Call me a frugal Fool.
When a sector plummets into structural disarray the way the dry bulk sector did when stricken by a perfect storm in 2008, my investment interest becomes limited to those companies that combine relative resilience with a frugal and conservative set of adaptations. Throughout this period of upheaval, Diana Shipping (NYSE: DSX ) has stood out … by laying low.
Last week, Diana indicated a slight shift to a more opportunistic posture, announcing a $50 million investment in a new company created with the sole purpose of purchasing containerships.
Students of the sector will recall that Eagle Bulk Shipping (Nasdaq: EGLE ) launched a venture last summer to purchase dry bulk carriers, and even Morgan Stanley (NYSE: MS ) set sail with a $400 million investment fund to purchase distressed shipping debt at discounts of up to 60%.
What I find most interesting about Diana's announcement, aside from the diversification into the container sector, is the specific time frame indicated for the venture. By declaring its interest in purchasing vessels during the next 12 to 18 months, I believe that Diana is offering investors a timeline for a protracted bottoming process that is likely to play out in the maritime cargo sectors between now and mid-2011.
Robust global commodity demand and oft-touted recovery outlooks continue to support the notion of an eventual recovery for dry bulk and container shipping sectors, but Diana Shipping has long foreseen a deleveraging event in marine industry debt precipitated by a structural oversupply of cargo vessels and the combined weight of canceled or delayed construction orders upon the relevant financing entities. Because excess supply of containerships has emerged with dramatic results right alongside the glut for dry bulk carriers, I believe Diana sees an opportunity to dip into a new niche of seaborne trade at discounts that may only come along once in a business cycle.
Unlike perpetually aggressive growth junkie DryShips (Nasdaq: DRYS ) , I think a measured player like Diana makes a fitting barometer to forecast the weather ahead. Until we witness some unwinding of distressed marine debt, I submit that tumultuous weather remains in store. I continue to listen intently to guidance from those select bellwether companies that have distinguished themselves over recent years with a steady supply of relevant market insight. Alongside steelmaker Nucor (NYSE: NUE ) and equipment manufacturer Joy Global (Nasdaq: JOYG ) , Diana has this Fool's ear.
I anticipate continued volatility in the coming year, as conflicting signals from commodity demand and ship supply variably exert their influence on the pricing of vessels, their services, and related equities. I encourage Fools to keep their eyes peeled for dramatic acceleration of distressed asset sales, as I believe that will finally signal the formation of a lasting bottom for the marine transportation sectors.
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