Dryships (DRYS) is in the right sector at the right time

Posted Dec 6th 2007 10:45AM by Joseph Lazzaro
Filed under: Other Issues, Commodities, Agriculture, Stocks to Buy

As the globalization era progresses, transportation is at a premium. Young, growing economies in Asia, Latin America, and Eastern Europe are placing enormous demands on their infrastructures, even as they expand them.

Further, the growth in intercontinental trade has meant that shipping vessels also are in short supply, and among shipping companies, Dryships (NASDAQ: DRYS) is worth an evaluation.

Dryships ships commodities, grains, bauxite, fertilizers and steel products in its fleet of 35 vessels.

In general, analysts like Dryships' mix of spot charter market revenue and long-term contracts, in addition to the company's adequate performance regarding cost controls.

In the current international trade environment, that would be enough to recommend the shares, but the major positive is the vessel market. Shipping space is at a premium, and shippers like Dryships have considerable pricing power as a result. Hence, analysts see large EPS gains for the company, among other shippers in the sector. The Reuters F2007/F2008 EPS consensus estimates for DRYS are $4.25/$8.62.

The risks? Obviously any slowdown in the global economy or systematic move away from trade by nations (protectionist regulations, tariffs) would hurt Dryships' results. But absent those, Dryships is in the right sector at the right time, and the results should show it, for shareholders.

The First Call mean rating for DRYS is: Buy. [7 firms.] Mean 2008 target: $143.30. [high: $160, low: $130.]

Note: More-conservative investors may opt to wait for a safer entry point for Dryships' shares on a pull-back to $77 or $74, if one gets the opportunity. However, keep in mind there's no guarantee Dryships' shares will pull back to those levels in the near future.

Stock Analysis: Dryships is a moderate-risk stock not suitable for low-risk investors. Don't buy Dryships if your portfolio already contains a shipping stock. Investors with an investment horizon longer than two years should be rewarded from DRYS' shares. Sell / Stop Loss if you to purchase shares in this company: $53.

Tags: Asia, commodities, containerization, DRYS, Dryships, Eastern Europe, emerging markets, exports, globalization, imports, Latin America, raw materials, trade

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Reader Comments (Page 1 of 1)

12-07-2007 @ 5:37AM

EF said...

I am not a huge fan of these posts. Might as well say, "Invest in Powerball tickets. No winner in a long time!"

http://en.wikipedia.org/wiki/Powerball

What makes DRYS better than any of its competitors, such as EXM, DSX, TBSI, etc?

Why the $77 and $74 entry-points? Just because these were the last bottoms?

Why should I put a stop-loss at $53 instead of $50, $60 or $77?