Everybody loves a good turnaround story. There is something heartwarming about somebody that has fallen on hard times that gets his act together and succeeds despite facing obstacles. This is especially true on Wall Street. Investors are always looking for down and out stocks that can turnaround and notch big gains for their portfolio. Here is one name that I think might fit the bill: Dryships (DRYS).
According to Yahoo! Finance, the company engages in the ownership and operation of drybulk carriers and drilling rigs that operate worldwide. Its drybulk fleet principally carries various drybulk commodities, including bulk items comprising coal, iron ore, and grains; and minor bulk items, such as bauxite, phosphate, fertilizers, and steel products.
Debt Row
If have traded stocks, especially of the momentum variety over the past few years, this name should be old hat to you. It registered ridiulous gains in 2007 as China’s demand kept the company’s ships on overdrive. The stock then proceeded to crash over 97% as the worldwide recession and a huge debt load led investors rushing for the exits. Since then the stock has been mired in the $4 range for many months.
Investors have been wary of the stock because of its huge debt and its idle ships floating in the Mediterranean. However, it signed an important contract this week that got the shares moving up. DRYS has a letter of agreement from an unnamed American oil company to explore the West African coast worth $135 million. This was music to investors’ ears as the stock zoomed from $4 to almost $5 on enormous volume over a two-day stretch.
More to Come?
This jolt higher could be the spark that gets the ball rolling for DryShips investors. A lot of the analyst reports I have read peg the fair value of the stock between $7-$8 now, but that target could be raised if the company signs more contracts. The company has historically come to the market with ill-timed stock offerings which have diluted shareholders, so any prospect of these activities slowing down will also excite investors.
The stock is only trading at half its book value, mostly because of the onerous debt load. More lucrative contracts are the key to paying down the debt and getting the stock higher. If management can execute and put the idle ships back to work, this could be a $10 stock in a hurry. However, this is a classic turnaround stock, and these situations are never a smooth ride. Those of you with an appetite for risk might find it worthwhile to jump on board.
Turnaround Thursday is an article from: 
