After a 20-year bear market for commodities, the prices of oil, coal, basic metals, precious metals, food grains, cement, fertilizer (you name it…) are finally enjoying the running of the bulls.
This of course, is in stark contract to the four horsemen of last year: Google (GOOG), Research in Motion (RIMM), Apple (AAPL) and Amazon (AMZN) who led the charge in technology.
What many investors don’t realize is that the commodities trade relies heavily on container shipping which is in high demand and short supply. I’m talking about dry bulk shippers, which are some of the best performing stocks in 2008.
Frankly, their performance makes perfect sense. When you consider that two-thirds of the world’s goods are transported by sea, it’s no wonder that investors would be wise to get more involved in this sector. International shipping plays a vital role in global trade, and that’s not going to change anytime soon.
While everyone and their brother is hot to develop alternative sources of energy, few people realize that coal now fuels 49% of the world’s electricity needs and will most likely fuel 54% of those needs by 2030.
In fact, iron ore and coal are two of the most important global commodities, with about 27% and 26% of dry bulk trade respectively, with grain accounting for the remaining 12%.
These are the commodities most in demand to the world’s biggest commodity consumer— China—not to mention developing BRIC countries (Brazil, Russia, India and China) as they rush to join the 21st century. Recent floods in Australia (the world’s largest coal exporter) and the massive earthquake in China will not only increase the demand for coal, but other essential commodities like iron ore and grain. This overwhelming demand for raw materials will only drive record exports from the United States and other commodity-rich nations … all of which need to be shipped in.
Dryships, Inc. Delivers the Goods
Will the trend continue? One stock everyone is watching closely in trading today is Dryships, Inc. (DRYS). To date, shares have not disappointed.
The company owns and operates 46 vessels, 31 of which are Panamax vessels – the largest dry bulk carriers that can fit through the Panama Canal. Rates for Panamax vessels jumped last week to about $85,000 per day. Rates for Capesize vessels, too big for Panama or Suez canals, has risen 70 percent to about $190,000 per day.
Dryships, Inc. owns 5 Capesize vessels. Combine that with the fact that following news that first-quarter profits more than doubled, Dryships, Inc. is topping Wall Street expectations. The stock trades for just 7 times 2009 earnings and given the popularity of the stock, I expect more volatility. Look for a price target of $150 over the next two years.
While you’re at it, you’ll also want to take a look at these other worldwide leaders in the shipping lanes, including Diana Shipping Inc., (DSX) offering an 8%-plus annualized dividend, Excel Maritime Carriers Inc. (EXM) up 87% for the year and FreeSeas (FREE) declared a regular quarterly dividend of 17.5 cents.
Jamie Dlugosch
Editor, InvestorPlace
