“All Aboard! Top Greek Shipper for New Money”

By Travis Johnson, Stock Gumshoe, June 19, 2007

This one came in from Navellie’rs Global Growth service a week or two ago, at which time I told someone at the forum that I would get on it … and then I promptly forgot all about it. So here we are, a bit late, but in my defense the shares have fallen quite a bit since the email was sent, so maybe a delay is a good thing.

Navellier talks quit ea bit about some of his successful recommendations among the dry bulk shippers, which have been market darlings in the last year or two (following almost immediately on the tails of the Tanker companies, which were the darlings of the prior shipping investment boom and are still quite popular). There are generally two things pushing these stocks, in my opinion: China and dividends. Dry Bulk shipping is the shipment of commodity stuff like grains and ore that fills ship hulls but can’t be shipped by container, and obviously China’s thirst for raw materials has done a lot to increase the demand for these ships. Many companies also pay out more than they earn in dividends (partly because they get to write off a lot for depreciation, so cash flow is usually dramatically highier than earnings).

But that’s just my two cents — what does Navellier say? After all, he’s a high-rated advisor according to Hulbert, and I’m just hte Gumshoe.

He gives his bona fides by talking about Dryships, a company he apparently recommended a while back that’s a leader in this industry:

“Day rates for a ship like The Manasota [a Dryships vessel] have risen from $14,000 in 2001 to $50,000 today. What used to be a volatile, cyclical business is now a year-round high-growth business, driven by Asia’s re-entry on to the global economic stage … Dryships is emerging as an industry leader. For three quarters in a row, Dryships missed earnings. Then, last February earnings came in significantly over estimates. The stock popped 25% on the news.”

so Navellier clearly thinks that “Shipping is in a breakout” and he has already recommended Dryships and TBS International, both of which have done very well. What’s his next recco?

Here are the clues he gives:

“… My top shipper for new money is a Greek shipper specializing in supplying the raw materials China needs for its huge infrastructure projects. The national highway-system, a national grid, and the immense Yangtse-Huangpu project in particular all are driving copper, iron and coal and asphalt prices through the roof.”

Stock moved between $4 and $6 for two years, then … “In January, it woke up on news of its long-term China contracts and it has doubled to $12. That still gives it a very modest Price-to-Forward Earnings multiple of 13.”

And just to whet your appettite: “Make no mistake: With earnings tripling and sales doubling, this could be a $35 stock within the year.”

So … we add the details of this salty dog to the Gumshoe’s Thinkolator and we find that this firm is likely to be…

Navios Maritime Holdings (NM)

Shipping is predominantly the domain of the Greeks and the Norwegians these days, so saying that a company is Greek isn’t much of a clue for winnowing the list of dry bulk shippers. But this is hte only one I’ve found that exhibits the specific price activity Navellier cites.

It did come very close to $12 at its peak a few weeks agoat $11.84, and it vacillated between 4 and 6 in its first two years as a public company, 2005 and 2006. They own and charter in a good number of Handymax and Panamax vessels, most of which are weither fairly new or on order, and they also own a port facility in Uruguay that appears pretty well situated for trade in South American commodities.

If there’s any uncertainty in this pick, it’s that Navellier cited a significantly higher PE for this one than I have seen for this company, but his PE of 13 would make sense for current year (not “next twelve months”) earnings. And I haven’t checked to see who their customers are … but I can’t imagine that there are any large bulk shippers that don’t have a significant China business. Navios leases their boats on both time charter (longer terms) and spot charter (per-voyage rates), so they appear to have exposure to both some stable long term contracts and some high market rates. They have a steady dividiend, but it’s pretty small compared to many of their compeititors (2.5% or so), and the forward PE is currently down below 8, which is typical for these companies.

So, given the specific price movement and other details I’m fairly confident that this is Navios — but of course, I have no idea whether the stock would treat your hard-earned money well. let us know if you have thoughts on this one, I’ve never bought a bulk shipper but have been interested in Seaspan and the container shippers, and in the Tankers in years past.