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Jim Collins: Transportation Crisis Puts Dry Bulk Sector in Play

Surging demand for natural gas makes this shipper an attractive option

Sometimes you have to look past the analytics and bar charts and just swing away at a good stock sector.

So it goes for TheStreet’s Jim Collins, who isn’t going to mull over stocks in the dry bulk shipping category – he’s going to snap them up.

“There are times when a sector is so hot, or about to be, that you just need to throw out the CAPM math and buy the stocks,” Collins wrote on Real Money recently

That’s where the dry bulk sector comes into play.

“I first started following this sector in the 2005-2006 time period, and rode these names to some terrific performance in 2006-2007 before running for the hills as Lehman crashed in 2008,” Collins said. “It’s a heavily cyclical industry. These are not long-term "set it-and- forget it" names. You want to watch the industry and watch what management is doing.”

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Natural gas offers some key opportunities in the sector.

“I have mentioned the extraordinary rise in natural gas prices, especially in Europe and Asia, in my RM column before,” Collins said. “I’ve pointed readers toward the companies that ship natural gas from where it is produced to where it is consumed. Flex LNG  (FLNG) - Get FLEX LNG Ltd Report is still my favorite there.”

Collins said he’s always on the lookout for other commodities that are in short supply but with rising demand. “If a utility can't produce power with natural gas (which only has one carbon atom, CH4) and it continues to deal with the painful intermittency of wind power, there really is only one other option,” he added. “Coal. Yep, dirty coal.”

Coal is hardly on the way out. In fact, it’s being produced and delivered in large amounts overseas.

Collins said that existing producers are going to keep digging up this black gold and loading it onto rail cars for shipment to China and Europe. “This shipment occurs via dry bulk ships,” he noted. “The classic definition for the largest bulkers (Capesize) is that they carry coal, iron ore and grains. Smaller ships (panamax, supramax, etc.) have more widely-varied uses. But the market is driven by the big boys, and Capesize rates are going nuts.”

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