The Shipping News

Hot Insurance Companies To Invest In 2014

Now’s a good time for investors to look at the shipping industry, as the recent improvement in freight rates demonstrates the upside potential in dry bulk activity.

Moving past the last years’ abnormal fleet supply growth, positive demand fundamentals will be better reflected in freight rates and vessel values, supporting a market recovery to historical levels.

Investors should consider Star Bulk Carriers (NASDAQ: SBLK) as a direct play in the shipping industry. The stock has returned to profitability in 2013 and is projected to increase earnings by 85 percent in 2014. The stock is trading at reasonable valuations and has 35 percent upside potential.

Morgan Stanley is taking a bullish stance on the dry bulk shipping industry. Their analysts predict that rates for shippers will rally over the next two years, as demand for iron ore and grains overtake supply. Shipping companies will benefit from the rally.

Morgan Stanley’s report mentions low supply growth of ships in the industry, China’s strengthening economy, increased growth in import demand into China, no cuts in Chinese steel capacity until at least 2015, and high fuel prices all contributing to higher rates ahead.

Ship scrapping in the industry was historically high in 2011 and 2012 and remained elevated in 2013. At the same time, deliveries of new vessels are expected to be manageable into 2014 and 2015. The bulge in orders and delivers between 2010 and 2011 seems to be peaking. As a result, there are signs that the supply/demand balance in the market is turning more favorable for the operators.

The company just announced that it has entered into binding agreements to acquire two modern Post-Panamax bulk carriers, the M/V “GL Qushan” and the M/V “! GL Daishan,” from an unaffiliated third party for a total consideration of $60 million. Each of the vessels has a carrying capacity of approximately 98,000 deadweight tons and is expected to be capable of transiting the Panama Canal upon its scheduled expansion.

The company is continuing its expansion path with agreements to construct two Capesize dry bulk vessels (180,000 deadweight ton) for delivery in Q4 2015 and Q1 2016. It also has letters of intent for construction of two Ultramax drybulk vessels (60,000 deadweight ton) for delivery in 2015. The new vessels are expected to use eight times less fuel than conventional models at slow steaming and fuel savings could double at higher speeds.

Star Bulk announced an equity raise on Oct. 2 at a significant discount to market price. The share price closed at $10.22 the day before the announcement of a fixed equity raise of $8.80 per share. Star Bulk stated the money would be used to partially fund the acquisition of nine identified new building vessels, future vessel acquisitions and general corporate purposes, including working capital.

Adjusted net income for the third quarter of 2013 was $2.3 million compared to an adjusted net loss of $3.8 million during the same quarter in 2012. Adjusted net income for the nine months ended September 30, 2013 was $7.6 million compared to an adjusted net loss of $0.6 million during the same period of the previous year.

Year to date to January 2014, the S&P Marine Index, which consists of only three companies, was up 2.5 percent, versus the S&P 1500′s 0.5 percent drop. In the past 13 weeks, the group was up 10 percent, versus a 5.3 percent rise for the index.

Star Bulk is up 50 percent in the past three months and 75 percent in the past year. The company does not look overly expensive trading at 0.46 times price to tangible book value. There’s ample room for the valuation to expand. The price-to-sales ratio was 0.9 on a trailing basis.

The stock is gett! ing posit! ive earnings estimate revisions that suggest analysts are becoming more optimistic on Star Bulk’s earnings for the coming quarter and year. In fact, consensus estimates have moved sharply higher for both of these time frames over the past month, suggesting that Star Bulk Carriers could be a solid choice for investors.

Star Bulk Carriers is projected to grow earnings per share (EPS) from a loss of $2.14 in 2012 to a positive $0.27 in 2013. Star Bulk is projected to grow EPS to $0.50 in 2014, an increase of 85 percent. Thomson Reuters consensus has a buy rating on the stock.

Star Bulk Carriers has a 12-month price target of $16, for an increase of 35 percent.

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Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.