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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3153  
Subject: Re: Dry Bulk Update: May 2008 Date: 6/1/2008 9:05 AM
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Derek:

Can't comment on the oil tanker segment, as I do not follow it. Having said that, if I were to start playing in that sector, I would probably start with GMR and FRO, simply because of management. As for the latter name, "never bet against a Viking billionaire."

In the dry bulk space, food transport is actually a relatively small proportion of cargo demand, mostly affecting the smaller ships. By far, the industry is driven by iron ore transport, and to a lesser (but groeing) extent by seaborne coal trade. These stocks are a play on the BRICK countries rapidly developing and building out their infrastructure, and on China and India going from being substantial exporters of raw materials to being importers.

As a primer, I would read the filings from some of these companies and go look at the excellentpresentations on the industry that are in the standard decks for NM and EGLE.

This is a volatile industry, so I think you want to consider how much risk you are taking on via exposure to these stocks. The more spot exposure a company has (DRYS is the poster child), the more volatile its earnings will be. The more time charter coverage a company has (NM, EGLE, SBLK, DSX and to a lesser extent GNK and EXM), the more certain you can be of their results. Also pay attention to how much debt a company has, as the more leverage the more "exciting" things get. DSX has the least debt, but NM is pretty low and so are some of the others.

Some of these companies do other things than dry bulk. DRYS has a large investment in deepwater oil drilling rigs (to be spun off in a separate company). GNK has a large minority stake in another dry bulk name (Jinhui, traded in Europe). EXM has a stake in a SPAC (don't ask). NM has an FFA (shipping derivative) trading operation and a rapidly expanding South American port and barge operation.

As for dividends, it is more of an issue of a company's philosophy than sustainability. DSX and NMM are the last ones that operates on a full payout model: they pay out all the cash they generate. EGLE, SBLK, PRGN and GNK pay out a high % of the cash they generate. EXM, NM and DRYS pay a modest dividend and keep the rest of the cash to reinvest.

As a rough map, I would rank the companies in descending order of risk:

DRYS
EXM
GNK
SBLK, PRGN
DSX
EGLE, NM

The only one I would not touch is DRYS. I consider it to be excessively speculative. I have had positions in DRYS (intentional gambling), DSX, EGLE, and NM. Currently have a large (for me) position in NM.
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