Dry Bulk Shipping Stocks

I’ve been getting a few emails on DryShips (DRYS, $71.18, up $0.09) lately and I though today would be a good time to talk about the stock. The company recently reported 2Q earnings of $300 million, or $7.10 a share, up from $111 million, or $3.12 per share, during the same period a year ago. Impressive results but they fell well short of Wall Street’s estimates.

DryShips results were helped by the sale of the three ships for a $136 million but when that was factored out of estimates along with “valuation of interest rate swaps”, the company really earned $152 million, or $3.60 a share. Wall Street was expecting an adjusted profit of $4.57 per share so they missed by nearly a buck.

The company is continuing with its fleet renewal and expansion plan to replace older ships with newer and larger vessels but the stock has been in a downtrend in recent months. After a rally that saw the stock hit a high of $130 back in October and $116 in May, shares have been hit especially hard on concerns of a slowing global economy and a future glut in the number of vessels potentially leading to lower spot rates.

The concerns are real but may be somewhat overblown as the worldwide boom in the consumption of physical commodities isn’t likely to come to a complete halt. In fact, we should see a pick-up in demand sooner rather than later and now may be a good time to take a look at the dry bulk sector. Other stocks include: Diana Shipping (DSX, $29.00, down $0.15), Eagle Bulk Shipping (EGLE, $25.80, down $0.43), Excel Maritime Carriers (EXM, $32.77, down $0.44) and Navios Maritime Holdings (NM, $9.90, down $0.17).

As far as DryShips, the stock is volatile and it could test $60 before it tests $80 again. The October 80 calls DQRJP ($3.60, up $0.10) and the October 60 puts (DQRVL, $2.60, unchanged) could be used as a strangle to take advantage of the price swings. If one side of the trade doubles, sell, and then you have a risk-free trade on the other side.

Rick Rouse
Rick@OptionsMentoring.com

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