BDI Continues To Fall, But Should Value Investors Take Notice?
By Market News Video Staff, Friday, December 17, 3:42 PM ET
For years, analysts have warned of the impending oversupply in the dry bulk shipping markets as newbuilds were coming online faster than demand for raw materials was growing. As a result, investors have watched the Baltic Dry Index plummet from just over 4,000 in May to just below 2,000 on Friday. The Baltic Dry Index, or BDI as its more commonly referred to as, is an index that tracks the current spot rates for different classes of dry bulk vessels and has been extremely volatile over the past few years. In the hayday for dry bulk shippers, the index reached highs of more than 11,000, but quickly fell when the credit crisis struck in 2008.
In its wake, investors are left with shipping companies struggling to operate under the pressure of debt and as a result, many hefty dividends have been cut or eliminated. DryShips (NASDAQ:DRYS), Eagle Bulk Shipping (NASDAQ:EGLE) and Diana Shipping (NYSE:DSX) all eliminated their dividends in the fourth quarter of 2008 while Star Bulk Carriers slashed its dividend to just five cents per share. As a result, market caps crashed and cash flow available for dividends have all but disappeared.
Eagle Bulk Shipping has fallen 85% from its all-time high, Diana Shipping has fallen 70%, DryShips is lower by almost 95% and Star Bulk Carriers has fallen about 80%. While the numbers can be shocking, a value investor out there could be salivating over this sector given the dramatic drops. BRIC countries will need raw materials to grow their infrastructure and shipping is the only way to transport these goods.
Investors that want to play the sector without taking on the individual risks of each company may want to look at the Guggenheim Shipping ETF (AMEX:SEA) that holds positions in all of the above shippers. This ETF holds 30 stocks in total, with a complete list available on the SEA Holding page. While the Guggenheim Shipping ETF is the only ETF devoted to shipping stocks, these sames stocks can be found in a few other ETFs. Follow the links below to find other ETFs that hold shares of DRYS, DSX, SBLK and EGLE.
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