One of the best investors in the world, Wilbur Ross, and one of the most powerful investors in the world, China Investment Corporation, are focusing on the shipping industry, with companies such as Eagle Bulk Shipping (NASDAQ: EGLE), Horizon Lines (NYSE: HRZ), TBS International (NASDAQ: TBSI), Frontline Ltd (NYSE: FRO) and DHT Holdings (NYSE: DHT) very attractively priced for a variety of factors. Why this was likely to happen was detailed in an article, "Takeovers ahoy for Shipping Stocks (GMR, EGLE, HRZ, TBSI, DHT)" on www.smallcapnetwork.com on June 29, 2011.
In a recent interview with the Financial Times, "WL Ross aims to exploit shipping downturn," Wilbur Ross, the billionaire investor who specializes in distressed assets, said he was prepared to invest heavily. Ross' firm and China Investment Corporation, the sovereign wealth fund of China, recently financed the purchase of 30 oil product tankers for Diamond S Shipping. Noted Ross, “The history of the industry is one that goes from immense prosperity to immense poverty and back again, and we think that’s going to continue. We’re not necessarily at the exact bottom of the cycle, but we think we are relatively close to it."
The stock prices of shipping companies cetrainly reflect being close to the bottom. Frontline Ltd is now under $7 with a year high of close to $30. Horizon Lines and TBS International are trading under a $1 a share, as are others. As pointed out in a recent article on www.smallcapnetwork.com, the market is, many times, mispricing these stocks. The shipping exchange traded fund, SEA, is at a year low of about $16.25, down from the high of $29.71.
However, while stock prices are low, the Baltic Dry Index has demonstrated stength recently. The Baltic Dry Index was up 13.5% this week. It is now at 1462 points. The Baltic Capsize Rate has recovered, too. Both indexes bottomed out in early 2011. This shows activity returning to the seaborne shipping industry.
The conditions are ripe for consolidation in the shipping industry. Stock prices and interest rates are low, making it cheap to acquire a company. Ross and other sophisticated investors obviously see demand increasing, particularly in the Asian markets. The two shipping cargo indexes reflect that. While many companies have a great deal of debt, that can be renegotiated or bought back at a discount. The value of seaborne shipping stocks is starting to surface.