Can Seadrill one day be like Dryships? And the financial condition of SDRL is way better tyhan that of DRYS.
What to Do With a Stock Up 1,000% in One Week?
DryShips is a prime example of what can happen when investors let politics get ahead of fundamentals.
http://www.barrons.com/articles/what-to-do-with-a-stock-up-1-000-in-one-week-1479327112?mod=BOL_hp_highlight_3
Careful with those Trump trades.
DryShips shares (ticker: DRYS) have been halted after they closed at $73 on Tuesday and were indicated to open at over $100 on Wednesday. On Election Day, they sold for $4 and change. This one could end badly.
The Athens, Greece, shipper of steel, coal and other dry goods hasn’t reported a profit since 2010, and is estimated to have a negative net asset value. It has suspended payments on its debt to preserve cash, and has sold ships. Last quarter, it operated an average of about 20 vessels, barely half its fleet of a year ago.
With investors fearing bankruptcy, shares had sank so quickly that this year management performed three separate reverse splits: a 1-for-15 one effective Nov. 1; a 1-for-4 one approved in July; and a 1-for-25 one approved in February. Adjusted for these, and for potential dilution, DryShips has 752,000 shares outstanding, according to its third-quarter report published Nov. 9.
That means that at $100 a share, the company would be worth more than $75 million, arguably a lot for a company that could conceivably end up with no equity value.
“Yo–what the heck is going on?” wrote Wells Fargo Securities analyst Michael Webber on Wednesday, summarizing questions from investors. The spike in DryShips shares has been accompanied by rallies in Seanergy Maritime (SHIP), Euroseas (ESEA),Eagle Bulk Shipping (EGLE) and Scorpio Bulkers (SALT).
There is some fundamental support for shipping investors. U.S. lawmakers have cracked down on Chinese steel dumping. (See “ U.S. Steel Shares Could Rise 50% in a Year,” Oct. 15.) That has made steel more expensive, along with the coking coal used to make steel. Dry shipping rates have improved. Donald Trump’s victory has sparked a move into stocks with energy and building exposure, including shippers. But some stock movements seem to have gotten far ahead of fundamentals.
The math is no help for short-sellers, who can get squeezed into buying back shares at sharply higher prices as losses mount. The combination of a Trump trade and a short squeeze appears to have led to something of a melt-up in DryShips stock. “We do not believe this lasts,” wrote Webber on Wednesday.
That’s a signal to investors to be careful about letting political enthusiasm drive investment decisions. A Trump administration might indeed prove lucrative for banks, builders, shippers, coal companies and so on. But details are so far few, and there are many factors that affect such companies that have little to do with politics.
A lower-risk Trump trade, we wrote last week, is to buy shares of companies with high effective tax rates–and otherwise good investment prospects. (See “10 Stocks Set to Win Big With Trump Tax Cuts,” Nov. 11.) A cut in the corporate tax rate looks like a sure thing, and the impact to bottom lines is calculable, not theoretical.
Comments? E-mail us at editors@barrons.com
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.
TimelessInvestor
Can Seadrill one day be like Dryships?
Can Seadrill one day be like Dryships? And the financial condition of SDRL is way better tyhan that of DRYS.
What to Do With a Stock Up 1,000% in One Week?
DryShips is a prime example of what can happen when investors let politics get ahead of fundamentals.
http://www.barrons.com/articles/what-to-do-with-a-stock-up-1-000-in-one-week-1479327112?mod=BOL_hp_highlight_3
Careful with those Trump trades.
DryShips shares (ticker: DRYS) have been halted after they closed at $73 on Tuesday and were indicated to open at over $100 on Wednesday. On Election Day, they sold for $4 and change. This one could end badly.
The Athens, Greece, shipper of steel, coal and other dry goods hasn’t reported a profit since 2010, and is estimated to have a negative net asset value. It has suspended payments on its debt to preserve cash, and has sold ships. Last quarter, it operated an average of about 20 vessels, barely half its fleet of a year ago.
With investors fearing bankruptcy, shares had sank so quickly that this year management performed three separate reverse splits: a 1-for-15 one effective Nov. 1; a 1-for-4 one approved in July; and a 1-for-25 one approved in February. Adjusted for these, and for potential dilution, DryShips has 752,000 shares outstanding, according to its third-quarter report published Nov. 9.
That means that at $100 a share, the company would be worth more than $75 million, arguably a lot for a company that could conceivably end up with no equity value.
“Yo–what the heck is going on?” wrote Wells Fargo Securities analyst Michael Webber on Wednesday, summarizing questions from investors. The spike in DryShips shares has been accompanied by rallies in Seanergy Maritime (SHIP), Euroseas (ESEA),Eagle Bulk Shipping (EGLE) and Scorpio Bulkers (SALT).
There is some fundamental support for shipping investors. U.S. lawmakers have cracked down on Chinese steel dumping. (See “ U.S. Steel Shares Could Rise 50% in a Year,” Oct. 15.) That has made steel more expensive, along with the coking coal used to make steel. Dry shipping rates have improved. Donald Trump’s victory has sparked a move into stocks with energy and building exposure, including shippers. But some stock movements seem to have gotten far ahead of fundamentals.
The math is no help for short-sellers, who can get squeezed into buying back shares at sharply higher prices as losses mount. The combination of a Trump trade and a short squeeze appears to have led to something of a melt-up in DryShips stock. “We do not believe this lasts,” wrote Webber on Wednesday.
That’s a signal to investors to be careful about letting political enthusiasm drive investment decisions. A Trump administration might indeed prove lucrative for banks, builders, shippers, coal companies and so on. But details are so far few, and there are many factors that affect such companies that have little to do with politics.
A lower-risk Trump trade, we wrote last week, is to buy shares of companies with high effective tax rates–and otherwise good investment prospects. (See “10 Stocks Set to Win Big With Trump Tax Cuts,” Nov. 11.) A cut in the corporate tax rate looks like a sure thing, and the impact to bottom lines is calculable, not theoretical.
Comments? E-mail us at editors@barrons.com
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.