After years of suffering, investors are getting bullish on
market scanner shows a
turnaround in the group
, led by companies such as Eagle Bulk Shipping, Safe Bulkers, and
Diana Shipping. They rallied more than 6 percent yesterday and have
delivered double the performance of the broader market in the last
EGLE has been leading the charge, adding another 8 percent
yesterday, while DryShips and Frontline have made similar moves.
All the companies are down more than 50 percent from their 2008
levels and lagged the broader market by a huge margin until the
start of the year, but their recent action could signal a shift in
While there hasn't been much news on the industry of late, larger
macro forces seem to be lining up favorably. One factor is strength
in the broader transportation sector, which broke to
all-time highs in January and has been outperforming every other
major industry group since.
Another is valuations. Given their massive leverage, most shipping
stocks fell to depressed levels when the fundamentals of their
business weakened. That left most of them far below book value,
six months ago--a group that has since become the strongest in the
The fundamentals of the shipping business could also be on the
verge of major improvement. The catalyst is demand from China,
where increased steel production is expected to boost demand.
Finally, their debt situation could actually be viewed positively
because if they haven't gone bankrupt yet, it's unlikely that they
will. Credit conditions continue to improve, and Moody's reported
earlier this month that the number of companies going bust is
expected to fall to its lowest rate since late 2004.
Shippers might face a period of consolidation here because they
still have plenty of longer-term bearish momentum. But there are
reasons to think that the tide is turning.
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