DHT

Though it’s not exactly clear how the threatened closing of the Strait of Hormuz should affect shipping stocks like Star Bulk Carriers Corp. (NASDAQ:SBLK ), DHT Holdings Inc. (NYSE:DHT ), and DryShips Inc. (NASDAQ:DRYS ), one thing is clear — investors are falling in love with maritime shipping again. Crude oil shopping stocks have gained an average of 12% since January 17th. And it’s not just crude tankers either. Drybulk and container ships are lighting it up too. The drybulk stock index, made up of names like DryShips and Star Bulk Carriers, has rallied 22% over the past month. And, the bullish move follows what could be called nothing less than a disastrous 2011 for both groups.

What gives? The ideal answer would be ‘an earnings recovery’. However, that’s not quite the case for many of these stocks. DHT Holdings Inc. hasn’t seen any revenue growth in its tanker business in years. Though the top line has held steady, as has the bottom line, it’s also expected to hold steady through 2013.

And what about the cargo business? DryShips Inc. also has a stagnant fundamental past, while Star Bulk Carriers Corp. has started to bleed more instead of bleed less.

SBLK revenue peaked at $238 million in 2008, and has fallen ever since. 2010’s top line of $121 million was nearly half of the 2008 sales figure, and 2011’s expected $81.9 million in revenue reaches ‘horrifying’ decline levels. 2012’s outlook for $94.3 million top line offers some encouragement though.

As for DRYS, the company has averaged revenue of around $900 for the last three years (2008 — 2010), although 2011’s anticipated $1.0 billion in revenue offers a glimmer of hope for the industry. 2012’s forecasted $1.39 billion in revenue also offers hope, but that 40% growth expectation also leaves one wondering how plausible the outlook really is.

Of course, a great deal of the shipping industry’s success is in direct correlation to shipping rates. The cost to operate a transportation ship is pretty well fixed. The variable is the price at which companies are willing to charter a boat; it’s surprisingly inconsistent. When it’s high enough the business can be disgustingly lucrative, but when it’s too low, owing and operating a boat can generate big losses (whether the boat’s hired or not at the time — mothballing these behemoths isn’t cheap either).

That’s where things get really interesting for DryShips, Star Bulk Carriers, DHT Holdings, and all the rest. the daily charter rate for a dry/cargo vessel is now at record lows.

The Baltic Dry Index, which essentially measure the cost to ship raw materials by boat, says the ‘going rate’ for a boat charter of this ilk is a tad lower than it was when things were at their worst in late 2008 ; they’re even lower than the prevailing rates from early 2002. It’s very likely these rates aren’t even strong enough to fully cover the daily operating costs of the boats operated by names like DryShips or Star Bulk Carriers, meaning doing business at all is a losing proposition.

But what about crude tanker chart rates? They tend to move in step with drygoods charter rates. So, it’s unlikely DHT Holdings is in any better of a position.

Yet, it’s pretty clear the market’s betting on almost all of these names to show us a better 2012 than their 2011s, which is effectively a bet on a global economic rebound. Perhaps the masses know something that the oil and drygoods companies don’t yet, because their planning and purchasing people aren’t paying peanuts for charters. В

Enjoy the ride while it lasts, because it’s not very well supported (though from a technical view, all three of these stocks’ charts suggest a great short-term setup).

James E. Brumley is a paid contributor of the SmallCap Network. James E. Brumley’s personal holdings should be disclosed above. You can also view SmallCap Network’s complete disclaimer and disclosure.