Hauling Commodities Across the Seas

Barron's this week has a nice story about DryShips, the chartered cargo ship company. The company has 39 vessels that haul iron ore, coal, and grains by sea. The stock is down over 50%, but the fundamentals are starting to look nice. At $64 a share, the stock is trading with an estimated P/E ratio of 3.5 if earnings come in at over $18 per share, as expected. The stock is trading down compared to its peers, who typically have longer, and less volatile contracts. Barron's estimates that even if profits fall 50%, the P/E will still only be around 7. Charter rates have dropped significantly over the last 6 months, but have recently been moving back up. Given higher rates, some worry about new ships coming on line, but barriers to entry are high, given the initial cost and current credit issues in the market. It is expected that delays and retirements will also prevent new ships from outstripping demand. Other actively traded stock in the industry include Diana Shipping (DSX) and Kirby Corporation (KEX), both mainly in the petroleum transportation business. Kirby recently gave a bullish earnings forecast, and Dryships reported in February higher profit, with revenue tripling.

Ticker: DRYS, DSX, KEX