Price moves on the stock market don’t always make sense, and I think what happened today to shares of dry bulk shipping company Safe Bulkers (NYSE:SB) is a perfect example of this.
Over the course of the trading day Monday, shares of Safe Bulkers dropped steeply, finally ending down 11%. But why?
For weeks, I’ve been telling you of a disturbing trend on the Baltic Dry Index (BDI), where prices for the transport of bulk cargo (grains, iron ore, coal, and the like) had taken a turn for the worse, plummeting 26% from their early May highs. If this kept up, I warned, it would be bad news for companies like Castor Maritime or Safe Bulkers, whose fortunes are tied to the prices they can charge for their services — prices reflected on the BDI.
But guess what? The trend didn’t keep up!
On Wednesday, all of a sudden, the descent stopped, and the BDI turned around, first rising modestly on Thursday then exploding more than 15% higher on Friday.
We don’t yet know where the BDI landed on Monday. Using the latest quoted price of 2,857 from Friday, at the very least we can say that the trend has now been broken, and prices are no longer going “nowhere but down.” That’s good news for a company like Safe Bulkers.
On top of that, global-shipping news outlet TradeWinds reported Friday that based on what it’s seeing in the “paper market,” dry bulk rates are likely to not just stabilize but continue drifting higher “for at least the next two years.”
Even if Friday’s abrupt spike on the BDI was a one-time thing, that sounds like good news for dry bulk investors over the long term. Yet investors sold the stock despite the good news — and that makes no sense to me at all.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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