Neil Macneale, is well known for compiling an ongoing model portfolio based on companies that have a...
Sailing the Seas With Global Commodities
11/16/2009 1:00 pm EST
Bryan Perry, editor of Cash Machine, says the Baltic Dry Index is a good way to track the economy and the markets, and he finds a shipping stock to play it.
Daily, the Baltic Dry Index calculates the prices to ship raw materials, representing what the end customer pays to have a shipping company ship their goods across the seas on the Baltic Exchange.
Because BDI is forward looking, it provides a real-time look at global commodities demand without the threat of manipulation. The dry bulk markets have witnessed extreme volatility in the past two years. In 2008, the Baltic Dry Index plummeted as the global economy slowed down, effectively shedding 95% of its value from peak to trough. In 2009, the index has slowly picked up, suggesting demand for raw materials is being revived.
While the Baltic Dry Index is a leading economic indicator, it has been also behaving as a leading indicator of the stock market lately. Looking back over the past couple of years, the BDI tends to lead the market higher or lower by about two months. That means the latest firming in the index is foretelling a higher stock market by year-end.
In the month of October alone, the BDI index rose 37% from 2,362 to 3,247, while the stock market has given back 5% during the same period. Assuming the BDI is a forward gauge of things to come, then Santa Claus is coming to Wall Street this Christmas.
China continues to be the determining factor for the near-term outlook for the dry bulk shipping sector. At present, China's GDP [growth] is nearing 8% and rising. With steel demand for infrastructure driving iron ore imports and record coal imports needed to supply a growing number of new coal-fired power plants, next year looks bright for those shipping companies addressing these two primary commodity markets.
This is an especially opportune time to get on board, with the Baltic Dry Index hitting a three-month high.
Enter Navios Maritime Partners LP (NYSE: NMM), an international owner and operator of Capesize and Panamax vessels. This dry bulk shipping company is a Master Limited Partnership formed by Navios Maritime Holdings (NYSE: NM), [which] holds a 39.8% interest in NMM.
Navios Maritime's ships are chartered out under long-term time charters—most have an average term of approximately 4.1 years, providing a stable base of revenue and distributable cash flow. It has contracted out 100% for 2009 and 2010, 82% for 2011 and 76% for 2012.
In addition, NMM noted that its third-quarter results were surprisingly good—10% higher than analyst estimates on 4.2% year-over-year revenue growth.
Navios Partners also completed its public offering of 2,800,000 common units at $12.21 per unit in late September, raising $34.2 million. With the stock trading [near $15], the secondary offering is an obvious winner and provides new working capital to expand operations and maintain a conservative balance sheet.
Buy shares of NMM up to $14 and lock in [about a 10.8%] dividend yield. My one-year price target for the stock is $18.
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