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Shipping companies: Ready for turnaround ?

For past few weeks I have been watching shipping companies like DRYS, EXM, NM and found that they have been going down almost every day. In fact some of these companies are down by 50% in last 3 months. There are various reasons for this downturn:
  • Worldwide economy slowing down reducing need for shipping
  • Commodities demand slowing down
  • Credit becoming tight and these shipping companies depend on credit to fund their major purchases and operations
  • Some of these companies have debt repayments coming up in 2009
  • Baltic Exchange Dry Index (BDI) has come down from 11700+ to nearly 4000
Let's look at how these factors would change in next 12-18 months
  • Now that bailout package is near approval, World Economy should start turning around (or at least stop going down)
  • Credit markets should start working again enabling shipping companies to refinance their debts
  • Speculation in commodities would go down and they would start trading at their true economic value. China and India are still growing at more than 7% needing steel, coal and oil
My prediction is that BDI would start turning around after going below 4000 for a brief period. The stocks of shipping companies would go down little bit but I believe they are very close to their bottoms. Here are my two recommendations:
  1. DRYS near $35
  2. EXM near $15
Shipping companies pay hefty dividends with yield of almost 6-8% so these companies could become a good income generating investments

Caution: I am no expert on shipping industry. My analysis is purely based on my understanding of macro-economic factors. Do your own homework before investing

Good luck and have a good weekend!

/Shyam

Comments

Anonymous said…
No more essays shy???

I give you last tip

Short WFC and BAC with put options before the NYSE casino goes back to two way street

for WFC I like the april 35's...I have been accumulating since the friday they banned shorting and have cost of 4.9

here is a sample of the logic behing WFC

1. changed the way the recognize NPA from 90-180 last Q

2. have some dodgy CRE loans and that stuff is just starting to crack

3. they have the BUFFETT halo + they say they never did subprime...well check this
my man (notice that many of theses other companies are ZEROS now

--------------------------

Exhibit 8: Top 10 Alt-A Lenders, 2006

Rank Company 2006 YTD MarketShare% Total Orig Vol Alt-A Share%
1 IndyMac $49,620 16.5% $64,000 77.5%
2 Countrywide 47,000 15.7% 333,740 14.1%
3 Wells Fargo 30,050 10.0% 310,890 9.7%
4 Res Funding Corp 29,730 9.9% 66,100 45.0%
5 WMC Mortgage 19,300 6.4% 24,140 80.0%
6 Washington Mutual 19,050 6.4% 153,630 12.4%
7 GreenPoint 12,310 4.1% 27,120 45.4%
8 Aurora Loan Svcs 11,000 3.7% 25,300 43.5%
9 Homecomings 9,980 3.3% 21,660 46.1%
10 First Magnus 9,900 3.3% 22,030 44.9%
Total Top 10 $237,940 79.3% $1,048,610 22.7%
I note that WFC prudently had the lowest Alt-A as a percentage of its total origination.

Exhibit 14: Top Subprime Lenders, 2006

Rank Lender 2006 Market Share (%)
1 Wells Fargo $ 83,221 13.0%
2 HSBC Finance 52,800 8.3%
3 New Century 51,600 8.1%
4 Countrywide Financial 40,596 6.3%
5 CitiMortgage 38,040 5.9%
6 WMC Mortgage 33,157 5.2%
7 Fremont Investment 32,300 5.0%
8 Ameriquest 29,500 4.6%
9 Option One 28,792 4.5%
10 First Franklin 27,666 4.3%
11 Washington Mutual 26,600 4.2%
12 Residential Funding 21,869 3.4%
13 Aegis Mortgage 17,000 2.7%
14 American General 15,070 2.4%
15 Accredited Lenders 15,000 2.3%
Top 15 $ 515,217 80.5%
------------------------------

4. they have 80 bil in HELOC exposure in CA NV mostly written down only about 5%

5. If they eat WB, a bank that if you remember I was all over before, they will have some serious issues with that option arm portfolio

SO TO SUMMARIZE, DO I THINK THEY ARE ZERO, NO DEFINITLY NOT...ARE THEY OVERVALUED...YOU BETCHA

SO I NOW HAVE ABOUT 25 WFC PG AND WILL WRITE OUT OF MONEY FRONT MONTH LOWER STRIKE CALENDAR SPREADS ON FLUSHES...ALREADY SHORT 5 OCT 29'S FROM 1.05 AVG

I will cover/close this position when they trade in the low 20's...maybe if i am lucky enough they will be teenager

ALSO LIKE BAC SHORT HERE...failed breakout on both BAC WFC if you look at daily chart...I HAVE ABOUT 25 BAC NOV 30'S AT 1.49 I THINK...THEY WILL NEED TO DO SOME TYPE OF EQUITY CAPITAL RAISE TO SWALLOW THE LARGE TURD KNOW AS MER CDO BOOK
9:13 AM
Anonymous said…
SO FUNNY THIS ENTIRE YEAR I GIVE YOU ROADMAP TO MAKE SERIOUS DOLLAHS

I KNOW I HAVE

WB WM BOTH PRINT ZEROS AND I POINTED THEM OUT

WFC CRAP THE BED TODAY ALONG WITH BAC

INDEX OPTIONS ETC AND YOU JUST IGNORE MY POSTS AND DONT EVEN RESPOND

BWAAAAAAAAAAAA

THATS COOL
11:31 AM
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