DryShips vs Eagle Bulk Shipping Stock: The shipping industry is one of the powerhouses of the global economy, allowing goods and products to travel from one corner of the world to another. Food, raw materials, and manufactured goods are all transported between countries on 50,000 merchant ships registered in over 150 different countries.
With that in mind, it’s no wonder that investors would be interested in shares of shipping companies – but which shipping company stock is best to buy?
Pros and Cons of Investing in Shipping Companies
For investors willing to bet on global trade, history is on their side; shipping has been around for a couple of thousand years already and it’s not likely to disappear any time soon.
Shipping is one of the most important methods of international trade. When fortune is smiling on the global economy, the shipping industry is likely to be thriving as well.
Although shipping companies faced challenges after the global financial crisis of the last decade, freight volumes are likely to stabilize and increase in the near future if the economic recovery continues.
The shipping industry is often seen as a good target for “bargain hunters” looking for undervalued stocks. Indeed, many shipping company stocks can post outsized returns – if you know which ones are the smart investment.
The Drawbacks of Investing in Shipping Companies
Perhaps the biggest concern about investing in shipping company stocks is the potential for fluctuations in global trade.
Recent months have seen much speculation about a “trade war” between the United States and China. In May 2019, the U.S. levied $200 billion in tariffs on Chinese goods, which caused indexes like the S&P 500 [SPY] and the Dow Jones Industrial Average [DJIA] to fall more than 2 percent in the following week.
Slowdowns in the global economy affect this industry especially hard, which means that a recession could have a drastic impact on shipping company stocks.
The health of the shipping industry is also influenced by factors such as oil prices, which are themselves influenced by international events that can be difficult to predict.
Another issue with investing in shipping companies is that each merchant ship costs millions or even hundreds of millions of dollars.
This means that shipping companies need to take on large amounts of debt in order to assemble their fleets. Holding debt may not be a concern during times of trade prosperity, but it can be highly restrictive during an industry downturn.
Is DryShips Stock a Buy?
DryShips [NASDAQ: DRYS] is a bulk shipping company with headquarters in Athens, Greece and founded in 2004.
The history of DryShips [NASDAQ: DRYS] is largely an unlucky one. At the stock’s peak in 2008, the company was in possession of 38 shipping vessels and had also expanded into offshore oil drilling.
The global recession in 2008 and the collapse of oil prices in 2014 were dual shocks for DryShips. By 2016, the company’s fleet was reduced to only 13 carriers and 6 offshore support vessels.
However, the company and its stock have shown signs of recovery lately. Shares of DryShips [NASDAQ: DRYS] were up by 60 percent in 2018, as the company sold off dry bulk carriers and purchased oil tankers and gas carriers. This latter addition promises to be especially profitable thanks to the current boom in the gas trade.
Should You Invest in Eagle Bulk Shipping Stock?
Eagle Bulk Shipping [NASDAQ: EGLE] is a U.S.-based bulk shipping company that currently has 46 ultramax and supermax bulk vessels in its fleet.
Shares of Eagle Bulk Shipping have moved much less than shares of DryShips [NASDAQ: DRYS] in the recent past: they were up just 4 percent during 2018.
In addition, Eagle Bulk Shipping [NASDAQ: EGLE] has only ultramax and supermax bulk vessels, which typically have lower profit margins than the oil tankers and gas carriers in DryShips’ fleet.
One piece of good news for Eagle Bulk Shipping [NASDAQ: EGLE] is that the company is thinking ahead when it comes to industry regulations.
The International Maritime Organization (IMO) has enacted new standards for 2020 that limit the amount of sulfur content in the fuel that shipping companies use.
Eagle Bulk Shipping [NASDAQ: EGLE] has chosen to retrofit most of the vessels in its fleet with exhaust gas scrubbers, allowing the company to use cheaper fuel while still complying with the regulations.
DryShips Vs Eagle Bulk Shipping Stock: The Bottom Line
The shipping industry is definitely not one for the faint of heart. The global recession and subsequent recovery over the past decade has sent shockwaves through the industry, wreaking havoc on the potential profits of investors.
Before taking action to purchase shipping company stock, verify that the company has a healthy balance sheet and a solid track record.
DryShips’ choice to diversify into oil and gas shipping beyond dry bulk shipping alone is a good move for the company, taking advantage of the higher profit margins.
From a risk perspective, it has fewer ships and therefore more concentrated risk than Eagle Bulk Shipping. So arguably it may have more potential upside reward and more downside risk.
Neither stock pays a dividend at this time.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.