Has DryShips Inc. (DRYS) Become the Perfect Stock?

Shipping companies have had to deal with plunging prices for dry-bulk vessels, as the Baltic Dry Index has fallen more than 90% from its 2008 highs, with a glut in capacity resulting from ambitious shipbuilding projects that ran into the global recession and financial crisis. Now, conditions are so bad that DryShips actually paid more than $21 million to get rid of two Suezmax tankers that were under construction.

Still, 2013 has led to a small rebound. As Fool contributor Alex Dumortier noted earlier this year, the cyclical nature of the business points to some compelling values in the space. Diana Shipping Inc. (NYSE:DSX), for instance, trades at less than five times its cyclically adjusted earnings, while DryShips’ share price is below annual earnings adjusted over the cycle. Stocks throughout the space have finally started responding to that value proposition, as Navios Maritime Holdings Inc. (NYSE:NM) and Safe Bulkers, Inc. (NYSE:SB) have joined DryShips and Diana with substantial gains in the New Year.

But in an obvious sign of how bad things are for DryShips, the company increased its offering of ultra-deepwater driller subsidiary Ocean Rig UDW Inc (NASDAQ:ORIG) shares by 50%, hoping to raise $126 million to help keep its struggling shipping business afloat. Yet DryShips has a market cap that’s less than what its roughly 60% position in Ocean Rig is worth, assigning a negative value to DryShips’ core business.

For DryShips to improve, it needs a long-awaited global economic turnaround to boost the Baltic Dry Index and get its profits back up. Ocean Rig may help DryShips survive the tough times, but the life support it offers won’t last forever.

The article Has DryShips Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.

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