Riding the Drybulk Shipping Wave (6/08)
Investing in drybulk shippers has been a very profitable way to gain international exposure in the past few years. Companies that operate in the global shipping industry are transporting commodities such as: coal, steel, iron ore, fertilizers, and grains. Shipping rates have increased as a result of global growth particularly in the BRIC countries.
It’s nearly impossible not to mention the BDI (Baltic Dry Index) when referring to drybulk shippers. The BDI or more commonly known as the “Dry Bulk Index” is an index that tracks drybulk shipping rates which is composed of three sizes of dry bulk carriers 1) capesize 2) supramax and 3) panamax. The index is a great indicator of the health of the global economy due to the fact it tracks the precursors of production. Simply put it measures global demand (global growth).
Three companies that operate in this industry are Dryships, Inc. (drys), TBS International (tbsi), and Diana Shipping (dsx). These companies went public around mid 2005. A 10,000 investment in Dryships 2 years ago would be worth roughly 100,000 today. Below is a table of the 1 and 2 year returns for these companies.
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TBSI |
DRYS |
DSX |
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1 yr return |
100% |
130% |
50% |
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2 yr return |
775% |
900% |
210% |
Year to date tbsi is up 40% and drys is up 20%.
TBS International PE = 10.75, 08’ Earnings Growth Rate = 91.5%, 4 Qs trailing Avg. E Surp. = 22.65%
Dryships, Inc. PE = 7.29, 08’ Earnings Growth Rate = 99.2%, 4 Qs trailing Avg. E Surp. = 8.45%
Diana Shipping PE = 16.75, 08’ Earnings Growth Rate = 69.1%, 4 Qs trailing Avg. E Surp. = 1.8%
During TBS International’s 1st Quarter conference call their President Joey Royce stated that the company has a very positive outlook for the shipping industry for the remainder of 2008.
This is a very volatile industry and is definitely not for those with low risk tolerance. Our suggestion would be to accumulate on the dips and think long-term. The drybulk story is far from over. We firmly believe the industry will remain strong for the remainder of 2008 and well into 2009.
Credit or Debit? (5/08)
With unemployment and foreclosure rates rising (not to mention skyrocketing food and gas prices) the American consumer is being forced to make more purchases via credit. One way to profit from the recessionary environment the U.S. economy has seemed to fallen into is to buy some Mastercard (MA) or Visa (V). What Mastercard does is process the payments and are paid a % of the dollar transactions. So if credit card default rates rise it will not have any effect on Mastercard, some other banks actually take on the debt Mastercard does not.
Mastercard generates revenues by charging transaction processing fees and GDV-based fees to both the issuer and acquirer. In 2007 73.8% of net revenues came from operation fees charged and the other 26.2% came from assessment fees. The majority of Mastercard’s growth is coming from outside the U.S. which should come as no surprise as the push to go paperless is undeniably more efficient. In 2007 Mastercard reported Gross Dollar Volume (GDV) of 2.3 trillion and 18.7 billion transactions.
So which is the better company to invest in Visa or Mastercard? Mastercard has a greater global presence than Visa. Mastercard went public back in May of 2006 and has gone from $45/share all the way up to over $300/share. Visa recently went public in March 2008 and you could have picked up the stock at $65/share in the second. Some IPO’s are severely underpriced when they hit the market so consequently you can experience hefty returns as a result. Of course it makes a huge difference whether you are able to acquire the stock in the primary vs. waiting for it to hit the secondary market. We believe both stocks are a buy although one may want to wait for a lower entry point given MA’s RSI of 79.74 and MFI of 81.38 which scream overbought. It wouldn’t be one bit surprising to see Visa have a share price of over $200/share by year end and to see Mastercard finish the year at the current Google price range.
High on POT (4/08)
No I’m not referring to the most commonly used prohibited drug in America, but to the company Potash Corporation of Saskatchewan, Inc (pot) which closed at $207.08/share on Friday April 25th up 6.8%. The Saskatoon, Canada based company operates in the agriculture industry and is involved in the sale of fertilizers, animal feed supplements, and related industrial acid. They are one of a handful of agriculture companies benefiting from the global food shortage that is currently taking place. Year to date the stock is up over 40%. In the first quarter 2008 the stock reported earnings of $1.74/share up 180% from 1st Q 07′ and beating estimates by 14.28%. With earnings expected to grow at a clip of 163% this year it may be hard to find a company with comparable growth. It probably doesn’t hurt either that this stock is the number one holding of hedge funds. Although the stock is a little pricey with a multiple of 46.22 high growth stocks usually do carry a higher PE. The short interest is virtually non existent which could be argued as both a positive and a negative I would consider it a positive since it means that very few individuals are willing to bet the stock price will decline.
Attached is a link to view a chart of the stock with the 50DMA, 200DMA, RSI, and MFI to assist in finding a good entry point. http://finance.yahoo.com/echarts?s=POT#chart3:symbol=pot;range=1y;indicator=sma(50,200)+volume+rsi+mfi;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined
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(pot) |
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1 yr return |
230.11% |
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2 yr return |
575.18% |
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5 yr return |
1820.96% |
The five year annualized return for Potash is 80.59%
ROE = 25% (net income/common equity)
ROA = 12% (net income/total assets)
A few more gems in the agri industry that may be worth doing some due diligence on are Monsanto Company (mon) and Terra Nitrogen Company, LP (tnh).
The first Monsanto (mon) operates in the seed segment of the agricultural chemical industry. With a projected earnings growth rate of 69.2% for 2008 it carries a PE of 40. The one year return is over 100% and ytd the stock price is up a little over 10%.
The second is Terra Nitrogen (tnh) which engages in the production and sale of nitrogen fertilizer products. Terra has a current dividend yield of 12.2% with a PE of 14.12. ROE is 117.2% with a projected earnings growth of 44.5%. In the past five years Terra’s share price has risen from $5.11/share all the way up to its current price of $153.97/share.
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Global Population Growth |
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# of people born every minute around the world |
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261 |
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population in the year 1000 |
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310 million |
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population in the year 1900 |
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1.6 billion |
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estimated population by the year 2050 source: US Census Bureau |
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9 billion |
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annualized population growth from 1000-1900 |
0.18% |
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annualized population growth from 1900-2050 |
1.15% |
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Agriculture may very well become the top performing industry of 2008. So perhaps its time to sprinkle a little fertilizer on your portfolio and watch it grow!!
