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Why Safe Bulkers and Star Bulk Carriers Dropped Today -- but Castor Maritime Stock Popped

By Rich Smith - May 25, 2021 at 12:56PM

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Declines on the Baltic Dry Index are starting to look like a trend.

What happened

Something strange is happening with dry bulk shipping stocks Tuesday. As of 11:45 a.m. EDT, shares of Star Bulk Carriers (SBLK 0.62%) are down 8.8% and Safe Bulkers (SB 1.08%) is off 10.6%, but penny stock and fellow dry bulk shipper Castor Maritime (CTRM 0.59%) is sailing in the opposite direction, up 8.7%.

So what's up with that?

Red arrow goes down and green arrow goes up

Image source: Getty Images.

So what

The first two are easier to explain than the last. As you may have heard, the Baltic Exchange Dry Index (BDI), which tracks the rates that dry bulk shipping companies can charge for hauling dry bulk goods (e.g., coal, iron pellets, and grain) across the ocean, peaked at 3,266 on May 5 -- up 138% from the start of this year. Then the BDI dipped, but came close to regaining its earlier heights six days later, reaching 3,254 -- but it's been generally sinking ever since.  

The BDI closed at 2,881 yesterday -- still up 110% from where it began the year, but well off its peak -- and that may be making some dry bulk shipping investors nervous. A higher BDI, after all, means dry bulk shipping companies can charge more for their shipping services, collect more revenue, and earn more profit after their fixed costs are covered. But if the BDI continues to sink, then all those positive dynamics will begin to roll back.

If the BDI falls enough, Star Bulk and Safe Bulkers could begin to lose money again, as they both did early last year.

Now what

That explains why Star Bulk and Safe Bulkers stocks are going down today -- but what about Castor Maritime? Why is that particular dry bulk shipping stock going up?

One reason could be that, as a penny stock and a "meme stock," too, Castor Maritime stock doesn't always follow the natural laws of stock market physics. Its stock price movements can be guided as much by the optimism of momentum investors as by any trends in macroeconomics. In that regard, Castor Maritime is on the cusp of effecting a 10-for-1 reverse stock split which could both lift its (apparent) stock price out of penny stock land to approach $4 a share, and save the stock from the threat of a delisting from the Nasdaq Stock Market.

Robinhood traders and WallStreetBetters may be betting on that event today, and hoping that an apparently more valuable Castor Maritime stock, and one safe from delisting, will gain new momentum and continue to rise, no matter what the BDI does. But if you ask me, that's a losing bet. If Castor Maritime couldn't earn a profit when times were good for dry bulk shippers, I shudder to think what will happen if times turn bad.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Castor Maritime Inc. Stock Quote
Castor Maritime Inc.
CTRM
$1.71 (0.59%) $0.01
Star Bulk Carriers Corp. Stock Quote
Star Bulk Carriers Corp.
SBLK
$25.74 (0.62%) $0.16
Safe Bulkers, Inc. Stock Quote
Safe Bulkers, Inc.
SB
$3.73 (1.08%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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