DRYS HITS POSSIBLE REVERSAL

If you've been reading my blog, you'll know that I'm a big fan of Dryships (DRYS).

DRYS, like most dry shipping lines, has been hammered and has fallen over 50% since November.

This has been caused by a fall in BDI shipping rates (Baltic Dry Index), which is the index of spot shipping rates for bulk shipments. The BDI fall was triggered by the fear that a possible worldwide recession could adversely effect China's imports, which is the primary market for DRYS' vessels.

If a worldwide recession were to occur, it would have an adverse impact on DRYS' 2008 EPS, but I calculated that DRYS' 2008 EPS would be around $14.72 if BDI rates were to fall another 20%. This is a very bearish estimate as many of DRYS' vessels are locked into 1 year contracts so they are not effected by a fall in the BDI.

Assuming that DRYS' '08 EPS will be $14.72, (analysts' EPS consensus estimates of last week were $18.02) this would mean that DRYS' forward PE is currently 4.19. That is a real bargain given that the sector's average PE has historically been around 10.

Using my '08 estimates of $14.72 and a conservative PE of 10, it would be safe to assume that DRYS could reach around $150 within a year.

Last week Friday on January 11, a possible reversal occurred on DRYS, and it is my opinion that DRYS will rebound from $61.27 and initially rise to its next resistance at around $70. After that, I anticipate that it will trade laterally between $70 and $80 until DRYS' Q4 EPS and '08 guidance are announced around mid-February.

This is really a rare opportunity to take advantage of stock that could easily double in one year.

Do your own due diligence, but I seriously think DRYS has great potential.

Buy low, sell high, what a concept.