Where to start with the mess that is the shipping industry: shipping rates were at an all time high in June of '08 and now sit at a six-year low. Within this mangled industry, a star may be on the horizon.
First the bad news, many in the industry (Star Bulk is no exception) are suspending dividends and stock repurchases. The price to earnings ratio have hit ridiculous lows with SBLK trading at a P/E of 1.22, which is a third of the industry average of 3.66.
On the brighter side, Star Bulk Carriers(NASDAQ: SBLK, Stock Forum) just reported net income of $50.2 million for the fourth quarter of 2008, compared to net income of $1.6 million for the fourth quarter of 2007. Earnings per share, basic and diluted for the fourth quarter of 2008 were 41 cents.
The company has done some loan restructuring, which should keep the balance sheet strong through early 2010. SBLK's fleet has already contracted 93% of its operating days for '09, providing the company with significant cash flow visibility.
Should you decide to follow the shipping industry, you'll want to get acquainted with the Baltic Dry Index (BDI), which has been moving up off its lows. There are several economists who view it as the leading indicator of forthcoming global trade, it also represents the daily average of prices to ship raw materials.
What separates the BDI from most economic indicators is that the BDI sets rates for future global raw material and infrastructure demand, while most economic indicators report on the past or events that have already occurred.
We feel Star Bulk Carriers is an undervalued company in an undervalued sector that is expected to see increased demand in the second half of '09. There are many companies in the shipping sector that look attractive at this time and each has its own nuances. In the case of the shipping industry, a rising BDI truly does lift all ships.
Star Bulk Carriers is a global shipping company providing worldwide seaborne transportation solutions in the dry bulk sector. Star Bulk's vessels transport major bulks, which include iron ore, coal and grain and minor bulks such as bauxite, fertilizers and steel products.
Star Bulk was incorporated in the Marshall Islands on December 13, 2006, and is headquartered in Athens, Greece. Currently, Star Bulk has an operating fleet of 12 dry bulk carriers. The total fleet consists of four Capesize, and eight Supramax dry bulk vessels with an average age of approximately 9.9 years well below the industry average and a combined cargo carrying capacity of 1.1 million tons.