Is the tide turning for ocean shippers?
David Russell | [email protected]
stockMONSTER's proprietary researchLAB market scanner shows a turnaround in the group, led by companies such as Eagle Bulk Shipping, Safe Bulkers, and Diana Shipping. They rallied more than 6 percent yesterday and have delivered double the performance of the broader market in the last three months.
EGLE has been leading the charge, adding another 8 percent yesterday, while DryShips and Frontline have made similar moves. All the companies are down more than 50 percent from their 2008 levels and lagged the broader market by a huge margin until the start of the year, but their recent action could signal a shift in sentiment.
While there hasn't been much news on the industry of late, larger macro forces seem to be lining up favorably. One factor is strength in the broader transportation sector, which broke to
all-time highs in January and has been outperforming every other major industry group since.
Another is valuations. Given their massive leverage, most shipping stocks fell to depressed levels when the fundamentals of their business weakened. That left most of them far below book value, resembling the financial guarantors six months ago--a group that has since become the strongest in the entire market.
The fundamentals of the shipping business could also be on the verge of major improvement. The catalyst is demand from China, where increased steel production is expected to boost demand.
Finally, their debt situation could actually be viewed positively because if they haven't gone bankrupt yet, it's unlikely that they will. Credit conditions continue to improve, and Moody's reported earlier this month that the number of companies going bust is expected to fall to its lowest rate since late 2004.
Shippers might face a period of consolidation here because they still have plenty of longer-term bearish momentum. But there are reasons to think that the tide is turning.