tag:blogger.com,1999:blog-6798074091942701235.post8362756544003633005..comments2024-03-29T01:35:09.550-04:00Comments on Can Turtles Fly?: Is shipping attractive for contrarians?Sivaram Vhttp://www.blogger.com/profile/06361276466660862882noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-6798074091942701235.post-80076154930010300182009-08-04T15:37:55.000-04:002009-08-04T15:37:55.000-04:00Very interesting conversation Sivaram. Do not want...Very interesting conversation Sivaram. Do not want to push the marginal costs beyond the marginal benefits, but here is other interesting issues about investing in shipping.<br /><br />http://www.covestor.com/mbr/planmaestro/blog/34506Plan Maestronoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-71461076817221686392009-08-04T10:50:32.000-04:002009-08-04T10:50:32.000-04:00I am not a fan of debt but I dont' see any fau...I am not a fan of debt but I dont' see any fault with your thinking. If you have stable cash flows, levering up a little bit may be ok. However, I'm not really sure shipping companies have stable cash flows. I think MLPs and othe rresource companies are more stable. You did your homework so maybe you did pick off a company with stable cash flows but it remains to be seen.<br /><br />I don't know the business dynamics of shipping but one problem I can see is that the prices may be set by the worst company out there. Prices may fall simply because all the struggling companies are literally giving away their ships. Some of you have suggested that some companies have guaranteed contracts.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-35119694726255194912009-08-04T01:32:12.000-04:002009-08-04T01:32:12.000-04:00Yeah, that's why I got into them in my Marketo...Yeah, that's why I got into them in my Marketocracy mock fund. I had three more than now, and did get stuck in a couple of value traps, but the one I aim to keep is a dividend play. Its financials are hairy, but my interpretation of them suggests to me that this company will scrape up enough to keep paying its dividend. If you're interested, it's Ship Finance International [ SFL .] I should also add that I've plowed only imaginary dollars into it: no real money.<br /><br />There were five tanker-shipping stocks I've bought for that mock fund; I've sold three. Here's a quick scorecard:<br /><br />Of the three I sold:<br />- One got me a quick profit, of about 15%<br />- One got me a large loss, of more than 15%<br />- One got me a small loss, of about 8%. That one was Frontline.<br /><br />Of the two I kept:<br />- One's got a small profit, of about 3%, but was well into 20%-loss territory at its low point.<br />- One, bought recently, has gotten me a decent profit of about 7%.<br /><br />All in all, I just about broke even (in imaginary-dollars terms.)<br /><br />I also got valuable lessons about doubling down in an industry, about how underdiversification develops, and about looking before leaping...Daniel M. Ryannoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-38398933697120062462009-08-04T01:07:03.000-04:002009-08-04T01:07:03.000-04:00Have not checked Yahoo or Google (and it to late t...Have not checked Yahoo or Google (and it to late to check my notes) but all the shipping companies have high debt. It is part of the business model and a driver of the booms and busts. Much more important is the qulity of the debt and the cash flow stability. The way I put it in Gurufocus:<br /><br />"I am going to ruffle feathers, but I believe that leverage is part of the value equation when you have STABLE cash flows. If you can juice your ROE increasing your leverage WITHOUT COMPROMISING the sustainability of the company that is part of the competitive equation. Media and newspapers were the usual example, but fixed contract long haul pipelines, chartered shipping companies, hedged MLPs are other examples.<br /> <br /> However, when I invest in that kind of companies I much rather get dividends than reinvestment and growth. Given the high ROE juiced by leverage, those are sectors prone to over investment and bubbles specially when there are no barriers to entry. So I much rather invest alongside management that is more conservative with the uses of cash flow given the aggressiveness of it sources (just check commercial real estate)"Plan Maestronoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-36969179811718046382009-08-03T21:28:14.000-04:002009-08-03T21:28:14.000-04:00Sivaram is my first name so you can use that :)
...Sivaram is my first name so you can use that :) <br /><br />How much debt does GSL have? I don't know if the Yahoo numbers are right (it seems different from Morningstar) but if they are correct, this is a dicey play. Yahoo reports debt of $590m while GSL's market cap is $86m and I'm not sure what its cash flow is.<br /><br />On top of all the macro issues, debt is a risk with all the shipping companies. Frontline (FRO) has debt of $3billion vs market cap of $1.88b and equity of $700 million.<br /><br />Having said all that, Frontline, just to use a standard example, has an unbelieveable ROE of 90%. So, if things work out, shareholders are going to make a killing. It's just that it is very risky IMO...Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-51232856058678685882009-08-03T18:45:51.000-04:002009-08-03T18:45:51.000-04:00Sivaram (first name or last name?)
You can see th...Sivaram (first name or last name?)<br /><br />You can see the CSAV and Hapag-Lloyd cases for the difficulties in getting out of charters. These are very similar situations to Delta vs Pinnacle (they could not get out of those charters either). However, to sleep well at night is better to check the financial health of the clients.<br /><br />Also, not all debts are the same and not all revenues are the same so you have to do a very good bottom-up analysis to invest in this sector. I am pretty confident (I hope not overconfident) with GSL. The REFI discussions are relative to the timing of the resumptions of the dividends and the reception of the Berlioz: not to bankruptcy. The banks are probably going to get a pound of flesh in exchange of achieving this goals but the cash flow potential has not been impaired. All the while the company keeps accumulating $0.23 per share PER QUARTER and when they resume revenues that would be a 65%+ yield at current price (!) .<br /><br />Regarding revenues safety, 50%+ of CMA CGM charters end this year so they have A LOT of flexibility to adjust their capacity, flexibility that their competitors do not have. This pair is a clear winner in this environment. If you add that one of my all time idols bought at the reverse merger last year at prices closer to $7 just last September... George Soros that is a contrarian.<br /><br />The stock jumped 33% the last 3 days on very high volume (4 times the average) and the news from the refi look very good.<br /><br />PD: thanks for the nice EBAY, YHOO and AMZN memories. Three of my four buys in 2002. Sold them all right after the GOOG IPO. (2005?). IPOs are good sell signs and dividend cuts are good buy signs.Plan Maestronoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-74143115192369939842009-08-03T16:56:12.000-04:002009-08-03T16:56:12.000-04:00I remember some people investing for dividends (th...I remember some people investing for dividends (these companies pay as much as 10% in dividends) a few years ago, which is a huge mistake with these companies. I know you do a lot of work with low p/e stocks and maybe you should set up a cyclical p/e portfolio where you add cyclicals with very high (or infinite) p/e ratios. I following the thinking that cyclicals at very high P/Es are more attractive than when they have low P/Es.<br /><br /><br />Like you and StockmanMarc said, being selective and stock picking matters a great deal going forward. Two or three years ago, a blind macro bet would have worked (same with a blind bet on financials a few years ago) but the future is likely to be different.<br /><br />As for your comment about oil, I'm far more bearish than you are. I have no idea if I'll be right but it is possible that oil set a long-term peak last year. If so, that would be a major top. Although the oil tankers may not have had the same size bubble as dry goods or containers, I still think there may have been a bubble. Even if capacity did not enter the market, it is possible the valuations are too high. If you look at something like Frontline (FRO), which I believe is solely in crude oil and related tanker shipments, its stock price certainly was in bubble territory last year. It's off about 66% from the peak but it's hard to say how cheap it is right now.<br /><br />I also wonder about "long-term contracts". One needs to read through their official documents and make sure they are as solid as they appear. I don't follow the industry and have no idea how solid the contracts are. Let's not forget that if oil companies go bankrupt then the contract may be breakable in bankruptcy court. But even outside bankruptcy, I wonder about these contracts. I don't know about these contracts, but in completely unrelated businesses, I have seen capital goods orders and backlogged purchases, which seemed like solid contracts, dissapearing in the last year. I remember reading articles in newspapers in past years talking about the bullish backlog orders without ever pointing out how they can easily be cancelled under various conditions.<br /><br />One thing I'm learning with this crisis is that a lot of what was taken to be "true" is not what it seems. Backlog orders may look good but they can easily dissapear. Contracts that were thought to be solid often end up yielding little, especially if the other party goes into bankruptcy.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-48764978198643079472009-08-02T23:57:55.000-04:002009-08-02T23:57:55.000-04:00Myself, I saw several tanker companies in the low ...Myself, I saw several tanker companies in the low P/E, high yield set of stocks I watch. They've been pretty volatile, and I burned my mock fund with one of them.<br /><br />On the other hand, oil never went through a shipping-boom bubble. Tanker rates have little to do with the Baltic Dry Goods Index, and most tankers are on long-term contract.<br /><br />I found out the hard way, though, that being selective is crucial. So is exiting when things go wrong.Daniel M. Ryannoreply@blogger.com