The unofficial closing bells put the DJIA down more than 33 points to 12,598.63 (-0.26%), the NASDAQ fell nearly 20 points (-0.68%) to 2,874.04, and the S&P 500 fell -0.44% or nearly 6 points to 1,324.81.

There were several analyst upgrades and downgrades today, including Cisco Systems Inc. (NASDAQ: CSCO) raised to ‘overweight’ at Barclays; Patriot Coal Corp. (NYSE: PCX) cut to ‘market perform’ at FBR; Aetna Inc. (NYSE: AET) cut to ‘hold’ at Argus; Baker Hughes Inc. (NYSE: BHI) cut to ‘neutral’ at JPMorgan; and SandRidge Energy Inc. (NYSE: SD) raised to ‘hold’ at Canaccord Genuity.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: 8×8 Inc. (NASDAQ: EGHT) is down -1.5% at $3.86; Chico’s FAS Inc. (NYSE: CHS) is up 4.2% at $15.28; Deere & Co. (NYSE: DE) is down -3.1% at $74.23 (more coverage here); Eagle Materials Inc. (NYSE: EXP) is down -5.2% at $33.13; LiveDeal Inc. (NASDAQ: LIVE) is up 5.9% at $6.14; and Target Corp. (NYSE: TGT) is up 0.7% at $55.49 (more coverage here).

On Thursday we are scheduled to get earnings from Bon-Ton Stores Inc. (NASDAQ: BONT), Dollar Tree Inc. (NASDAQ: DLTR), E-Commerce China Dangdang Inc. (NASDAQ: DANG), GameStop Corp. (NYSE: GME), Jinkosolar Holding Co. Ltd. (NYSE: JKS), Ross Stores Inc. (NASDAQ: ROST), Sears Holdings Corp. (NASDAQ: SHLD), Teekay Corp. (NYSE: TK), and Wal-Mart Stores Inc. (NYSE: WMT).

Other standouts from today include the following stocks:

J.C. Penney Co. Inc. (NYSE: JCP) is down -19.2% at $26.92. The retailer absolutely failed on quarterly results. More coverage here.

Rosetta Genomics Ltd. (NASDAQ: ROSG) is up 263% at $5.88. The medical test making firm will have one of its tests covered by Medicare. There was also a 1-for-15 reverse stock split. More coverage here.

Abercrombie & Fitch Inc. (NYSE: ANF) is down -13.7% at $39.21 after posting a new 52-week low of $38.26 earlier today. The teen retailer badly missed estimates last night.

Stay tuned for Wednesday. St. Louis Fed President James Bullard is giving a speech. We have also noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – New claims for unemployment benefits
• 10:00 a.m. – Philadelphia Fed manufacturing survey
• 10:00 a.m. – E-commerce retail sales
• 10:00 a.m. – Leading indicators
• 10:30 a.m. – EIA weekly natural gas storage report
• 4:30 p.m. – Fed balance sheet and money supply

Your email address

subscribe

terms and conditions

Paul Ausick

Saying that Frontline is “seeing an incredible amount” of contracts from the Persian Gulf, day rates have risen to $25,000-$30,000. That’s better than a doubling in just over a week.

The sudden jump in cargoes could be due to escalating tensions between Europe and Iran, with China taking Iranian crude at a lower price and adding to its inventories before the full effect of the sanctions hits Iran later this year.

Frontline’s shares are up nearly 7.5% at $5.90 in a 52-week range of $2.52-$25.09. Nordic American shares have jumped more than 5% to $14.41 in a 52-week range of $11.58-$25.89, and Teekay shares are up just over 1% at $30.62 in a 52-week range of $20.67-$37.93.

Paul Ausick

Amgen Inc. (NASDAQ: AMGN) Cut to Market Perform at Leerink Swann.
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) Raised to Outperform at Baird.
Annaly Capital Management, Inc. (NYSE: NLY) Started as Overweight at JPMorgan.
Brookfield Asset Management (NYSE: BAM) Cut estimates at Credit Suisse.
The Greenbrier Companies (NYSE: GBX) named Value stock of the day at Zacks.
Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) Cut to Hold at Argus.
Hershey Co. (NYSE: HSY) Cut to Hold at Argus.
Lululemon Athletica Inc. (NASDAQ: LULU) Reiterated Neutral with $59 target at Credit Suisse.
Macy’s, Inc. (NYSE: M) named Bull of the Day at Zacks.
Salesforce.com (NYSE: CRM) Raised to Buy at Citigroup.
Spirit AeroSystems Holdings (NYSE: SPR) Added to US 1 List at BofA/ML.
Teekay Corporation (NYSE: TK) Cut estimates at Credit Suisse.
Tower Group, Inc. (NASDAQ: TWGP) named Bear of the Day at Zacks.

Also read the top analyst calls of the last week.

Your email address

subscribe

terms and conditions

One type of shipper that could benefit fairly quickly is dry bulk, the massive carriers that haul coal, iron ore, and other raw materials. The carriers include DryShips, Inc. (NASDAQ: DRYS), Diana Shipping Inc. (NYSE: DSX), and Genco Shipping & Trade Ltd. (NYSE: GNK). The Baltic Dry Index, BDI, is recovering slightly from a very low 1,064. As coal is required in Japan to generate electricity no longer available from the damaged nuclear reactors, dry bulk rates from Australia and from the west coast of the US could rise. The rises will be limited by the amount of coal Japan requires and the amount that dry bulk terminals can handle. Terminals and coal shippers on the east coast of the US could also benefit as coal cargoes bound for Europe could be diverted to Japan and additional ships put into service.

Container shippers like A.P. Moeller Maersk (OTC: AMKBF), Danaos Corp.(NYSE: DAC), and Seaspan Corp. (NYSE: SSW) could see a slight slowdown in shipping until Japanese manufacturers get back to work. That process will probably be slower than anticipated.

Crude oil carriers like Frontline Ltd. (NYSE: FRO) and Nordic American Tanker Shipping Ltd. (NYSE: NAT) should see a pick-up as more crude cargoes are sent to Japan to help fuel electricity generation plants. Demand will be a function of how quickly Japan’s refineries can come back on-line, and the length of time the Japanese must depend on crude oil to fuel their generators. Another possibility is that refined products would need to be imported if re-opening the refineries is delayed for long.

Japan’s crude stocks stood at 169 days at the end of December 2010, according to Balkans.com. The country won’t want to run down its stocks and have to replenish them at higher crude prices, but by judiciously calling on its stocks, the country could mitigate some of the expenses from buying and shipping additional supplies of crude.

Liquefied natural gas (LNG) carriers include Teekay Corp. (NYSE: TK), Teekay LNG Partners, L.P. (NYSE: TGP), and Golar LNG Ltd. (NASDAQ: GLNG). Japan is already the world’s largest importer of LNG and it is reasonable to expect the country to receive more in the days ahead. In the longer term, it could be that Japan decides to replace at least some of its nuclear generation with gas-fired generation. But that decision is still months away in all likelihood.

The lightly traded Guggenheim Shipping ETF (NYSE: SEA) is up nearly 2% today, and Teekay LNG Partners and Golar are both up about the same amount. Most of the other shippers are trading slightly up as well, with only Dry Ships down slightly.

Paul Ausick

The company plans to use the proceeds to acquire new vessels, as well as for general corporate purposes.  Those acquisitions of vessels include vessels which Teekay Corp. (NYSE: TK) has offered or may offer for it to acquire. Teekay raised roughly $130 million in another secondary offering this year.

Teekay’s units had risen nearly 50% this year and the units closed at $29.11 today against a 52-week range of $16.89 to $29.94.  In the after-hours reaction, those units were trading down nearly 5% around $27.70.

JON C. OGG

The tanker fleet is predicted to grow by nearly 13% in 2011, according to an estimate by Morgan Stanley cited at Bloomberg News.  There are currently about 526 VLCCs in the world’s fleet. The tonnage currently being built is equal to 27% of the existing tonnage and is the largest increase ever.

And the news won’t get better any time soon. Supertanker rates are expected to remain unprofitable for at least two years. Predictions of lower global GDP growth in 2011 could dampen international trade even more. One broker noted that rates for container ships have fallen for four straight weeks.

Frontline, the world’s largest supertanker owner, hit a new 52-week high in early May and has lost about 29% since then. The shares are still up more than 20% in past 12 months.

The story at Teekay is somewhat different. The shares posted a new 52-week high last week. The company has shed assets to some of its subsidiaries and announced that it would re-start its $200 million share buyback plan. The company also signed a contract with Brazil’s Petroleo Brasileiro SA (NYSE:PBR), or Petrobras, for a floating production storage and offloading vessel starting in the second quarter of 2012.

An analyst from Deutsche Bank has lowered his EPS loss estimate for Teekay from -$0.45 to -$0.75 for the third quarter. EPS loss estimates for General Maritime and Overseas Shipholding also widened. The analyst expects General Maritime to post an EPS loss of -$0.24 and Overseas Shipholding to post a whopping EPS loss of -$1.26, compared with an earlier expectation of -$0.43.

A Frontline executive noted that at current supertanker rates the company is better off anchoring ships and sending the crews fishing. That could be a long fishing trip.

Paul Ausick

Aluminum Corp Of China (NYSE: ACH) Cut to Undeweight at JPMorgan.
Atheros Communications Inc. (NASDAQ: ATHR) Raised to Outperform at William Blair.
Brinker International (NYSE: EAT) Cut to Underperform at BofA/ Merrill Lynch.
CommScope, Inc. (NYSE: CTV) Cut to Hold at Jefferies.
First Solar, Inc. (NASDAQ: FSLR) Reiterated Buy and $175 target at Auriga.
Intercontinental Exchange (NYSE: ICE) Cut to Hold at Deutsche Bank.
Melco Crown Entertainment Ltd. (NASDAQ: MPEL) Raised target to $6.30 at BofA/Merrill Lynch.
Nordic American Tanker Shipping (NYSE: NAT) Cut to Hold at Jefferies.
Panera Bread Co. (NASDAQ: PNRA) Cut to Neutral at BofA/Merrill Lynch.
Ship Finance International (NYSE: SFL) Cut to Hold at Jefferies.
The Travelers Companies, Inc. (NYSE: TRV) Cut to Sell at Deutsche Bank.
Teekay Corp. (NYSE: TK) Cut To Neutral From Overweight By JPMorgan; Raised To Buy From Hold By Jefferies.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) Cut to Market Perform at BMO.
ARM Holdings plc (NASDAQ: ARMH) Cut to SELL at Execution Noble (Overseas).
DryShips Inc. (NASDAQ: DRYS) Started as Market Perform at Wells Fargo.
General Maritime (NYSE: GMR) Started as Outperform at Wells Fargo.
GlaxoSmithKline (NYSE: GSK) Cut to Hold at Jefferies.
Nokia Corporation (NYSE: NOK) Reiterated Overweight at JPMorgan.
Overseas Shipholding Group (NYSE: OSG) Started as Outperform at Wells Fargo.
Sonic Corporation (NASDAQ: SONC) Cut to Hold at KeyBanc.
Teekay Corporation (NYSE: TK) Started as Outperform at Wells Fargo.
Volcom Inc. (NASDAQ: VLCM) Started as Buy at Jefferies.
Wimm-Bill-Dann Foods (NYSE: WBD) Started as Buy at Citigroup.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

As shipping rates fall, dry bulk shippers like Dryships Inc. (NASDAQ:  DRYS), Genco Shipping & Trading Ltd. (NYSE: GNK), and Diana Shipping Inc. (NYSE: DSX) follow. All three shippers seem to be setting new 52-week lows every day. Two shippers more active in crude oil and refined products transportation are Frontline Ltd. (NYSE: FRO) and Teekay Corp. (NYSE: TK), both of which have seen share prices appreciate in the past year. The recently re-issued Claymore/Delta Global Shipping ETF (NYSE: SEA) is also trading near its 52-week high.

Daily rates for the largest vessels, called capesize, have fallen from $59,324 on June 2nd to $24,239 on June 30th. Even daily rates for the smaller vessels of panamax size have dropped from about $31,000 to $22,000.

The decline is mainly blamed on falling demand from China for commodities like coal and iron ore. As China tries to cool its economy, the country plans to cut its production of steel which has also been suffering from lower pricing.

A contributing factor to the falling shipping rates is the pace of growth in the supply of ships. One analyst estimates that the dry bulk shipping fleet will increase by 17% in 2010. Filling those ships with goods would not be a problem if the global economy were growing. Because the economy is growing only tepidly, freight rates will not rise, and may even continue falling. The average daily earnings from a capesize ship in 2010 is expected to fall from $41,000 in 2009 to $35,000 this year, and the outlook for 2011 is for more declines.

Another threat to shippers is the continuing piracy off the horn of Africa. Earlier this week, Somali pirates hijacked a Singaporean-flagged ship with a crew of 19 Chinese nationals. The ship, which is owned by a Chinese company, was carrying a chemical used in making anti-freeze and was on its way to India.

The Chinese government has already contributed ships to an international fleet that is patrolling the waters off the Somalia to keep that vital shipping lane open. Yesterday, China sent another flotilla of warships to the Gulf of Aden to relieve the country’s ships that are already there.

The increase in piracy raises the cost of insurance for ships travelling offshore of east Africa, and contributes to the shippers’ shrinking profits. But the big problem is lack of demand for shipping coal and iron ore. And unless demand for finished goods grows, demand for commodities will stay low.

The issues facing the shipping business mirror the issues facing the global economy. Demand is dying as buyers lose confidence in the economy’s ability to grow out of its current doldrums. As a result, unused capacity increases and people lose their jobs. Then the cycle repeats.

Dryships thought it had found a way out of the vicious commodity cycle when it bought a couple of drilling platforms and ordered four more to be newly built. But the disaster in the Gulf of Mexico has put a serious crimp in the company’s ability to lease its rigs. The original two rigs are under contract and manned by experienced Norwegian crews. However the company can’t contract for any of the new build rigs and lacks financing for two of them.

Dryships had originally intended to spin-off its drilling operations by the end of this year, but no one thinks that will happen now. Genco paid more than $500 million last week for 16 new supramax vessels, which is either a very smart move (buying at or near the bottom) or a very dumb one (adding to over-capacity and under-utilization).

Diana Shipping recently purchased two new container ships for about $45.5 million each. One is fully contracted for a year at $16,000/day, and the other, which will be delivered before the end of July, is not yet contracted. Again, a smart move or a dumb one?

Based on the dive these three stocks have taken since late April, investors seem to believe that none of the moves is positive. Until prospects for global economic growth brighten and begin to move steadily upward, commodity shippers are going to remain under intense pressure.

Paul Ausick

The performance of ocean-going shippers like Frontline Ltd. (NYSE: FRO), TeeKay Corp. (NYSE: TK), and DryShips, Inc. (NASDAQ: DRYS) can often be forecast by the BDI. The following chart shows the composite BDI as of yesterday:

The index hit a peak of 4,187 on May 25th and has slid ever since. A sub-index measuring the demand for the largest ships, called Capesize or Capemax, climbed to a peak of more than $59,000/day earlier this week. The Capesize ships are commonly used to ship metal ores, and the category also includes the VLCCs that transport oil.

A BDI of around 4,200 is not exceptionally high. In May 2008, the BDI topped 11,000, an all-time high in the heady days before the global economy crumpled. In December 2008, the BDI hit a low of 660 as credit dried up.

It’s difficult to say for sure where the Capesize ships either pick up or deliver their cargoes. But it is clear that the monster ships have been in far greater demand than their smaller cousins. Rates for the Panamax class of ships are around $31,000, and for the Supramax class rates are below $29,000, down from highs less than a month ago of about $37,000 for the Panamax and $33,000 for the Supramax, respectively.

Nowadays it’s common to look at China first when some demand shift occurs. And there’s a strong possibility that Chinese exports are affecting the BDI. For example, Chinese stocks of aluminum have been very high for a long time now, and there is some speculation that the demand for Capesize ships to haul the stuff away is responsible for the rising BDI.

If aluminum from China is the driver, that may end soon as the US Department of Commerce initiates an investigation into dumping aluminum, steel, and paper at below-market rates in the US. The claim from US manufacturers is that the China’s currency peg to the US dollar amounts to a subsidy for Chinese goods and a tariff should be charged to make up for that advantage.

Steel shipments have risen as prices have fallen for finished steel. But the steel makers face an overproduction situation and it’s not yet clear if there will be buyers for all the available steel, even at lower prices.

If ore and metals shipments erode, the BDI will continue its recent slide. Crude oil working through floating storage on about 25 VLCCs, so that could also weigh on the BDI as those cargoes are unloaded and not replaced.

Paul Ausick