Shipping: "DryShips: What the Heck Is Going On?!?!" (DRYS; ESEA; SALT)

From Barron's Stocks to Watch:

Wells Fargo’s Michael Webber and team try to make sense of the massive rally in shipping stocks like DryShips (DRYS), Euroseas (ESEA), Diana Containerships (DCIX), and Scorpio Bulkers (SALT):

Beaten Up Beta Trades Having Their Day(s). Over the past 5 trading sessions, the Dry bulk universe is up 378% (that’s not a typo), led by DryShips of all companies (up 1501%), Euroseas (up 267%), and Scorpio Bulkers (up 51%), with the broader market (S&P 500) up just 2%. While the downtrodden Dry Bulk names such as Euroseas and DryShips (and Diana Containerships showing up among Containers) saw more dollar-weighted volume on 11/15 than they’ve seen in the past month, we note our Container coverage (up 35.1%), Marine MLP coverage (up 8%), Tanker coverage (up 8%), and US Marine coverage (up 7%) have all also outperformed the market.

“Yo – What The Heck Is Going On?” It’s a good question, and one we’ve received quite a bit over the past few days, as the sheer magnitude and velocity of the pricing moves are massive, even by shipping standards. So, what do we think is happening?

1) Trump Rotation Trade: We think we’re seeing the continuation of the Trump Rotation trade–into riskier, energy related assets. We believe the bulk of these moves are general and high level in nature…

2) Retail Momentum Driving The Dry Bulk Bus. We’re seeing significant retail momentum within Dry Bulk, which has become a self-perpetuating cycle in recent days. While Dry Bulk day rates are up (Capesize spot rates are up 38% to $16,400/day, likely above cash breakeven for most at this point), no fundamental move has supported this degree of upside in our view. While there’s momentum around the coal trade (both from a Trump read-through, and from higher steel pricing/met coal demand), we believe both are likely overstated....MORE