weeks and should have been known to investors of Star Bulk Carriers. However, Diana Shipping came out and repeated the reports which gave more credibility, concern, and uncertainty to the negative analysis.

The market hates uncertainty. Now there is a concern of the possibility that Star Bulk Carriers will repeat similar negative sentiment with its conference call. Cautious Fools may want to sit on the sidelines and listen to what Star Bulk Carriers has to say before dipping a toe in these waters.

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Nickey Friedman has no position in any stocks mentioned. 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.

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