Oceanic Micro Cap #1: TBSI International (NASDAQ: TBSI)

TBSI International (NASDAQ: TBSI) was one of the numerous oceanic shipping companies that had an initial public offering in the year of 2005. Joining TBSI in the oceanic shipping stock IPO frenzy were companies such as Quintana Maritime (NASDAQ: QMAR), Dryships (NASDAQ: DRYS), Eagle Bulk Shipping (NASDAQ: EGLE), and Genco Shipping and Trading (NASDAQ: GSTL). As we mentioned earlier, 2005 was the commencement of the most current downward cycle for dry bulk freight rates. As such, all of these recently IPO'ed shipping stocks have seen their share values considerably diminish.

We found this sector when we ran one of our trusty stock screeners. We liked the numbers that we found with many of these stocks, so we delved a little further into the sector. Our findings, which we provided in the previous section of this article, piqued our curiosity. Fundamentally, all of these shipping stocks share certain similarities. If you were to invest in one of these stocks, which stock would you choose? We will tell you what we did to decide on which stock to pick. All of these stocks, to begin with, were in a downward trend and, as you must know by now, We like that when we are considering an initial investment into a stock. Subsequently, we tried to figure out which of these stocks was closest to the end of its downward trend. As we mentioned in the Averaging Down section of this article, trying to pick the bottom of a downward trending stock is most complicated. We looked at the IPO price for each of these stocks and calculated the percentage drop from this price. TBSI and DRYS had dropped the furthest from their IPO pricing of the stocks in question. As such, we focused our attention on these two stocks. We afterwards compared the two stocks for their basic stock composition. We compared total outstanding shares, public float, and average volume. After that, we looked at revenues, cash reserves, and debt. Finally, we read the SEC filings for both companies, researched their vessel fleets, and examined their standard cargo routes.

We found many similarities in comparing TBSI to DRYS. Both companies had similar share structures, cash reserves, and fleet size. DRYS had about five times the average daily trading volume of TBSI stock. This finding had some profit for both stocks. A higher trading volume meant that the stock had better liquidity and told us that more people followed this stock as far as DRYS was concerned. One would tend to think that this would be beneficial for DRYS in our comparison, but we felt differently. The fact that TBSI had much less trading volume than DRYS led us to suppose that many investors had not discovered this stock as of yet. We saw no explanation to why DRYS should be trading five times as many shares as TBSI as most of their numbers were very similar. With time, we felt that TBSI would achieve daily trading volume comparable to DRYS. We anticipated a rise in TBSI’s stock price with a fivefold increase in trading volume for it. The final nail in the coffin for DRYS, as far as we were concerned in our comparison of the two companies, was the fact that DRYS had significantly more debt than TBSI. As a matter of fact, DRYS had something like four times the outstanding debt of TBSI.

Our find of TBSI happened in late January of 2006 at about $6.14. After performing a little due diligence, we told a few of our friends and colleagues about this stock. By this time, TBSI had dropped to $6. We were not worried even though the price of the stock was dropping. Like we mentioned previously, we try to pick up stocks when they are trending south, hopefully at a price relatively close to their definitive bottom. With our analysis of the oceanic shipping sector and our due diligence on the stocks that composed said sector, we felt that TBSI was a relatively safe bet for a sizable gain. We were not expecting a blockbuster here, but we were anticipating a relatively safe and respectable appreciation in price for TBSI. Over the next 30 days, shares in TBSI stemmed their slide and reversed course for a 30% gain. Taking into consideration that most investing experts believe a 7% annual gain to be an advantageous target, a 30% single month gain was stupendous! For many short term swing traders such an increase would be a respectable exit point. While a few of our friends and colleagues did make some trades with TBSI, we never did. A family emergency required our full attention and we missed the short lived TBSI run.

Even though we missed out on some nice gains with TBSI, we did continue to observe the stock occasionally. TBSI started to give back its recently acquired gains in mid March of 2006. The broader markets began to slide just after this occurred. This combination of events proved most inopportune for TBSI and the company's stock dropped nearly 34% from its high point in March of 2006. TBSI stock is still in the midst of a tumultuous tumble as we are writing this paragraph. You probably wonder if we purchased any shares in TBSI. Honestly? Not yet. We are of the opinion that the combination of poorly performing markets and high oil prices will drive the price of TBSI down a little further. We do believe that TBSI is setting up nicely for our particular taste in investing. The stock is trending south, it is setting new 52 week lows, and, in comparison to its partners, TBSI has taken the most striking fall. We know that those parameters sound crazy and that many investing professionals will question our common sense, but that is what "blood in the streets" investing is all about!

Beginner Money Investing Oceanic Shipping Stocks Shipping Market History Cycles Oceanic Micro Cap #1: TBSI International (NASDAQ: TBSI)