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Savings Experiment: Snow RemovalThey say that the higher you climb, the harder you fall. Well that has certainly been the story of freight carrier DryShips (NASDAQ: DRYS).
A glance at the stock's two-year chart is likely to cause more than just nausea.
In 2007, shares of DRYS rallied hard on the heels of the global growth story. Chinks in the armor began to appear in the fall of that year, and DRYS sold off some of its gains. By the end of that year, shares had lost 20% of their value from the peak.
The world economy was tied tighter to the U.S. economy than most believed. Even worse, the large amount of hedge fund money in the stock ultimately resulted in the stock's demise.
And what a demise it has been.
Shares of DRYS collapsed this year amid a slowing economy and the credit crisis. Prices for bulk goods fell like a rock at a time when new ships meant more capacity.
It was a recipe for disaster, but what about now? Is DRYS a bargain trading for less than $5 per share?
On Monday, with the news of a massive stimulus plan being advocated by the President-elect, DRYS turned on a dime. Following through yesterday, the stock is up some 30%.
Even with huge gains this week, the stock still trades for less than $10 per share. It's high during the global growth run was well above $100. That means there is plenty of room to run.
Then again, rates for shipping goods were much higher during that time. Oh, and there is that little matter of close to $3 billion in debt on the balance sheet.
The stock has moved higher because of massive short covering. To keep moving higher, the company needs a healthy economy.
Eventually the economy will improve, and that means higher shipping rates.
DRYS has more than $7 per share in cash on the balance sheet that should help withstand the recession.
I ultimately believe the company will survive, and I would be a buyer at these levels.
I expect DRYS to thrive again.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
12-13-2008 @ 8:22AM
Doug said...
Like you I watched the awful tumble of DRYS. This is a very volatile sector and very cyclical with drastic changes in the economic landscape. I have been buying the stock and my avg. price is $4.97. I feel comfortable with this price. I usually swing trade or short term trade but watching this stock(it can be an addiction) I believe that it is going to rise again with the increase demand in oil and other commodities along with the falling dollar.