There are signs the dry bulk shipping sector may be sailing into fair winds. Yes, we’ve heard that all before when analysts talked up the economic rebound and the prospects that Middle East turmoil could boost charter rates. The market ticked up then retreated just as fast.
Still, nothing endures like change. In the wake of the triple-witching disaster in Japan, the need for ships to carry iron ore and other supplies to a nation ravaged by the earthquake, tsunami and nuclear crisis offers hope that the sector can bounce back from adversity.
That doesn’t translate into a win for everybody — at the end of the day, it’s all about the fundamentals. So to quote the Grail Knight from Indiana Jones and the Last Crusade, “Choose, but choose wisely”. Here are four names worth a second look:
1. Navios Maritime Partners (NYSE:NMM). In a rebounding market, the edge for Navios lies in its ability to grow its fleet economically. Because the company has the flexibility to move with some agility in the spot market, Japan may pose an excellent opportunity in the near term.
The Stats: The stock, which hit a new 52-week high of $21.07 on Monday, offers some very attractive features: a nice market cap of $876.9 million, a return on equity of nearly 17%, and it’s one of the few companies in this sector to pay out a dividend — offering an 8.5% yield. The company’s debt-to-equity is within the sector’s average at 64.62.
2. Diana Shipping (NYSE:DSX). Diana’s edge is its preponderance of long-term contracts. That builds in some stability and predictable cash flow, but may impinge on its ability to profit from short-term opportunities. Still, with a debt-to-equity ratio that’s a spartan 33.88, it can transit a lot of rough seas before running aground.
The Stats: Diana offers a return on equity of 11.8%. The company doesn’t offer a dividend and probably shouldn’t, because a miserly approach is one reason for that strong balance sheet. At just above $11, it’s more than 26% off its 52-week high of $16.13 this time last year, which given its fundamentals, seems priced to move.
3. Excel Maritime (NYSE:EXM). As with any stock that has seen its value slip by 47% this past year, this pick may seem counterintuitive — but hear me out. Long-term contracts are the staple of Excel’s business — and their earliest contracts expire two years from now. Still, the shipper should have capacity to help transport some of the iron ore, steel, cement and other cargo for the rebuilding of Japan.
The Stats: Excel boasts a return on equity of nearly 16% and a net profit margin of about 38%. Shares hit a new 52-week low last week of $3.91 – more than 40% off the 52-week high of $7.50 last April. Its debt-to-equity ratio is in line with the rest of the sector at 65.42. There is potential upside here – particularly if Excel can cash in on the rebuilding of Japan.
4. Paragon (NYSE:PRGN). Paragon runs a tight ship, as it were — operational efficiency and solid management are advantages. Despite the less-than-enthusiastic reception for its new Box Ships (NYSE:TEU) unit’s debut last week, the growth in intermodal traffic bodes well for container companies, although it may take a little time for the operation to get its feet wet. More than 50% of next year’s rates are fixed, which provides stability. Still, there is sufficient opportunity to take advantage of Japan-fueled shipping and container ship growth.
The Stats: The company’s shares have slipped 43% from a 52-week high last April to $2.79 and the company’s return on equity of less than 5% is far less flashy than the companies listed above. But even though the numbers are less impressive, Paragon can’t be counted out. The company pays an attractive 7.1% dividend yield and the company’s debt-to-equity ratio is 65.91.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.
