(DRYS). Our approach will be to describe the basic thesis for putting this on our watch list and identify potential catalysts. We actively invite reader participation in the discussion. (Full disclosure -- we have a small starter position in institutional accounts. We are considering various aggressive options strategies and purchase for individual accounts.)
The basic thesis is that the stock price has discounted a major global recession. This might come to pass, of course, but we are looking for a contrarian play.
Current prices seem to reflect a price perhaps less than the cash value of the company, including a potential spinoff of a drilling subsidiary, and sale of depreciated ships.
What to Watch
The most intriguing feature is the extreme rebound potential if anything improves. The stock has declined from 11o in mid-May to a current price of 13.
The potential positives would come from four sources:
- Improvement in commercial paper. Many shippers have been unable to secure loans for shipments. If this changes, the rates for shipping will react.
- China stimulus. If this succeeds, shipping will improve dramatically. We are especially interested in iron ore shipments from South America to China.
- Any general uptick in the global economy.
- A change in sentiment.
The negatives come from the current climate of negativity, and the economic risks. A typical example comes from an interesting source, International Shipping News. Their analysis of the DRYS conference call is quite skeptical:
I haven't really followed DryShips stock. All of the dry bulk companies are having problems with the BDI recently loosing 90%.
This is why it bothers me when an owner/chairman says "everything is OK" in this article from Lloyds List, E
conomou allays fears as DryShips shares fall.
DRYSHIPS
boss George Economou has confirmed that his Nasdaq-listed company is in
good health after a warning-laden share prospectus filing spooked the
market, already jittery from the dry bulk crash.
The report emphasizes official disclosures about loan covenants and possible dilution.
Our Take
In the post-Enron, SOX world we cannot expect bullish statements from companies. The executives must all sign off, and there is plenty of personal risk. We all need to learn this new environment, where executives cannot and will not make aggressively bullish statements. The official reports will all have plenty of warnings.
The warnings might prove true, of course, but investors looking for a few holdings that can rebound aggressively must examine the situation more deeply. That is what we propose to do, in real time, and with some help from our readers.
This is contemplated as a "high-octane" addition to accounts, not the major holding.
