Anchors Aweigh for Genco

This column was originally published on RealMoney on Nov. 14 at 8:00 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

Dry-bulk ocean shipping companies were the idee fixe of the investment-banking world earlier this year, as several were brought public into an initial public offering market that turned out to be softer than expected. Most took the money and immediately headed south.

In late July, I explained why I believed Diana Shipping(DSX) would rebound, and it has come back by 45%. And now I believe the same happy fate may await Genco Shipping and Trading(GSTL), though it may not get there as quickly.

Genco, which currently sports about a third of the market capitalization of Diana, was the brainchild of Peter Georgiopoulos. If you've owned any of the oil tanker stocks, you may recognize that name, as he was the founder and chairman of General Maritime(GMR). That company went public at around $10 in 2001, promptly fell by 50% by late 2002, and then advanced tenfold to a high of $50.55 earlier this year.

Georgiopoulos, who spent the early part of his career with the junk bond kings of Drexel Burnham Lambert, saw the mom-and-pop oil tanker business -- which was out of favor at the time -- as one that was ripe for consolidation and business streamlining. His success at building a profitable, $1.4 billion company out of other companies' spare parts has become legendary. General Maritime now floats around 50 of its own tankers.

He's now aiming to do the same with Genco, and so far shares are following pretty much the same early path. The company went public at around $21, fell by around 30% and is now starting to rebound. The key to its success over the rest of this quarter, and next year, will be the rising demand of China and India for iron ore, coal and grain.

That may sound like a tired theme, but according to company executives and trade data, China's steel and energy demand growth continues to be a real phenomenon. Beijing-based China Economics and Business Monitor Group, for instance, offered this stat in a report Friday: By the end of 2004, the urban population of China had reached 540 million people, or 42% of the overall population, vs. 23.9% before the reforms of 1978.

That's an urban migration of historic proportions that has required a massive improvement of civic infrastructure and has generated enormous consumer demand. CEBM says that spending by urban residents now constitutes 60% of all spending in the country.