These Dry Bulk Shippers Are Dirt Cheap

A year ago, in July 2009, as the markets were rallying and "green shoots" were seemingly everywhere, we checked in with the transports group to see what it was indicating about the health of the global economy.

In a recovery, the transports should be among the first to see improving business conditions.

While the earnings picture had been improving last July, many of the transports, from Federal Express to several of the dry bulk and crude oil shipping companies, still sounded notes of caution.

And now?

The stocks of the dry bulk shippers seem to be telling us that all is not well with the global recovery. Shares are hitting new 52-week lows and the 3 companies highlighted here are all trading with extreme value.

Some may even call them "dirt cheap."

Fundamentals, as far as earnings estimates go, look pretty solid. The companies themselves are seeing improving economic conditions.

But the stocks are trading as if it is the financial Armageddon all over again. What gives?

Either the shipping stocks are telling us that the global economy is about to really slow or this is a huge buying opportunity for value investors.

3 Dirt Cheap Shipping Stocks

DryShips (DRYS) is perhaps the most famous, and heavily traded, of all the dry bulk shippers.

The stock soared over $120 a share in late 2007 as the global economy boomed before plunging under $3 at the March 2009 lows. It is again approaching the $3 level.

DryShips has 34 ships in its fleet but it also operates 2 ultra deep water drilling rigs and 4 ultra deep water newbuilding drillships.

The company was quick to reassure investors in May, due to the situation in the Gulf of Mexico, that it has Acoustic Control on all existing rigs and newbuildings.

The dry bulk business has returned. In May, the company said that 2009 was the year when China boosted the bottom line but in the first quarter of 2010, the rest of the world returned to pre-crisis levels.

Analysts Expect Earnings Growth

Analysts don't seem as concerned as investors. The 2010 Zacks Consensus Estimate is down 1 cent in the last month to 90 cents. The company only made 16 cents in 2009. That would be an earnings gain of 465%.

DryShips is a Zacks #3 Rank (hold) stock.

How Dirt Cheap Is it?

DryShips is trading at 4x forward earnings. By any metric, that is cheap. But it crushes its peer group which is trading at 15.5x.

It also has a PEG ratio of just 0.2.

The 5-Year Chart

You can see the big sell-off in late 2008 and 2009, some rebound, but now the latest big sell-off.

Re-testing the March 2009 lows would be a very bearish signal for the global recovery.

Genco Shipping and Trading Limited (GNK) operates 35 vessels which transport dry bulk goods around the world. It recently announced it would be adding 16 Supramax vessels for the price of $545 million.

The company will take delivery of 13 of the ships by the third quarter of 2010. It also recently acquired 5 Handysize vessels.

This doesn't sound like a company which isn't optimistic about the future of shipping.

The Analysts Are Bullish

Genco is a Zacks #2 Rank (buy) stock. 3 estimates have moved higher for 2010 and 2 have moved lower in the last 7 days as the analysts have revised estimates based on the purchases of the new vessels.

The 2010 Zacks Consensus has moved up by 4 cents to $4.26 in just the last week. However, this is still well under the 2009 earnings of $4.73.

How Dirt Cheap Is It?

Genco is trading at just 3.5x forward earnings. Obviously, that is well under the peer group and, frankly, under just about ANY other group it could be compared with.

It also has a low PEG ratio of just 0.2.

The 5-Year Chart

Genco is also at new 52-week lows but it also has a ways to go before it hits its late 2008 lows.

Diana Shipping Inc. (DSX) operates 22 vessels which transport grains, iron ore, coal and other dry bulk commodities.

In May, it was optimistic enough about economic conditions to reauthorize the share repurchase program.

1 Estimate Moved Higher in the Last Month

Not as much growth is expected out of Diana as some of the other shippers but the estimates are trending higher.

The 2010 Zacks Consensus Estimate has moved up a penny to $1.62 in the last month. The company made $1.55 in 2009.

Diana is also a Zacks #3 Rank (hold) stock.

How Dirt Cheap Is It?

Diana is the most expensive of these companies. But that is relative. It is still trading at just 7x forward earnings.

Given that its growth rate isn't as strong as the others, it has a higher PEG ratio of 1.9.

The 5-Year Chart

Like the others, its stock has also plunged from 2007 highs. It is at new 52-week lows but has a ways to go before it gets to the late 2008 lows.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Read the full analyst report on DRYS

Read the full analyst report on DSX

Read the full analyst report on GNK