DryShips, Eagle Bulk, Navistar: Real Turnaround Or Another Value Trap?

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Beaten down stocks such as DryShips Inc. (NASDAQ:DRYS), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), and Navistar International Corp (NYSE:NAV) appear to be in a recovery mode with recent gains. However, situations like this confront investors with the dilemma if the positive momentum will hold. Here is a closer look:

DryShips, Eagle Bulk, Navistar: Real Turnaround Or Another Value Trap?

Eagle Bulk Shipping Inc. (EGLE) Stocks Are Up

The previous week was quite eventful for Eagle Bulk Shipping Inc. (NASDAQ:EGLE) as the stock moved up on high volumes amid expectations of a revival in shipping industry. The stock moved up in double digits and currently trades with a 45 percent gain over the last month. This is not without a reason as the company swung to profits during the latest quarter posting a net income of $1.4 million compared with net loss of $17.4 million in the same period last year.Revenues also improved to $72.2 million during the latest three months, up substantially from the $52.6 million earned in Q1 2012.

Another positive during the period was its fleet utilization rate which improved to 99.1 percent. As a result, operating margin turned positive to 34 percent from negative 19.5 percent in Q1 2012. This may still be a little too early to predict a full recovery in shipping industry, but Eagle Bulk has shown how downsizing can be used to combat poor market conditions. Despite the rally, the stock trades at a substantial 87 percent below its book value of $35.7.

Eagle Bulk Shipping Inc. (NASDAQ:EGLE)’s improved results caused hopes to go up in DryShips Inc. (NASDAQ:DRYS) which posted its results on May 23. Disappointing the expectations, the company posted yet another loss, this time amounting to $116.6 million. This was bigger than $47.5 million loss posted in the first quarter of 2012. Revenue also followed a declining trend.

These results look disappointing on the face and the market has taken it into account by sending the shares down following the earnings release. After a 5 percent cut in the last couple of days, the stock trades at a forward price earnings ratio of 6 with a huge 70 percent discount to its book value per share. However, this is no guarantee that prices cannot go down from here. Beneath the surface, there is a silver lining. In a sign to its conservative approach, the company said it does not expect any positive sustainable development in charter rates this year even though it acknowledged the recent spike in some drybulk charter rates.

Meanwhile it raised $123 million by selling shares of its Ocean Rig interest – a move that is likely to continue in the second quarter as well, leading to better liquidity.

Navistar navigates through a crisis

Shares of Illinois based truck maker Navistar International Corp (NYSE:NAV) has also been gaining steadily, moving up almost 20 percent over the last month. Its first quarter results demonstrated that the company is making progress with its transition plan and this performance is likely to be continued in the coming quarters as well. Expectations are building up which can be seen in the rising stock price. However, there are certain positives with the company which gives an impression the recent jump in stock price is not out of place. Navistar has sold its recreational vehicle business to focus on the core business of producing and selling trucks. At the same time, it has installed a new leadership team for its crucial North American market.

Overall, there are signs to believe that a turnaround is underway at least in Eagle Bulk Shipping Inc. (NASDAQ:EGLE) and Navistar. DryShips Inc. (NASDAQ:DRYS) is a dark horse which may offer exceptional returns but a turnaround is still some way in future.

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