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Relative Strength Is Precious Cargo for Shippers

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Investing can be a long and arduous journey, but maintaining a steady course over long distances can be as profitable for Fools as it can be for the world's dry-bulk vessel fleet.

From the early stages of the perfect storm that continues to challenge shippers, I have kept Diana Shipping (NYSE: DSX  ) and Navios Holdings (NYSE: NM  ) at the center of my radar because I consider them to display superior seaworthiness relative to their peers. Since then, I have noted Diana's early adaptations and nuanced understanding of the challenges at hand, but the time has come for a closer look at Navios Holdings.

Like a Capesize sponge, Navios absorbed a 39% decline in the average daily charter rate for vessels and a hefty 56% drop in revenue to post a $12 million net gain in the first quarter of 2009. A commensurate 69% reduction of operating expenses provided the key to a profitable quarter, but the company's greatest achievement remains the strong liquidity position and the security of future revenue flows relative to its peers.

With indebtedness at just 43% of book value and $241 million in cash, Navios shares none of the acute debt repayment concerns of competitors like DryShips (Nasdaq: DRYS  ) , but that didn't stop Navios affiliate Navios Maritime Partners (NYSE: NMM  ) from joining the torrent of companies tapping this rally-enthused market for capital. From Bank of America (NYSE: BAC  ) to Forest Oil (NYSE: FST  ) , the fundraising frenzy is not limited to the dry bulk sector by any means. Both Diana Shipping and the oil-toting Nordic American Tanker Shipping (NYSE: NAT  ) have followed suit. Given the dire warnings issued by Diana Shipping's president about a potential financial calamity descending upon banks that finance the shipping industry, however, the shippers in particular may have serious strategic interest in raising capital before the ability to do so evaporates.

If global overcapacity is the crux of the sector's medium-term woes, then Navios Holdings' order book of seven new Capesize vessels could be considered counter-cyclical. With time charter contracts or contracts of affreightment in place for each of them, however, and the significant bonus of insurance coverage to protect from customer defaults, I believe Navios' growth profile to be reasonable under the circumstances. Toss in a lingering (for now) 5% dividend yield, a diverse fleet composed of owned and chartered-in vessels, and an intriguing port facility in Uruguay, and Navios Holdings continues to return signs of life on this Fool's long-term radar.

Further Foolishness:

The "dry bulk shipping" tag within Motley Fool CAPS lists 16 companies, 15 of which have been rated by our members. Join our online community today and share your views on the offerings in this sector or any other. CAPS is free and fun!

Fool contributor Christopher Barker has been aboard these massive dry bulk carriers and felt like a kid in a candy store. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Diana Shipping. The Motley Fool has a bone-dry disclosure policy.

Read/Post Comments (3) | Recommend This Article (21)

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 May 22, 2009, at 8:36 PM, Zenfuego wrote:

    Very tough to believe your various analyses, as you keep pumping Diana and Navios, one of which you own, on multiple occasions, while bashing DRYS and EXM continuously. You disclose a position in Diana, do you ALSO have short positions in either DRYS or EXM?

  • Report this Comment On May 23, 2009, at 8:09 AM, XMFSinchiruna wrote:

    Hmmm... what about the merits of the argument? :)

    Please Don't Shoot the Messengers:

    Short positions would also be disclosed. I have never held a short position, being instead a long-term buy and hold investor.

    I'm sorry that my words of caution relating to the debt load of those companies troubles you.

    Good luck!

  • Report this Comment On May 23, 2009, at 1:38 PM, imacg5 wrote:

    "I believe Navios's growth profile to be reasonable under the circumstances"

    "Navios Holdings continues to return signs of life"

    You call that pumping?

    High praise indeed!

    After reading most of Chris Barkers articles, I would sum up his attitude as: "Shipping sucks, but here's a few companies that should survive". And provides well researched information to back that up.

    As for DRYS, Old George filed a shelf offering to sell 6,000 shares when the price was $115. For some reason he only sold a few hundred, instead he planned a 3 for one stock split and proceeded to make huge purchases mostly with debt. Now with 600% dilution behind us, he has been selling shares for $6-8 a share and there is no growth until 2 more drill rigs arrive in late 2010.

    EXM also bought QMAR for too much and is suffering under the debt burden, and lousy charters. They also diluted, selling 25 million shares to family for $1.75. Their last two ER's are a fabricated lie!

    Diana always paid for new purchases with secondary offerings and some debt, and cancelled their dividend last fall in order to have money to make purchases that are deemed accretive. The BDI will be low for the next year or two, growth will have to come through expansion.

    That's what you find out with research, or you can just dismiss it, and call me a "short" or "paid basher'

    Full Disclosure, I made a hell of a lot of money with DRYS,EXM, DSX, TBSI,and NM. But I bought in 2006. And I too have never shorted anything.

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