Dryships   

A stock that has become an EIS top five holding is Dryships (DRYS).  It is generally considered a dry bulk shipping company and indeed it is.  But in the past year the company has also added a second and related line of business, deep offshore drilling rigs.  It expects to operate a fleet of six rigs that will make it one of the most substantial companies in that terrific business, a great summary of which appeared in today’s New York Times.  Dryships intends to spin off to stockholders its drilling business within the next twelve months. 

The dry bulk business is attractive because of the increasing needs of China and other rapidly growing countries to import coal, grains, and steel.  Moreover, the company’s dry shipping business has been extremely well managed since it went public just a few years ago.  Management has adopted a gutsy entrepreneurial, opportunistic approach to its business in terms of upgrading and enlarging its fleet on attractive terms and cleverly managing its spot vs. charter approach to leasing its assets.  DRYS’ fleet has grown from six ships averaging 19 years old before the public offering to the current 48 vessels averaging 8.4 years.

In fact, the management style at DRYS features a gutsy spirit that reminds me a little of the young Ted Turner who, in the early ’80’s wore a button to a cable television convention that read, “I was cable before cable was cool.”  Like Turner, DRYS’ George Economou is the largest stockholder and totally dominates the management effort.  Unlike Turner, however, Economou is not only a brilliant strategist, but also a detail oriented and accomplished manager.  Some on Wall Street may think he is too much of a buccaneer, like Turner was, but I believe he adds a huge measure of value to this company. 

Selling at under 5 times 2008 projected earnings, DRYS seems cheap to me.  Given that Economou has managed to increase earnings at very high double digit rates per year since becoming a public company and that a great part of its new drilling business’s earnings have not yet become apparent, a multiple of 5 looks to me a little like the company is being given away. 

Let’s remember that in the end Turner created enormous value for both himself and his stockholders.  I think Economou is doing the same thing.  Of course, I could be wrong and obviously a lot of the investment managers who are not grabbing this stock at under five time earnings think I am wrong.

The EIS portfolio has held (and still does hold) another shipping company, TBS International (TBSI) which is pursuing a different but still entrepreneurial strategy.  I think shipping is appropriate for an energy portfolio because it is a play on the rapidly developing countries that are benefiting from globalization.  That is exactly the same set of trends that is making energy and other commodities very scarce.  But, in the case of DRYS, of course, the company is now heavily involved directly in the energy business through its drilling assets that will soon be spun off and will be recognized in time, I think, as a core holding for energy investors.