It’s no secret that dry bulk shipping companies have been caught in a maelstrom since the start of the global recession back in 2008. The Baltic Dry Index, which measures how much it costs shippers to move raw materials by sea, fell from a record high of 11,793 in May 2008 to 663 points seven months later — reflecting a 94% drop in charter rates.
The sector’s challenges didn’t end there. Before long, the price of raw commodities collapsed further straining shippers’ earnings. Add to that credit pressures, heavy debt loads, an oversupply of ships and more new ships emerging from shipyards for delivery, and it’s easy to see why shipping stocks have been buffeted by gale-force winds this year.
But higher demand for commodities in Asia — particularly for steel manufacturing in China and the rebuilding of Japan after the March 11 earthquake and tsunami — has begun to boost charter rates and improve shippers’ fortunes. In fact, charter rates on most routes have more than tripled since May.
Still, storm clouds loom for the dry bulk shipping industry as even more ships enter service, further expanding the shipping glut. And even though the BDI is over 1,900 today, the managing director of Thai-based Precious Shipping warned that that these gains are only temporary. Khalid Hashim predicted the oversupply of ships could drive the BDI as low as 1,000 by December.
So what does all this mean to investors? The dry bulk shipping sector is nowhere near exiting this storm. And even though some share prices are now cheaper than dirt, the full impact of the shipping surplus and a steadily eroding global economy is not completely priced in. And that means higher risk — even at rock-bottom prices.
But to quote that famous line from Ocean’s Eleven: “When that perfect hand comes along, you bet and you bet big — then you take the house.” A growth investment strategy that includes dry bulk shipping stocks obviously is not the Wall Street version of high-stakes pai gow. But if all goes right, that greater risk can translate into higher reward.
Besides the potential upside, some companies in this sector are paying out wild dividend yields. And that sweetens the pot. So if you’re a growth investor and you know in your heart that the dry bulk sector will soon right its ship, here are four stocks to consider tucking into your portfolio:
1. Safe Bulkers (NYSE:SB). At $6.94, Safe Bulkers is trading 29% below its 52-week high of $9.78 in April. With a market cap of $491.25 million, the company has a price/earnings-to-growth ratio of 0.95, indicating that the stock is slightly undervalued. The dividend yield is 8.6%.
2. DHT Holdings (NYSE:DHT). At $2.50, DHT is trading nearly 52% below its 52-week high of $5.19 in January. With a market cap of $160.87 million, the company has a PEG ratio of 1.21, indicating the stock is slightly overvalued. The dividend yield is 15.9%.
3. Star Bulk Carriers (NASDAQ:SBLK). At $1.44, Star is trading at more than 55% below its 52-week high of $3.43 last November. With a market cap of $91.24 million, the company has a bare-bones PEG ratio of 0.01. The dividend yield is 15.2%.
4. Navios Maritime Partners (NYSE:NMM). As one of the strongest players in this market, Navios potentially is less risky because of its solid fundamentals. The stock also packs a big dividend yield. At $14.57, NMM is trading at about 32% below its 52-week high of $21.56 in April. With a market cap of $810.7 million, the company has a PEG ratio of 7.56, indicating the stock is very overvalued — particularly by comparison to other names in the sector. The dividend yield is 12.5%.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
