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DryShips Shipping Global Profits


DryShips is up over 400% since starting the year trading around $18.00.

"Concluding some terms with a couple of steel firms
When they left fully loaded for Cleveland
And later that night when the ship's bell rang
Could it be the north wind they'd been feelin'?"
-Wreck Of The Edmund Fitzgerald (Gordon Lightfoot

I really hope "The Lone Wolf" Prof. Macke is reading this today. I know I got in his head with this song early last week and the beautiful weekend we had here in the Northeast was probably the perfect tonic to erase it from his short-term memory bank. Truth be told, it happens to be a great song - I mean how many tunes do you know that contain and are able to rhyme the words Cleveland, Wisconsin and "Gitche Gumee"?

Dry-bulk shipping has been around for a long time and at one point, the Edmund Fitzgerald was the largest ship on The Great Lakes. Released in August 1976, Wreck Of The Edmund Fitzgerald may have signaled the pop culture zenith of dry bulk shippers but in today's world the industry has never been stronger.

DryShips (DRYS), according to its website, is "a global shipping transportation company specializing in the transportation of dry bulk cargoes. Its vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargoes for a number of industries". The Street has liked the story in a rather large way this year. DRYS is up over 400% since starting the year trading around $18.00. After a move of that magnitude it would be logical to think that things at DRYS are a tad rich on a valuation basis. But upon further review, valuations aren't all that frothy.

As a matter of fact, at 14.75 times trailing and 8.70 times forward earnings, DryShips is actually cheaper than Excel Maritime Carriers (EXM), which trades around 21.50 times trailing and 11.50 times forward earnings and Diana Shipping (DSX), which trades at 19 times and 12 times respectively.

Of course demand out of China has been a huge driver for the resurgence of the industry. For the first time this year, for example, China has become a net importer of coal. But China is not the only story. The infrastructure build out in India has been historic as well and its appetite for steel and concrete shows no signs of slowing. Demand in India is so great that some industry experts predict that port capacity must increase by 130%.

Working in favor of DryShips, according to its CEO George Economou, is that 98% of the firm's fleet prices next year will be left unfixed. In the current conditions and foreseeable future, for that matter, spot rates have been running higher than fixed rates. As a matter of fact, Jefferies just raised its price target to $100 from $80 in part based on that pricing structure.

Now with DRYS up about 32% since September 17 alone, I think we are in the "froth" stage of trading and I am looking for a pullback. But the macro story for DryShips is very much intact. The Edmund Fitzgerald was hauling 26,000 tons of iron ore and 30 years later not much has changed in terms of products being shipped. But what has changed is the global story - so we can add ports in India, China and Australia to go along with Gordon's Cleveland.
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