Dry Bulk Improves, Where to Buy?

Dry bulk has been a challenging sector in shipping for much of the past decade; however, we finally appear to be turning the corner in the markets, with global demand rapidly picking up while the supply remains muted due to a near record-low orderbook.

Additionally, investors have started to return to the markets with many names now trading at or above-NAV in some instances. For someone who has not invested yet, it might seem like many opportunities are running away. However, we need to keep in mind that NAV itself is based on current vessel valuation levels, which themselves are near trough lows. If asset prices improve into 2021 based on a combination of global economic improvements and some potential commodity inflation, then we could easily see NAV levels rise by 50-100% in many of the core dry bulk names.

So what names are most attractive today? I believe three companies are the most interesting, of which I will briefly share below.

Three Favorites in Dry Bulk

I am a value-oriented investor, so I prefer to buy the companies which offer the best value based on the current market and forward market expectations. This means usually preferring the names with the lower price-to-earnings and price-to-cashflow ratios as well as looking at firms with lower P/NAV ratios. I also like to look for special situations or ‘dislocations’ in the market. Finally, I like to look at underfollowed and under appreciated names. These three favorites include one from each category:

The cheapest and best positioned name by far, in my opinion is Navios Maritime Partners (NMM) (disclosure: I am long NMCI and NMM). Even after some recent strength, NMM trades at about $22/sh, while I estimate their Q1-21 pro forma NAV (after their NMCI merger) to be roughly $50/unit. Additionally, I believe NMM will produce earnings of $10-$15/unit for both 2021 and 2022 depending on how strong the dry bulk market performs. A roughly 40% P/NAV and a P/E ratio of less than 2x is very enticing!

Another name, Genco Shipping (GNK) (disclosure: I am long GNK) is available primarily due to a temporary dislocation in the market due to heavy private equity selling. Private equity typically has a time horizon on their investments and with GNK, I believe their selling is more or less ‘forced’ by this time horizon rather than by a specific belief in the market. Their misfortunate can be our gain as GNK is now available at a 30%+ discount to other tier-1 dry bulk peers.

Finally, an overlooked and undercovered stock is Grindrod Shipping (GRIN). GRIN focuses on the smaller and mid-sized dry bulk segments, both of which have been surging lately. I recently spoke with their management team in an interview at Value Investor’s Edge, and it seems they are very well positioned for this cycle. As GRIN transitions to quarterly reporting and focuses on their core dry bulk fleet, I expect their stock performance will improve. GRIN trades at a significant discount to most dry bulk names.