Incorporated in 2006, our latest turnaround idea is now the largest dry bulk shipping company on the US market, explains George Putnam, editor of The Turnaround Letter.
Star Bulk (SBLK) currently has 70 ships in operation and another 26 on order. Dry bulk ships, as the name suggests, transport dry, bulky cargoes such as coal, iron ore, and grain.
Dry bulk shipping rates rose dramatically in the mid-2000s, spurred by demand from China for coal, iron ore, and other dry bulk products.
Softening Chinese demand has caused dry bulk rates to plummet and they have remained at historically low levels since early 2012. This has crushed the dry bulk stocks.
Although it is difficult to predict when dry bulk rates will rebound, Star Bulk is well positioned to profit when they do.
The company has a very experienced management team, modern ships with low operating costs, a decent balance sheet, and savvy owners.
In addition, management, led by CEO Petros Pappas, has a significant ownership stake in the company.
Star Bulk’s fleet of ships is among the newest in the industry, which reduces operating costs, improves safety, and makes the ships more attractive to potential charterers.
On the ownership front, Oaktree Capital, which has a long and distinguished track record as a turnaround investor, owns more than 50% of Star Bulk’s stock and two other savvy hedge fund groups own another 7%.
Among other things, this should assure transparency and accuracy in Star Bulk’s financial reporting, not always a given in shipping.
All in all, Star Bulk is a good long-term option on a recovery in the dry bulk-shipping sector. The stock price may continue to languish for a while, but it has a lot of upside leverage when shipping rates eventually rebound.
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