Forget DryShips, I'm Shipping Up to Navios

 | Nov 21, 2016 | 3:03 PM EST
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Following up from my Friday column on the macro factors driving the huge jump in dry bulk shipping rates, today I'll focus on the micro. One quick macro note, though. The benchmark Baltic Dry Index did break its 12-day winning streak in today's London afternoon fixing, posting a small decline to 1240.

Perspective is important, so here are today's rates for the three major bulk shipping classes expressed in dollars with 11/21/2016 presented vs. 11/21/2015, from

Capesize: $18,363 vs. $5,967

Panamax: $11,063 vs. $3,683

Supramax $8,727 vs. $4,902

So, those eye-popping year-on-year gains are what has driven broad media sector interest. Still, I would note that this is the eleventh column I have written on shipping for Real Money in the last six months, so it's only the mainstream financial media that was ignoring dry bulk's amazing renaissance.

Thanks to all of the Real Money readers who have been contacting me as the story has unfolded. As always, I appreciate the interest. In the last week, that interest has taken the form of many queries regarding DryShips (DRYS) , a stock I haven't owned since sometime in 2008 and haven't thought about much in the subsequent eight years.

DryShips shares went from a closing price of $5.10 on Nov. 9 to an intraday high on Nov. 17 of $97.99. The catalyst was an announcement on the 17th that DRYS had received $20 million in proceeds from issuance of preferred stock to BVI-domiciled Kalani Investments.

Don't forget, however, that DRYS is in default now. In fact, the company noted in its Nov. 9 press release "three of (our) bank facilities have matured and the Company has not made the final balloon installment(s)."

This morning DryShips, announced an agreement with one its lenders on a 50% haircut and maybe the other banks will agree to the same terms. If they don't, bankruptcy is the most likely option, and common equity would be worthless.

So, if you are experienced in distressed situations and can handle extraordinary volatility -- DRYS shares are down 8% today -- DryShips might be worth a look. It's way too hot for me to handle, though, so unfortunately I can't be of any help to you on that name.

Shares of my Real Money Best Idea, Navios Maritime (NM) , haven't been quite as volatile as DRYS, but it's also been a wild ride these past two weeks. Perhaps it's time for a reality check, and there is no better reality check for a company -- large or small -- than earnings. NM reports before the bell tomorrow morning.

Here's what to watch for in tomorrow's earnings report:

Fidelity's daily research compendium shows a consensus loss per share estimate for NM's third-quarter 2016 of $0.26. NM has posted negative net income for the past 10 quarters and I don't think a couple pennies in either direction will matter to the market.

Analysts will be more focused on the company's cash flows in the third quarter (and prospects for the fourth) than earnings, but remember the source. According to that same Fidelity cheat sheet, six of the nine research firms that follow NM have a sell or underperform, rating.

Man, have they been wrong. NM is up nearly 70% in the past two weeks alone, and several times that much if one goes back to February, or even only as far back as May. So, I'm going to be grinding the NM numbers (the slide presentation attached to its earning presentation is especially helpful,) but excuse me if I am not waiting with bated breath for the "first read" on its figures from an analyst cabal that has been so wrong on NM overall.

The Navios Group features so many moving parts that some forget that the company owns 64% of a large and growing logistics business in the Hidrovia region of South America. That business was seemingly dealt a crushing blow when Brazilian giant Vale (VALE) decided in April to pull out of a take-or-pay contract for a grain terminal NM has been constructing in Uruguay. Navios has invested $142 million in the facility and the loss of the major customer in the region was another factor -- along with depressed dry bulk freight rates -- crushing NM shares in the summer.

NM is challenging Vale's move in a binding arbitration process currently under way in London. If there is any hint in tomorrow's conference call of a move toward a resolution that would benefit NM, which would be a major, major plus for the stock.

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