If you like to follow macroecononic trends or indicators of global supply and demand, there's often no better place to look than the Baltic Dry Index (BDI). The BDI is a measure of commodity-shipping costs, and it's heavily tracked by investors who look at companies like Dryships (Nasdaq: DRYS ) or Danaos (NYSE: DAC ) , those that own and operate fleets that transfer supplies like iron ore, coal, steel, and phosphate.
The industry has taken a beating in the past few years as global demand weakened due to the Great Recession; however, the 170,000-plus people that participate in The Motley Fool's CAPS investment community have a generally bullish outlook on the industry.
Why so optimistic?
For the second consecutive week, the BDI has fallen, and last week it dropped by about 3.4%. As mentioned, soft demand coupled with an oversupply of vessels has taken its toll on many companies that utilize these vessels to move massive amounts of commodities across the seas. Capesizes, which are the biggest vessels tracked by the BDI, will see a 24% increase this year, according to Clarkson Plc, which is the world's largest ship broker.
Making matters even worse, many of these shippers have to take on massive amounts of debt to finance their acquisitions, and often they depend on contract rates or favorable economic cycles to justify their huge purchases. Nevertheless, if we look at some of the top shippers, our CAPS members seem to give 4- or 5-star CAPS ratings, illustrating their view that these companies will outperform the market in the long-term. Check out some examples:
|
Company
|
Price-to-Earnings Ratio
|
Debt-to-Equity Ratio
|
CAPS Rating (out of 5)
|
| Dryships |
29.7 |
97% |
*** |
| Genco Shipping & Trading (NYSE: GNK ) |
3.6 |
163% |
***** |
| Excel Maritime (NYSE: EXM ) |
1.8 |
69% |
***** |
| Paragon Shipping (Nasdaq: PRGN ) |
5.3 |
72% |
***** |
| Safe Bulkers (NYSE: SB ) |
4.9 |
223% |
**** |
Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.
Standing alone as a possible investment
Although each of these companies is pretty highly rated by our community, there's one company in particular that may stand out from the crowd. Compare this company's numbers to that of the rest:
|
Company
|
Price-to-Earnings Ratio
|
Debt-to-Equity Ratio
|
CAPS Rating (out of 5)
|
| Diana Shipping (NYSE: DSX ) |
8.6
|
30%
|
*****
|
Source: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.
Diana Shipping, based out of Athens, Greece, operates 13 Panamax carriers and has seven Capesize carriers, which total a capacity of 2.2 million deadweight tonnage.
As you can see from the table above, Diana Shipping is not only a highly rated CAPS stock, but it has a pretty darn low debt-to-equity ratio, especially when compared with its peers. With more than $300 million in cash and plenty of debt capacity, it could be in a great position to make some strategic acquisitions while the market is bad. This is exactly what Goldman Sachs analyst Scott Malat thought when the company initiated coverage on the stock last week with a "buy" rating and a price target of $17. Essentially, Malat thinks that with its strong balance sheet, Diana should be able to make it through these rough times and make purchases during a downtrodden market. And Goldman certainly is backing up its opinion with a firm $17 price target, which represents about a 30% upside from the $13.10 closing price last Friday.
I'm not completely sold on the stock just yet, but enough so that I've initiated an outperform rating on my own CAPS profile.
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