Greece’s economy is the 27th largest in the world by GDP, and in 2010 was 328.6 trillion euros in debt, a 10.5% deficit, which was worse than the 9.4% estimate anticipated by the government of Greece.
Soros is famous for generating an average annual return of over 30% while running the Quantum Fund. He is also an expert at currency speculation, making a massive bet in 1992 against the British pound, from which he earned a $1 billion profit.
While Soros believes the sky is falling in the euro zone, he has many international stocks in his portfolio that he still views as profitable investments, even in the epicenter of the financial crisis, Greece.
Diana Shipping Inc. (DSX)
Diana Shipping Inc. is a global provider of shipping transportation services. Diana Shipping Inc. has a market cap of $883.49 million; its shares were traded at around $10.78 with a P/E ratio of 6.53 and P/S ratio of 3.21. Diana Shipping Inc. had an annual average earnings growth of 23.9% over the past five years.
Soros’ Fund purchased 3,900 shares of Diana Shipping Inc. in the first quarter, adding to the 11,600 it bought in the fourth quarter 2010, bringing total shares to 15,500 as of March 31, 2011. From 2006 to 2008, shipping stocks soared, and Diana Shipping was trading at up to $40, until it crashed down to around $8 near the end of 2008. Diana Shipping’s stock price is actually up 3.78% over the last five years and down 11% year to date.
Shipping companies faced compounded difficulty during the financial crisis because their contracts for new ships were locked in several years into the future, meaning they had to accept ships when they could not get charters from their existing ones. Dozens of shipping companies filed for bankruptcy as a consequence.
“Years later, rates have slowly climbed back up, but a guaranteed supply glut for another few years continues to pressure even the best run shipping firms. In fact, many companies haven’t reinstated their cut dividend from 2008,” said GuruFocus writer Ryan Vanzo in an April article.
Diana Shipping has not issued a dividend since December 2008.
The company lost $46 million in 2010 and generated free cash flow of $152 million in 2009. It has long term liabilities and debt of only $321 million, with cash of $345 million. It has been increasing its fleet every year since 2006 and owned 22.9 ships as of 2010, with a fleet utilization rate of 99.7%.
DryShips Inc. (DRYS)
Dryships Inc. is an owner and operator of dry bulk carriers that operate worldwide. Dryships Inc. has a market cap of $1.58 billion; its shares were traded at around $3.96 with a P/E ratio of 3.67 and P/S ratio of 1.84.
In the first quarter 2011, Soros purchased 21,400 shares of DryShips, a new buy. At an average price $4.98 per share, he got a bargain for a stock that previous traded for over $100. He traded shares intermittently over the years and once purchased in the fourth quarter 2007 for $96.61, selling out in the next quarter when it fell to $68.44.
DryShips has generated positive free cash flow since 2007, earning $498 million 2010 and $269 million in 2009. However, the company’s long-term debt has been accumulating to the point that it now owes $1.98 billion and has just over $1 billion in cash on its balance sheet. “Today DryShips finds itself still burdened with a massive debt load, but the risk of bankruptcy has diminished now that the worst of the credit crisis has passed,” wrote GuruFocus author Sumit Roy in October 2010.
The Baltic Dry Index, the daily average of the price to ship goods, had fallen to a one-year low in the first quarter, when Soros bought the stock. When the index goes up, dry bulk ship owners benefit. The 52-week range for the index is 1,045 - 4,209, with a close of 1,424 today.
DryShips has created a new deepwater drilling segment, Ocean Rig UDW Inc., which could benefit from the recently lifted moratorium on drilling in the Gulf of Mexico. Thus far in 2011, the company has been leveraging the expansion of its drilling fleet substantially.
“In many ways, DryShips has become a leveraged play on the global economy,” Roy says. “If the demand for raw materials continues to grow briskly, the shipping industry, and DryShips in particular, should benefit. In such a scenario, the company will be able to service its debt and generate significant free cash flow for shareholders. The market may then reward the stock with a higher multiple. Were shares to trade at just seven times 2012's expected earnings, investors today would almost double their money.”
For George Soros' complete International Stocks Portfolio, click here.