TBSI

[David Randolph]

I've been listening to the Dry Bulk CEO Forum with CEO's from DRYS, EXM and TBSI and so far I got some interesting information. They say there's a disconnect between the stock's and the fundamentals of the companies, since futures on freight rates point to higher rates in 2008 and there are signs demand can only improve for the companies' markets. Anyway, they probably wouldn't say anything negative even if that was the reality.

I believe the Shipping stocks are suffering because they're cataloged as "cyclicals" and everybody and his mother and grandmother thinks the economic cycle will take a turn for the worse in 2008. But, even though there are economic cycles, there's no doubt that the World needs and will need even more shipping services than in the past, so there's long term growth in the industry.

Soon we'll have a transcript of the forum and I'll update TBSI's analysis again. The stock just had a 58% drawdown to the ascending 200 days SMA. I wish I bought "more deeper", but I believe this stock will be at new all time highs in the first half of 2008, it is trading at just 6.5 times 2008 EPS estimates.

[David Randolph]

I've requested a transcript of the Forum at http://shipping.capitallink.com/ but still didn't receive it in my e-mail. Damn it, I was such a chicken in not buying EXM on that profound dip, since the stock was so obviously undervalued. It is up 34% in a couple of days

Anyway, I still think TBSI is the best. 1st of all, TBSI never diluted shareholders value, which is rare in Shipping companies. Compare it to NM, DRYS or EXM itself. TBSI seems to be the only one truly interested in building long term value for shareholders, and not pump and dumps. I find analysts' sudden optimism and big raise in estimates for EXM a bit alarming. People are much more conservative in TBSI, but both companies have the same outlook which depends heavily on demand and freight rates prices.

I love Shipping stocks at this point because they're growing very strongly and yet they're incredibly cheap. This happens because people are very pessimistic about the US economy. Well, TBSI's business is almost 80% international, with routes between South America and Asia and South America and Europe, so there's no point ...

Anyway, I'm still taking a 32% bath in TBSI ... and I'll keep just this one Shipping stock in the Main Portfolio, I've never done well when tried to copy cat stories just because they were in the same industry.

I'll keep holding TBSI for the long term.

[David Randolph]

I still wasn't able to get the transcript of that Forum with the CEO's of TBSI, EXM and DRYS. I need to e-mail www.capitallinkshipping.com again.

On this update I just want to note that TBSI regained its "best in the group" status over the last couple of days:



I'm still losing 18.5% in TBSI (at one point I was losing 40% plus), but I expect to close 2007 in the green in this stock. Less than 1 month to go, so we'll see.

For 2008 I expect TBSI to keep surprising analysts and possibly earn $6 per share, and that should mean a $90 stock by year's end.

I'll keep holding TBSI.

[mbaugh]

TBSI is holding up well while the other shipping stocks fall.  I'm thinking of buying EXM, any opinions from the chart experts as to when a good entry might be?  I believe it is oversold and maybe tomorrow will offer a good entry price.  Thanks.

[David Randolph]

TBSI is holding up well while the other shipping stocks fall.  I'm thinking of buying EXM, any opinions from the chart experts as to when a good entry might be?  I believe it is oversold and maybe tomorrow will offer a good entry price.  Thanks.

Hi mbaugh, I hope everything is fine with you. Remember you stopped out of TBSI at $40? That looked like a good attitude at the time, especially when the stock fell below $30. You could have sold out at $40 and got back in $10 below, but did you? No ... yesterday TBSI closed just above $44 and I see it at about $46 in today's pre-market.

It's strange, TBSI had relative weakness. Now it has relative strength. After all this didn't mean anything for the medium term developments. Nor for the long term and not for if one makes any money holding it or not. Given this, I ignore this technical information, because it's worthless to anyone with an investment time frame superior to a week.

I'm still losing 17.5% in TBSI, due to poor short term timing. I'll try to remember, next time I want to buy a stock on a dip, to wait for the dip to be really deep ... say, to the 200 days SMA like it happened with TBSI.

As for EXM, I don't know about the chart (you didn't ask me either), but even though I like it as the 2nd best in the Shipping industry, I would buy the #1, which is TBSI in my opinion.

I'll keep holding TBSI for the long term, good luck mbaugh

[mbaugh]

Hi David, thanks for the response.  Yes I did sell TBSI at 40 since I was extremely weak and am still learning to be stronger like you.  However, I did buy it back at 29.80 and will not let it go this time.  As for EXM, I feel that it has the exact same potential as TBSI so why not buy it and hold it as well (I'm buying today).  I know I'll develop strong hands one day (with your help of course!)   I'm trying different things to help me develop this approach such as writing down all my mistakes and reviewing them on a daily basis.  Another thing I do now is each night before i go to bed I write myself a short note for the next day.  My notes to myself remind me to stay calm and focused (sounds weird, but it works for me!)

Good Luck everyone and Happy Holidays!

[David Randolph]

However, I did buy it back at 29.80 and will not let it go this time.

Wow, I'm very happy you were able to do that ... incredible trading skills man. Congrats and Happy Holidays

[David Randolph]

TBSI had been strong, yesterday it was weak. Perhaps it was just closing the small gap you see on the chart ... I'm late today, let me just say that I'll keep holding.

[David Randolph]

If somebody could explain to me what 25 basis points in the FED funds rate mean to the commerce between South America and Europe and South America and Asia I could understand TBSI's almost 10% fall yesterday.

Since nobody can, I say the stock just got cheaper.

I'll keep holding TBSI for the long term.

[David Randolph]

Since nobody can, I say the stock just got cheaper.

Well, it got even cheaper yesterday

• TBS International Limited Announces the Acquisition of Two Sister Tweendeckers Expanding Its Fleet to 42 Vessels
Marketwire (Mon 8:51am)

TBSI paid $46 M for two vessels, expanding its fleet to 42 vessels. On a rough estimate I would say that if 2 are worth $46 M, then 42 are worth $966 M. Total debt is $201 M. TBSI's market cap currently is a little less than $900 M.

I would say TBSI is valued at more or less the value of its assets net of liabilities. This doesn't consider the company's earnings power and growth, given by strong demand for shipping services between South America and Asia and South America and Europe.

A new issue coming up in this globalization era is that international commerce is growing around the World, not just between North America, Europe and the Rest of the World, but also within what we usually call the Rest of the World. China's influence in the World is felt not just in North America and Europe, but especially in the rest of Asia, Africa and South America.

TBSI touched the 200 days SMA again. I believe a double bottom is in the making.

I'll continue holding TBSI for the long term.   

[David Randolph]

There was a press release out from TBSI yesterday:

• TBS International Limited Exercises Its Purchase Options for Seven Tweendeck Vessels in Its Fleet
Marketwire (Tue, Dec 18)

«Joseph E. Royce, Chairman, Chief Executive Officer and President, stated: "By exercising our purchase options, TBS now owns these vessels outright instead of operating them under a capital lease arrangement. These assets have appreciated significantly, given the current strong market environment, the shortage of high quality second-hand tweendecker vessels and our intensive fleet upgrade and maintenance program. We believe TBS will be able to benefit from the additional equity that has built up in these assets for our continued business development and fleet growth."»

Indeed, take a look at the following chart:



People are thinking that Shipping is a cyclical industry and they believe the cycle has already turned down, so they're pricing TBSI at just 7.7 times 2008 estimated EPS.

But I believe the sharp increase in demand for shipping services is a structural development, not cyclical. In my view demand will be much higher than what it was in the past and it will never return to previous levels.

Here's why:

1 - There are new large economies in the World growing fast and participating in international trade like never before. I'm talking specifically about China, India, Russia and Brazil.

2 - There's the internet. Before, there could be better or cheaper products available elsewhere in the World, but not many people knew that. Now in a few minutes study you can find out where are the best products in the World to suit your needs, in terms of quality/price. You calculate the price of shipping and order them from the other side of the World. These products need to move around by air or sea.

I believe much higher levels of demand for shipping services are already here and that will keep growing. Therefore TBSI's revenues and profits will also increase for the foreseeable future. It doesn't make any sense to me to value the industry at less than 10 times earnings.

I'll keep holding TBSI for the long term.

[la-onda]

fyi:
TBS exercises purchase options for seven tweendeck vessels
Thursday , December 20, 2007 07:40ET

Dec 20, 2007 (Datamonitor via COMTEX) -- TBS International Limited, an ocean transportation services company, has announced that, through its wholly owned subsidiaries, it has exercised its options to purchase seven of its multipurpose tweendeck vessels for $2.85 million each.

The seven vessels are part of TBS' operational fleet and since December 2003 have been under a 66-month sale-leaseback arrangement, which provided TBS with purchase options.

These seven multipurpose tweendeck vessels are the MVs Kickapoo Belle, a 23,319 dwt vessel built in 1987; Seneca Maiden, a 19,762 dwt vessel built in 1986; Navajo Princess, 1987 built, 21,902 dwt; Kiowa Princess, 1986 built, 19,762 dwt; Cherokee Princess, 1990 built, 23,286 dwt; Inca Maiden, 1986 built, 22,133 dwt; and Apache Maiden, 1987 built, 23,319 dwt.

TBS fleet comprises 42 vessels in total with an aggregate of 1.22 million dwt, including 23 tweendeckers and 19 handymax / handysize bulk carriers. This includes six vessels, three multipurpose tweendeckers and three handy size bulk carriers, which TBS has agreed to acquire and have been scheduled for delivery to TBS by the end of the first quarter of 2008.

Joseph Royce, chairman, CEO and president of TBS, said: "By exercising our purchase options, TBS now owns these vessels outright instead of operating them under a capital lease arrangement. These assets have appreciated significantly, given the current strong market environment, the shortage of high quality second-hand tweendecker vessels and our intensive fleet upgrade and maintenance program."

[David Randolph]

Thanks for posting the news la-onda

TBSI is incredibly volatile, it doesn't even look like a $30 plus stock. Yesterday the stock dipped in an attempt to close the gap at $31.5, but the low of the day was $31.66 ... there were too many buyers in that area to completely fill the gap. But I think nobody will notice the micro-gap still open a few months from now.

We're right at the long term support now. My belief, given the fundamentals of the shipping industry and the company's intrinsic fundamentals, is that after this huge dip the stock will trend higher and make a move above $100 a share in 2008.

I'll keep holding TBSI for the long term.

[notbeln]

David

May you explane why TBSI better than DRYS?
DRYS projections are fantastic, EPS for 2008 something like $15-20   

Best,
Notbeln

[David Randolph]

David

May you explane why TBSI better than DRYS?
DRYS projections are fantastic, EPS for 2008 something like $15-20   

Best,
Notbeln

Hi Notbeln, la-onda once posted an article about DRYS which is quite discouraging:

«this is probably the reason why TBSI and not DRYS was picked by David:

World's Scariest Stock: DryShips
By Rich "Cap'n Blood" Smith October 29, 2007 Comments (20)

Ahoy, investors! Methinks me sees a ghost ship cresting the horizon. Sails tattered, the Jolly Roger hoisted -- why, it's not just a ghost ship, it's a ghost ship manned by pirates, arggh! And its brig is crammed with the lost souls of investors, imprisoned behind the iron bars of logic.

The Flying Dutchman, you say? Nay, landlubber. This is something faaaaar scarier. This is Athenian cargo carrier DryShips (Nasdaq: DRYS).

Gasp! What's that sound?
Originally chartered to ferry loads of coal, steel, and other commodities across the waves, DryShips bears a different cargo today. You can hear the wails of lamentation emanating from its hull, the moans of investors who've publicly panned DryShips' stock on Motley Fool CAPS -- and suffered the consequences:

TMFOtter: "In the 1990's, the last time capital was cheap, [DryShips CEO George Economou] took an identical company public and evaporated every last penny of shareholder capital."

Steve819 [Quoting Barron's editor Kathryn M. Welling]: "When someone asked why he was [taking his company public, Economou] actually said, basically, 'Because Americans are the dumbest investors around, and there's lots of liquidity in this market.'"

Allstar13913: "The CEO is crooked, and directly owns a competing company." (privately owned Cardiff Marine, Inc.)

TMFEldrehad: "'We do not intend to sell shares,' [Economou] said. This means the company can put a big part of equity back into buying vessels. Economou added: 'We can deliver more money for every dollar invested in the company.'... Selling shares in a secondary offering will result in more equity with which to buy ships, but that's not what he's saying -- he's saying not selling shares translates into more equity. I need some Dramamine, because my head feels like it's spinning from trying to understand this."

These CAPS players have three things in common. First, they're all extremely leery of DryShips' management. Second, they're all good enough investors that their concerns should be your concerns, too. Each and every one ranks in the top 1% of investors tracked by CAPS. Third and finally -- they've all lost big time in their bets against DryShips, in some cases, seeing the stock rise more than 1,000% since placing their bearish bets.

Madness
Has an epidemic of insanity swept the coast of CAPS-land? Or is there truly something wrong with DryShips? As one of the many investors who've seen their CAPS ranking decimated by betting against the company, I've asked myself this question more than once. But the more I look, the more I see red flags waving alongside the skull-and-crossbones at DryShips.

In what sane universe do capital-intensive companies like these deserve multiples to book value approaching those of asset-lite profit leaders like Google and Microsoft?

And while I'll grant you that the dry bulk shipping industry is booming, I fail to see why a single player within this industry -- DryShips -- should enjoy a valuation more than 50% higher than its nearest rival, and more than twice that of some of the ships giving more distant chase.

Sure, it gets the best margins of the bunch, but that just raises more flags. Reviewing DryShips' results, we see that much of its profit over the past year was derived from gains on the sale of assets. Meanwhile, the firm's cash flow statements don't show this supposedly wildly profitable firm generating any cash profits since its IPO. On the contrary, over the last year, the firm has burned through nearly $500 million in free cash flow, as its long-term debt ballooned from $418 million to $728 million. Somewhere, this corporate ship has sprung a leak.

If DryShips can't generate free cash flow on sky-high margins, I shudder to think what will happen when those profit margins splash back down to sea level. And you should to -- because this is the scariest stock in the world.

http://www.fool.com/investing/small-cap/2007/10/29/dryships-is-haunted.aspx

cheers
Oliver»

Happy Christmas