The Best Way to Play the Baltic Dry Index Rebound (SINO, DSX, SB)

The recent strength from Sino-Global Shipping America, Ltd. (NASDAQ:SINO) and the now-renewed strength from Safe Bulkers, Inc. (NYSE:SB) would suggest those two stocks are among the very best ways to play the rebound currently unfurling in the shipping sector. And to be fair, both are fine companies in their own right. The top play in the dry goods maritime shipping arena, however, may well be Diana Shipping Inc. (NYSE:DSX). No, DSX isn't one of the fun and exciting small caps in the maritime shipping space. But, there's a lot to be said for size and stability, which SB and SINO can't offer.

First things first. The rising tide that's lifting all these boats is the strong improvement in the Baltic Dry Index. The Baltic Dry Index, or BDI, is a measure of the daily charter rates shipping companies like Safe Bulkers or Diana Shipping command. It's currently at 1922, up from only 1420 on November 22nd. This is also the second wave of bullishness from the Baltic Dry Index. The first wave was the rise from 805 in June to September's peak of 2115 in early October. That surge alone snapped the BDI out of a long-term funk, but if there was any doubt about the longevity of a much strong charter-rate environment, the current surge should quell it. The rebound is for real.

It's also important to note that the BDI isn't a theoretical number either - it's an aggregate of the prices real customers are paying shipping companies to lease their boats, sometimes for months on end.

But why Diana Shipping Inc., and not, say the afore-mentioned Safe Bulkers, Inc. or shipping-logistics company Sino-Global Shipping America, Ltd, particularly when DSX shares appear to be in a funk?

There's nothing inherently wrong with Sino-Global Shipping America or Safe Bulkers. In fact, shares of SB as well as SINO appear to heating up as the market starts to make real bets with real money that both stocks will be priced higher in the foreseeable future. Meanwhile, Diana Shipping shares are still technically in a downtrend (though they're trying to break out of those confines today). The answer is, Diana has a much better shot at breaking out and continuing to rally than the other two names in question do.

For starters, if the perk-up from the Baltic Dry Index really is a sign of a macro-rebound and isn't just a little volatility - and the length of its current uptrend suggests this is way more than mere volatility - then Diana Shipping is far better positioned to go the distance because it doesn't have something that most other players in the shipping space have too much of... debt. Only about a fourth of its capitalization is debt-supported. The rest is equity. Those proportions are switched (approximately) for the rest of the industry. Safe Bulkers' capital structure is almost entirely debt. It matters, because if there really is long-term growth in the cards for dry bulk shippers, then new vessels may need to be purchased. Diana will be able to get and service those loans. Other companies, already saddled with too much debt, may find themselves unable to expand. Granted, the shipping business is one largely designed for debt financing, and income-generation. That doesn't mean that's the ideal option for growth-seeking investors, however. Equity in a company like DSX offers more upside potential.

Perhaps more than that, Diana Shipping Inc. has more Capesize vessels in its fleet than the average shipper does. All told, DSX owns ten Capesize boats in its fleet of 35 vessels. It matters, because customers are explicitly asking for this size of boat, and are willing to pay something of a premium to charter one, since a boat of a different size may not make fiscal sense for the customer. More explicitly, the charter rates for Capesize vessels has been rising at a much stronger clip that daily lease rates for other sized boats.

While Diana Shipping has caught some flack for locking in long-term Capesize charters at what appear to be sub-par rates, the upside to accepting seemingly-weaker terms is reliability of that long-term revenue. And, as was already noted, DSX isn't debt-laden. In fact, it's cash-flush... over $400 million in the bank which could be used to purchase new vessels - including Capesize vessels - which could be chartered at the higher rates investors would like to see (if this is indeed a long-term recovery in the Baltic Dry Index).

Bottom line: Diana Shipping has the flexibility and the fleet it needs to ease right into the front of the line now that the Baltic Dry Index says shipping is on the mend.

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