Shipping Stocks Recover First In A Global Recession
It finally happened. After spending over four months buying a new house, moving day finally arrived. It’s been like a hurricane. Of course by moving day, I mean three day weekend! I feel like I’ve been swept up and blown all over the map.
It all started on Friday. That was delivery day. We’d ordered a huge number of new items… bathroom vanities, light fixtures, sinks, plumbing fixtures, appliances, window coverings. You name it, we bought it.
Saturday morning started early. At 5:00 am, the install team arrived… aunts, uncles, cousins, parents, brothers. Everyone was there.
It was a well choreographed dance of chaos. People were everywhere. Painters and plumbers danced between friends and family. Ceiling fans and light fixtures were being hung. Window coverings were installed.
Saturday was a long day. After a 12 hour day at the new house, we still had packing to do.
Sunday at 5:00 am, we were back at it. When the movers arrived, we were still tossing random things into boxes. Not the smartest thing to do as we still can’t find the coffee pot – we found the coffee maker, just not the pot.
By noon, we were hauling stuff into the new home.
I really should kick myself in the backside… this is the second time I’ve moved in the last few years. Both were in the heat of the summer. You’d think I’d be smart enough not to do it a second time! Moving in and out of the house with the temperature at 107 degrees isn’t fun.
So I know what you’re thinking… where are the pictures?
Honestly, I took out my camera to snap a few pictures of the chaos in motion… but the battery was dead. Otherwise, I’d have sent a few along!
All in all (aside from the camera), the move went very smoothly.
I even had a chance to chat with the movers. Strange as it may seem, they’ve seen a pretty brisk business lately. People always seem to be moving from one place to another.
That conversation started me thinking about shipping companies.
Shipping companies, as you may know, are transportation experts. They move goods around the world like you and I might move up the street. Want to ship 100 tons of iron ore from Brazil to China… no problem.
Shippers are the life blood of the economy. Often times, you can tell when the economy is improving just by looking at the shipping companies.
As a matter of fact, shippers are often some of the first to benefit from an economic recovery. Think about it. As the economy starts to recover, demand for goods starts to climb. And that means raw materials need to be shipped around the world.
As demand for shipping increases, shipping prices jump. And that means greater profits for these companies.
Now, shipping isn’t without risk.
This weekend, I had to pay a fuel surcharge just to have the moving truck show up. Fuel can be a big expense. Every shipping company is exposed to the same problem. As oil prices rise, so does the cost of fuel. Trust me, it takes a lot of fuel to move a boat full of iron ore from South America to China.
Despite the fuel risk, shipping can be a very profitable business.
One of my favorite companies in this industry is Dianna Shipping (DSX).
They specialize in the shipping of dry bulk goods. These are often commodities like iron ore, coal, and grains. I think demand will improve for the commodities very quickly once the recovery is in full swing (we’re already seeing it now). That means Dianna Shipping may be the first to profit from an increase in economic demand for goods.
Dianna Shipping is no small company. They have 19 vessels with a carrying capacity of more than two million tons.
Right now, you can buy Dianna Shipping on the cheap. We’re off rock bottom lows, but nowhere near the highs…
Their market cap is just over $1.0 billion. And, this year they’re projected to generate $1.57 a share in earnings. Right now, they have a P/E ratio of just under 9x.
In my opinion, that’s a low number.
Here’s the kicker. As the economy improves, earnings projections will start moving up. I wouldn’t be surprised to see their earnings grow by 50% or more in the next year or so.
Consider this… if Dianna Shipping’s earnings reach just $2.00 for the year, their actual P/E would be closer to 7x (which makes them even more undervalued).
How likely is $2.00 in earnings? Consider in the last twelve months, they reported earnings of $2.73… that gives them a P/E ratio of just over 5!
Any way you slice it, the company looks undervalued. And once the economic recovery kicks in, they are even more undervalued.
Category: Stocks
