Do Financial Advisors See a Glimpse of Hope in Dryships (DRYS)?
The US stock market traded in the red during the month of June, with all three main indexes reversing trajectory on the back of various issues that offset the positive news at the beginning of the month. The S&P 500 has declined by 0.42%, but is still 1.01% in the green year-to-date, while the Dow Jones Industrial Average has lost 1.43% and is currently 2.18% down since January 2. By late June, the Nasdaq Composite inched down the least, by 0.30% and is still going strong with almost 8% up year-to-date.
June started on a very optimistic note, following the rollback of Dodd-Frank regulations a week earlier and a very positive nonfarm payrolls report. On June 1, the Bureau of Labor Statistics announced that the US economy added 223,000 jobs in May, which was significantly higher than the expected 189,000. The unemployment rate also dived to 3.8%, versus expectations of 3.9%. Trade fears also alleviated in the first week of the month ahead of the G7 summit in Canada. However, at the summit, President Trump renewed his attacks on the closest US allies, threatening to impose tariffs. Trump left the G7 meeting early as he headed to Singapore where a historical meeting with North Korean leader Kim Jong Un took place on June 12. The meeting, which concluded with the signing of a deal between Trump and Kim, was praised as a success that would result in the denuclearization of the Korean peninsula. However, many analysts pointed out that the commitments outlined in the agreement were vague and are unlikely to have any meaningful impact.
The US stock market also received a boost from the Federal Reserve, which on June 13 hiked the key interest rate by 0.25 percentage points to 1.75% to 2%. The Fed also indicated that it is ready to hike interest rates two more times this year.
However, the main issue that affected stock markets this month was trade. At the beginning of June, the US slapped tariffs on steel and aluminum imports from Canada, Mexico and the European Union, ending a previously set two-month exemption. The tariffs sparked criticism from the countries, which are the main trade partners and key allies of the US, as well as from some economists and business lobbying groups. The EU retaliated by slapping tariffs on $3.2 billion worth of iconic US products, such as bourbon and motorcycles. As a reaction to the tariffs, Harley Davidson has recently announced plans to shift some of its production overseas. The White House administration also did not omit China and after approving tariffs on $50 billion worth of Chinese goods on June 14, President Trump directed the US Trade Representative to ready new tariffs on $200 billion worth of Chinese imports. The latest hit to the US stock market came amid reports that the US might prevent Chinese companies to invest in US technology.
In addition, June has seen some big news on the M&A front. On June 12, a US federal judge approved the merger between AT&T Inc. (NYSE:T) and Time Warner and after the Justice Department said it would not seek an injunction to prevent the deal, the acquisition was closed on June 14. Moreover, Walt Disney Co. (NYSE:DIS) has recently secured the DoJ’s approval to acquire the entertainment assets of 21st Century Fox Inc. (NYSE:FOX). The approval marks a victory for Disney, which had to raise its bid to $71 billion last week after Comcast Corporation (NASDAQ:CMCSA) stepped in with a $65-billion offer. Even though the approval from antitrust regulators creates more hurdles for Comcast, analysts say that Comcast is not out of the race and the bidding war is likely to continue.
In the meantime, Financial Advisors seem to be standing on the sidelines of the Disney – Comcast – Fox saga, at least judging by the list of 20 most searched tickers among Financial Advisors, which was compiled by TrackStar, InvestingChannel’s official newsletter capturing and analyzing the trends of Financial Advisors. Instead, Financial Advisors are keeping an eye on big tech companies, such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), Alibaba Group Holding Ltd (NYSE:BABA), Facebook Inc (NASDAQ:FB), and Twitter Inc. (NYSE:TWTR). A lot of attention was also paid to the semiconductor industry, with Intel Corporation (NASDAQ:INTC), Micron Technology (NASDAQ:MU), Nvidia Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), as well as PV company JinkoSolar Holding Co., Ltd. (NYSE:JKS) making the list of the most searched tickers in June. Some analysts argue that in case of a trade war with China, US semiconductor companies could lose the most due to their high exposure to the Chinese market.
However, what’s most interesting is that Financial Advisors put the shipping industry on their radars. The list of the 20 most-searched tickers is led by dry bulk shipping company DryShips Inc. (NASDAQ:DRYS), while its industry peer Top Ships Inc. (NASDAQ:TOPS) ranked on the fifth spot. Shipping agency and logistics service provider Sino-Global Shipping America, Ltd. (NASDAQ:SINO) also made the list and was the 18th most-searched ticker among financial advisors.
The shipping industry has been struggling for a decade, as bulk freight rates dropped in 2008 amid the financial crisis and hit a historic low in 2016. While there have been some signs of recovery, and companies that managed to either avoid bankruptcy or come out of restructuring are trading at very low prices, analysts suggest that the outlook remains grim for the whole industry.
Which brings us to DryShips Inc. (NASDAQ:DRYS), whose ticker has been the most searched among Financial Advisors so far this month. DryShips Inc. (NASDAQ:DRYS) managed to avoid bankruptcy, but saw its stock wipe out almost its entire value in the last couple of years. A year ago, DryShips Inc. (NASDAQ:DRYS)’s stock traded at around $16 a share, today it is trading at under $6, although it managed to recover from the 52-week low of $0.98.
In 2017, DryShips Inc. (NASDAQ:DRYS) managed to secure a strategic repositioning transaction, which allowed it to get credit to continue operating as well as to rebuild its fleet. DryShips immediately proceeded to buy new vessels. To raise cash for the vessels, the company issued millions of shares of new stock, which was sold to Kalani Investment Limited. Kalani unloaded the stock on the market, which substantially diluted the price. To control the dilution, DryShips conducted a series of reverse splits. More specifically, between March 11, 2016 and June 22, 2017, the company conducted seven (!) reverse splits.
Since the beginning of the year, DryShips Inc. (NASDAQ:DRYS) has seen its stock gain 64% as the company made a number of positive announcements, including a 273% jump in first-quarter revenues. The company also expanded its fleet to 36 vessels. Earlier this month, it said it would not proceed with the spin-off of its Gas Ships gas carrier business.
DryShips Inc. (NASDAQ:DRYS) is also expected to see some positive tailwinds. China is ramping up the imports of iron ore, which represents the dry bulk cargo with the largest trading volume per year, according to opensea.pro. The demand for coal shipping, the second most popular cargo, is also expected to increase. Even though DryShips also operates tankers and LNG carriers, the largest part of its fleet is represented by Drybulk carriers (21 vessels). Moreover, the fragmented shipping industry is expected to see a wave of consolidation, as a number of companies went bankrupt and large carriers like Maersk and Cosco Shipping Holdings Co. are looking to buy other companies in an attempt to cut costs and have more pricing power. With a market cap of $560 million and a book value of vessels of $817.3 million, DryShips Inc. (NASDAQ:DRYS) might be a good acquisition target, although its management, led by Greek billionaire George Economou, doesn’t have the best track record of creating shareholder value and might reject potential bidders, but there were rumors last year that it could acquire Top Ships Inc. (NASDAQ:TOPS).