The Baltic Dry Index is not just at a year low.  It is back to lows at the peak of the recession 2007 to 2009.  It is hard to imagine.  One of the major issues may simply be high excess in capacity.  Shipping may have run into the same problems as the worlds manufacturing lines.  There may just be too much supply now versus demand.

Since the recession, boats have continued being built.  The world just may be awash in capacity.  It is surprising but the shipping stocks are actually holding up well with the stock market rather than tanking with tanker day rates.  Here is how some of the more active ship stocks look, even though not all are exactly pertinent or covered under the Baltic Dry Index:

The Guggenheim Shipping ETF (NYSE: SEA) is up 0.7% today while its 52-week trading range is $13.37 to $28.21.  If you tally up the last four dividend payment this one has a yield of about 5.7% but you have to keep in mind that three-quarters of that dividend is from the June quarterly payment last year.

DryShips Inc. (NASDAQ: DRYS) is down 0.5% at $2.18 and its 52-week range is $1.75 to $5.19.

Ship Finance International Limited (NYSE: SFL) is up a penny at $11.56 but its 52-week range is $8.62 to $21.15.  Its dividend is well above 10% now.

Nordic American Tankers Limited (NYSE: NAT) is down five cents at $13.95 against a 52-week range of $11.58 to $26.18.  Its dividend is now over 8%.

Is it possible that not all of the old ships in the world are being sent to India and Sri Lanka for scrapping any longer now that India has slowed down its blistering pace?  There are many reports calling it a dead index as well.  Stay tuned.  Imagine how well shipping stocks might perform when the underlying price index is cooperating.

See the index chart for the last five years below….

JON C. OGG

While we have some valuation concerns on SIRIUS and while we have some concerns about the future of some of the satellite radio’s top media figures posing a talent departure risk, the news this week that the entire United States car fleet is at a record age is helping to drive Sirius XM bulls.

The same argument can be made for Pandora Media, Inc. (NYSE: P), and that can also be a threat to Sirius XM, but so far this remains a wild card.  Pandora’s stock is still at only about half of its post-IPO peak in 2011 even though it has managed to score several key auto-maker option pacts ahead of the Consumer Electronics Show.

Ford Motor Co. (NYSE: F) and General Motors Company (NYSE: GM) also have a huge opportunity ahead.  Ford has even reinstated its dividend sooner than expected.  Car buyers are not ramping up hybrid buying due to cost, but many of the new cars sold will in fact be Sirius XM subscribers.  Some may even be Pandora subscribers.

Last night Jim Cramer even talked up the auto parts sector on CNBC’s MAD MONEY because of the coming car sales boom.  It turns out that even the most frugal of the frugal can only drive an old car for so long.  Eventually, the cost of maintenance and repairs exceeds the cost of a new car even if the car is not quite what a buyer would prefer to drive.  After all, what good is it to have a car with a $30,000 new sticker price  that is 80% or 90% devalued for trade-in if you have to keep putting in $200 to $500 every three months in repairs and band-aid work?

SIRIUS shares closed out 2011 at $1.82, and now shares are up 18% even though today’s $2.15 price is a tiny loss.  Here are some year-to-date comparisons for 2012 so far: Pandora is up 29.5% YTD,  Ford is up almost 17% YTD, and GM is up 21% YTD in 2012.

JON C. OGG

The company has put the quarterly hit at about $0.11 to $0.12 against its earnings per share.  J.P. Morgan downgraded the stock as a result of the accident’s impact.  Carnival’s Costa brand is countered by the other brands of Cunard, P&O, AIDA, and Ibero internationally and the Carnival brand known so well throughout North America.

What is interesting here is that by seeing a drop of 16%, it is analogous to losing one-sixth of the vale when this is about 1% of its counted ships.  It sounds like too much of a drop on the surface, but this comes at a time when the European business is rocky and at a time when promotions are high.  Things were already tough, but this made a declining situation very bad.

Carnival shares fell more than 16% on Monday in London trading, but shares are up less than 1% in London trading today.  In New York, Carnival Corporation (NYSE: CCL) shares are trading down 16.3% at $28.74 and the 52-week trading range is $28.52 to $48.13. Its market value before this accident was over $26.6 billion.

Royal Caribbean Cruises Ltd. (NYSE: RCL) is down 7.5% at $26.59 and its 52-week range is $18.70 to $49.99. Its market value was about $6.25 billion before the trading of this morning.

JON C. OGG

Pandora has also recently signed a deal with satellite TV provider Dish Network Inc. (NASDAQ: DISH).

Pandora does not require a subscription, and the company’s 125 million registered users far outnumbers Sirius XM’s 22 million subscribers. Pandora also claims a 68% share of Internet radio listeners who tune in an average of 18 hours a month, according to reseach firm Triton Digital.

In recent comments at a media conference, Sirius XM’s CEO Mel Karmazin had this to say about Pandora:

Pandora is a really good company. They’ve been around for as long as we have — they’ve been around for about 10 years. They have about 40 million regular users, maybe more now, and they have $300 million in revenue. So, you know, business models matter. We like our business model of subscription better than the advertising-driven model.

Karmazin’s boosterism aside, Pandora and other Internet radio/music services are a real threat to the Sirius XM model. For Internet users, ‘free’ is the model they like best and most are willing to put up with some advertising to get free music.

What Sirius has on its side, though, is a radio model that is understood by the music industry better than the models of companies like Pandora, Spotify, or MOG. Karmazin can leverage that understanding into lower costs for content than the huge upfront fees music companies demand from the likes of Spotify, which offers a hybrid advertising/subscriber model, and has just released its own radio player to compete with Pandora.

Whether Pandora, or Internet radio in general, can displace Sirius XM remains to be seen. If Sirius lowers its subscription price (rather than hiking it) anytime soon, we’ll have our first evidence that Karmazin is more concerned than he lets on.  Maybe radio programs with Howard, Oprah, Martha, and news just aren’t really important… Maybe. 

Paul Ausick

Google Inc. (NASDAQ: GOOG) and Apple Inc. (NASDAQ: AAPL) along with their mapping and navigation services for free or nearly free took away the need for many of those in-car dashboard devices for drivers who practically live in their cars and trucks.  Trimble Navigation Limited (NASDAQ: TRMB) is not anywhere close to its 52-week high today.

As far as what is driving Garmin, maybe it is the personal navigation devices used for exercise and hiking, as well as the marine and aviation products.  Unless rental car companies have decided to make the devices mandatory in all rentals, then it seems likely that there is not a sudden resurgence of device sales.  Then there is the NTSB recommendation to get rid of electronic device use in cars, but Garmin is looking to get more in-dashboard auto sales ahead.

Perhaps investors have noticed that the 18 million shares in the most recent short interest data was the lowest that it had been for a year.  Or maybe it is a dividend yield north of 4%.  Maybe the excitement was a Garmin CFO interview on CNBC that is giving investors more comfort.  In the middle of December, J.P. Morgan counted Garmin as a stock which should be absolutely avoided.  Then there is the issue of LightSquared’s wireless network interference with most GPS devices.

The Garmin CFO and Treasurer interview can be seen here.  Garmin shares are up at $39.40 after hitting a daily high of $39.53, and the prior 52-week trading range was $29.23 to $39.03.

JON C. OGG

The National Transportation Safety Board, usually referred to as the NTSB in public, is announcing a major safety recommendation related to “driver distractions caused by driver use of personal electronic devices.”   The NTSB Fact Sheet notes, “The NTSB has called on the 50 states and the District of Columbia to ban the nonemergency use of PEDs (other than those designed to support the driving task) for all drivers.”

Frankly, the new recommended ban has little chance of success in the current form, even if parts of this should proceed.  A call to ban all electronic devices in vehicles regardless of how they are used (except in cases of emergencies or integrated into the transportation needs) will not garner much public support as it is somewhat like stretching the limits of drunk driving blood levels all the way out to a new attempt of prohibition.

Still, this NTSB recommendation may be the start of a larger move to keep cellphones from being abused by drivers in many locations where no regulations exist.  Drivers who text often cross 50 feet to 50 yards of pavement in a shorter period of time than it takes to type in “lol” or even “driving.”  By the way, calling your friends to gossip about things or to see what is up for the night or weekend are not exactly ‘emergencies’under this plan.

There could also be rules for teenagers that are different from adults.  Many cities already have curfews for minors and technically minors are not allowed the same liberties and rights as adults who have a bit more life experience under their belts.

You can expect an outright assault from the phone makers and headset makers, the wireless carriers, the tower operators, and even the communication infrastructure equipment to fight this recommendation if it were to gather any momentum. Also, keep in mind that the NTSB has zero power to enforce or even to propose any such bill to move into law.  All it can do is to make recommendations for safety regarding transportation activities.

Logitech International SA (NASDAQ: LOGI) is one headset maker that would severely if there was a nationwide ban on holding your cellphone but still allowed drivers to use cellphones if they have wireless or wired headsets for their mobile phones.  Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T), and Sprint Nextel Corporation (NYSE: S) would all fight a total ban on cellphone use under any circumstances other than emergency use.

American Tower Corporation (NYSE: AMT) and Crown Castle International Corporation (NYSE: CCI) have spent billions of dollars putting in cellphone towers around the nation, including the highways, to make it so that drivers can stay connected on their cellphones whether those drivers need to or not.

The market does not consider this “recommendation” a serious threat. Not yet.  Frankly, for someone who does support a ban of texting and in-hand use of cellphones while driving, today’s recommendation by the NTSB is a disappointment.  The proposal is too broad and sweeping for the public to support it. If this seemed to be a true threat then these stocks would have traded lower by a significant amount.  Just do not be surprised when some legislator in Washington D.C. decides to take this cause up next year.

The NTSB pre-conference fact sheet is here.

JON C. OGG

With American Airlines on the sidelines, we’ve looked at the stocks of several other US carriers in a search for some hidden value: Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV), US Airways Group Inc. (NYSE: LCC), JetBlue Airways Corp. (NYSE: LCC), Alaska Air Group Inc. (NYSE: ALK), Hawaiian Holdings Inc. (NASDAQ: HA), and Spirit Airlines Inc. (NASDAQ: SAVE).

Delta Air Lines has a median target price of $18.00 and is trading at $8.39 around noon today. The implied gain here is about 115%. Delta’s share price is about -1.5% lower than it was on October 21st, so the implied gain is growing because the share price is falling. The target price is unchanged since October.

US Airways has a median target price of $10.00 and is trading today at $5.36, about -7.6% lower than the share price in late October. The implied gain is about 86.6%, and the target price is unchanged since October.

United Airlines has a median target price of $32.50 and is trading today at $19.94, yielding a potential upside of nearly 63%. The stock’s target price rose by $0.50 in the past six weeks, but the share price has fallen by about -1.4% in the same period.

Every one of the nine stocks we looked at has an implied gain of greater than 20%, proving once again that numbers often don’t tell the whole story. The only stock with a chance of offering investors some value is Alaska Air. But the chance is a very slim one.

Alaska Air’s median target price was raised from $80.00 to $83.00, and the share price has increased by about 5% since late October. It’s the only one of these nine to perform that combined feat. The stock’s potential upside is 22% and its forward P/E is 7.39. The company does not pay a dividend.

Alaska has ordered 15 new 737s from Boeing Co. (NYSE: BA) and deliveries are scheduled to begin in 2012. Thirteen of the new planes will be 737-900ERs, which carry a list price of $89.6 million each. That’s a total of about $1.2 billion, which is roughly equal to both the company’s long-term debt and to its available cash.

The company does not indicate how it will finance the purchase of these planes, but a recent report in the Financial Times indicates that European banks, the main lenders to global airlines, have cut back lending for commercial aircraft purchases. That means the airlines will have to issue debt or perhaps resort to leasing new planes.

The impact on aircraft makers like Boeing is likely to be greater than the impact on airlines, but what’s reasonably certain is that the cost of capital for aircraft is going to rise. For that reason, if for no other, investing in any airline stock now is a speculative play rather than a value play.

Paul Ausick

The International Air Transport Association (IATA) released this new forecast this morning, and that’s not even the worst news according to the group’s CEO:

The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion—the largest since the 2008 financial crisis.

There is some slightly positive news for US carriers like Delta Air Lines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), Southwest Airlines Co. (NYSE: LUV), and US Airways Group, Inc. (NYSE: LCC). North American carriers are expected to generate about $1.7 billion in profits during 2012 primarily due to less capacity growth which will help keep profits up.

But that isn’t enough to keep the global industry on a positive track:

Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession. Business and consumer confidence has already fallen too far. Global GDP growth forecasts for 2012 have been revised downwards to 2.1%. Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2%. This is driving the downgrade in the 2012 outlook.

The IATA expects European-based airlines to lose $600 million next year, mainly due to economic weakness in their home countries and higher passenger taxes. Asia-Pacific carriers, including China, are expected to post a profit of $2.1 billion, down from an estimated $3.3 billion profit this year.

The 2011 profit forecasts for Middle Eastern and Latin American fell by $400 million each, to $400 million and $200 million, respectively. African carriers are still expected to break even in 2011. The 2012 forecast for these three regions have all been lowered: Middle Eastern carriers are now expected to post profits of $300 million, down from $700 million; Latin American carriers are expected to post 2012 profits of $100 million, down from $400 million; and African carriers are still expected to lose $100 million.

A bit of hope does exist for fuel prices to be no higher in 2012 than they are this year, and even for prices to fall if the Eurozone debt crisis doesn’t get fixed. Of course, if that fix doesn’t happen the airlines have bigger problems than the price of fuel.

Paul Ausick

Jackson noted that trucks were still 53% of the business.  As far as the hype and hope of hybrid and electric vehicles, there is a lot more talk than there is reality.  He noted, “Yes, interest is extremely high… lots of conversations… 70% of our customers like to talk about hybrids.  But, I have news for everybody at the end of the day it is about price.  And consumers aren’t going to pay the price premium for electric vehicles and hybrids, even with the government subsidies.”

To show just how little of the business is really migrating, Jackson said that of that 70% of customers having an interest in hybrids, only about 2.5% of the customers actually buy the hybrids or electric vehicles.

On the Chevy Volt from General Motors Corp. (NYSE: GM), Jackson called it a technical marvel and he said people like to drive it.  Unfortunately, he went on to note, “Customers say, ‘I will take a Chevy cruiser at 42 MPG and at half the price.’” He even noted that these vehicles often have $7,500 of subsidy in them, or $10,000 in California, so if you take out the subsidy there is nothing happening there.

Mr. Jackson ended by noting that prices of hybrid and electric vehicles will have to come down dramatically and at the end of the day.  He even threw in the price point argument by saying that Americans are very practical and going to weigh what they save at the pump through time versus the higher up-front costs of these vehicles.

The question we would ask our readers is “What does this say about the world of hybrid and electric vehicles versus gas guzzlers?”  It is probably not time to go out and short sell those oil companies any time soon.

The full CNBC video interview is here, and it discusses much more than just hybrid and electric vehicles.

JON C. OGG

To start with the worst, Frontline is down more than -88% for the year, and its median target price has dropped to $6.00 from $7.25 in late October. At today’s share price of $2.98, the potential upside is slightly more than 100%. DryShips is not much better, with a lower target price of $5.00. At today’s price of $2.37, the implied gain is nearly 111%. Neither Excel nor Diana is as bad, but neither is likely to achieve anywhere near their implied gains of 63% and 46%, respectively. The shipping business has too many ships sailing around at unprofitable day rates. Until that situation resolves itself — not likely until 2013 — anything that resembles value in the shipping business is likely a mirage.

Railroads are faring better because rail traffic is up. The Association of American Railroads reported this morning that November carload traffic on US railroads grew 4% compared with November 2010. Intermodal traffic (containers) grew by 3.7% year-over-year. The largest increase came in motor vehicle carloads, which grew by 42% compared with last year and petroleum product carloads which grew by more than 28%.

Another large gain, more than 30%, came in carloads of crushed stone, sand, and gravel. Because beach sand is the most common material used in hydraulic fracturing of oil and gas wells, it’s probably a reasonable assumption to give the drilling industry credit for the increase.

Of the four railroads, Union Pacific and Norfolk Southern have both had target price boosts since late October. Union Pacific’s median target price is $114.00, up from $110.00. At a current price of $102.70, the potential upside in UP’s stock is 11%. The company’s dividend yield of 2.4% is also tied with Norfolk Southern’s for the best in the group.

Norfolk Southern’s median target price is $85.50, up from $82.00. At a current price of $74.90, the stock has a potential upside of 14.5%. With a slightly higher implied gain and an equal dividend yield, Norfolk Southern might be the best bet among the railroads.

In trucking, J.B. Hunt’s median target price fell from $49.00 to $48.00, but that was quite likely due to two brokers dropping coverage. At today’s price of $$45.40, the potential upside for the stock is just 5.7%. The company pays a dividend yield of 1.2%.

Landstar’s median target price is $52.00, up half a dollar from late October, and again likely due to a drop in the number of brokers covering the stock. At today’s price of $45.90, the potential upside for the stock is 13.3%. Landstar pays a dividend yield of 0.5%. Earlier this week, Landstar was downgraded from ‘buy’ to ‘neutral’ at SunTrust.

Of the two trucking companies, neither has a clear edge over the other. Hunt is more fully valued, but the company reported record results in the third quarter. If Hunt can do that again, then the current target price will be left way behind. Hunt’s strength in intermodal transportation could easily make that happen.

Of all ten stocks reviewed here, Norfolk Southern may be the safest bet, but J.B. Hunt may add more significant growth potential to its relatively limited upside potential.

Paul Ausick