Shipping Stocks Offer Big Profit Potential
“I just bought a boat,” my friend Eli announced a while ago. As an investment banker I was used to people spending their huge bonuses on extravagant things. First class vacations, Patek Philippe watches, new Porsches and Mercedes, new homes, second homes, and of course boats.
What surprised me was the state this boat was in . . . .
A few days later Eli got a call from the harbor master. His boat was sinking . . . literally. Eli comes from a boating family. He enjoys spending his free time building and fixing up older boats. Clearly this boat needs his help.
Fixing a boat isn’t cheap. It never is. I’m sure Eli will be spending a good deal of time . . . and money on his new boat.
Personally, I prefer buying boats that make me money. I should be more precise. I prefer to invest in companies that operate boats and make lots of money. The opportunity in the shipping industry is limitless right now. Demand’s increasing, profits are at record levels, and the ways to invest are multiplying.
All about shipping.
The shipping industry is a little known but very important piece of the global economy. Shipping is critical. How do you think all of those products from China make their way to American stores?
Picture a really big boat. If you’re like most people the vision of a supertanker comes to mind. A really big boat hauling huge amounts of oil across the oceans.
But supertankers are only one component of the shipping industry. Obviously, other cargo besides oil needs to be transported. This is referred to as dry bulk shipping. Steel, iron ore, and agricultural commodities like corn and wheat. Even finished products like televisions, computers, and DVD players get shipped.
If you think about it, almost everything we buy has spent some time on a boat.
In London there’s an organization called The Baltic Exchange. They track the pricing of shipping rates. The rates to ship goods around the globe have been going up and up recently. Last week it peaked at a new all time high.
Now to the point.
These boats aren’t cheap. Back in February, Diana Shipping (DSX) signed a long term contract with a customer. The term was 23 to 25 months. The cost was a steal at only $60,500 per day. And that’s significantly discounted from the spot rates!
Personally, I think spot prices are going to keep increasing for some time. Think about it. Diana Shipping announced the signing of a lease for a boat they haven’t even built yet. Their customer committed to a 4 year lease. And the boat’s not expected to touch the water until late 2009 or early 2010.
Unbelievable.
If customers are willing to sign long term contracts it tells me one thing. They’re expecting shipping rates to increase. Otherwise, why lock yourself into a fixed price if you think rates will fall. This tells me customers are anticipating shipping rates to continue increasing.
High shipping rates mean strong profits in the industry.
Just a few days ago Diana Shipping (DSX) announced their first quarter results. They were nothing short of spectacular. Excel Maritime Carriers (EXM) posted their results . . . record revenues. Genco Shipping (GNK) announced record net income and increased their dividend. Eagle Bulk Shipping (EGLE) announced great quarterly numbers.
Shipping companies are hot right now and look to be for some time. Obviously when stocks are moving like this there is going to be a lot of volatility. But as we all know, volatility usually means there’s money to be made.
Category: Stocks
