Xun Yao Chen

Darden Restaurants Inc. (DRI) has jumped since the Wall Street Journal mentioned that Barington Capital Group took a 2.8% stake, calling on Darden to split in two.

Employment could be turning around The below chart shows employment growth for countries in Europe. The Eurozone, which only includes countries using the euro (so, excluding the United Kingdom and Russia), has been experiencing a declining growth rate over the past two years. While the overall growth was in positive territory from mid-2010 to mid-2011, […]

The significance of potash price Wholesale potash price is one of two factors (the other being sales volume) that influence potash producers’ revenues. When prices rise, so does revenue, which will translate to higher profitability (margins), earnings, and share prices. However, when prices fall, they will have a negative impact on fundamentals and share prices. […]

While the VLCC data is positive, the picture for the crude tanker business remains mixed. This could portray a short-to-medium-term negative outlook.

Uralkali’s latest move might be considered a punishment. But also note that outside forces can create a more competitive environment.

On November 1, ship orders for all key dry bulk vessel classes fell. Ship orders reflect managers’ expectations of future supply and demand differences.

As crops widely trade in the international market, they often converge with each other if transportation costs aren’t so high.

Why higher gasoline prices can reduce people’s leftover spending at restaurants, which will negatively affect restaurant sales.

Adding a little bit of spice to the chart After compiling a list of Darden’s core competitor brands, which include Bravo Brio Restaurant Group Inc. (BBRG), Bloomin’ Brands Inc. (BLMN), Cheesecake Factory Inc. (CAKE), Texas Roadhouse Inc. (TXRH), Ignite Restaurant Group Inc. (IRG), Brinker International Inc. (EAT), and Dine Equity Inc. (DIN), we’ve added a […]

Because reporting entities sometimes like to dress their numbers up a bit to look nice, analysts also look at electricity output—where government officials say they don’t have much incentive to cook the numbers.

Generally, a capacity increase tends to lag demand growth, as producers like to see a stronger market before making significant investments.

Continued from Part 2 Ship construction activity Part 2 of this series explains how ship orders can illustrate managers’ expectations for future supply and demand differentials. But new ship orders don’t always translate into new constructions right away. Sometimes, shipping firms specify a particular date of delivery for the new orders. If the delivery date is farther […]

The divergence we’ve seen between orders for product tankers and crude tankers reflects in share prices.

In a highly commoditized industry like the shipping industry, capacity is an important metric that directly impacts companies’ top line, or revenue performance. When capacity grows faster than demand, competition will rise among individual shipping firms as they try to utilize idle ships and cover fixed costs. This will lower day rates, which will negatively […]

As long as developers continue to snatch up land, more iron ore and coal will be needed at steel mills, which is generally positive for dry bulk shippers.

Owning properties reduces real estate costs A restaurant business that owns its own building is a bit different from a restaurant business that rents its buildings or lands. From a business standpoint, you can think of a restaurant that owns its buildings as the sum of two businesses: restaurant and real estate. Because the real […]

Managers remain optimistic From September 13 to 20, ship orders for Capesize vessels fell by 0.25%, from 10.53% to 10.28%, as a share of the existing number of ships. Orders for Panamax improved from 15.34% of existing ships to 15.87%, while those for Supramax were up slightly, rising 0.04% to 4.64%. Analysts use a percent […]

Taking out 2012’s high is important because it reflects tighter supply and demand dynamics than last year, which means higher revenue and earnings from Capesize vessels this year compared to 2012.

October’s increase is generally positive for the long-term prospects of tanker stocks like Frontline ltd. (FRO) or Nordic American Tanker Ltd. (NAT).

Continued from Part 3 The importance of capacity Capacity, in a commoditized industry like shipping, is an important metric that directly impacts companies’ top line, or revenue performance. When capacity grows faster than demand, competition will rise among individual shipping firms as they try to use idle ships and cover fixed costs. This will lower day […]

The two main markets for shipping companies, such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX) and Safe Bulkers Inc. (SB), are spot (voyage) and time charter (period). Companies that engage in the spot market will charge a one-time fee that customers pay to have a specified amount of goods shipped from one destination to […]

CPI growth running below 2.0% The most widely reported inflation rate is the CPI (Consumer Price Index). Since May 2012, US consumer inflation (measured by the year-over-year change in the consumer price index) has generally stayed below 2.0%. In August 2013, the overall inflation rate stood at 1.5% compared to the same month last year, […]

Industry concentration Industry concentration is a factor that affects competition. When only a few firms occupy a large portion of the industry’s revenue, competition tends to be less, as companies try to live with each other to maintain profits. On the other hand, when there are a large number of firms vying for market share, […]

Investors can look forward to higher Capesize rates during the second half of this year compared to the first half, which is positive for dry bulk shippers.

Continued from Part 5 What are forward contracts? If there are shipping rates for today, then there’s also the expectation of tomorrow’s rates. Companies use forward contracts to lock in the availability of resources in the future at a set price. The dry bulk shipping industry—which transports key dry bulk materials such as iron ore, coal, […]

From August 23 to 30, shipping rates for Panamax, Supramax, and Capesize vessels stood relatively unchanged.

China’s iron ore import data China’s iron ore import is a key driver of shipping demand, making up more than 75% of the world’s total iron ore shipments. So China’s import rising is positive for shipping rates—Capesize vessels in particular—which can give short-term support to share prices and a medium-term boost to companies’ financials. While […]

Continued from Part 4 Supply and demand drives dry bulk shipping companies Although we must analyze demand  in order to project future dry bulk shipping rates, imports data aren’t widely available on a weekly basis. But shipping rates, which reflect the difference in demand and supply, are collected on a daily basis at the London-based Baltic […]

Update to Must-know: Shipping companies hit by China’s financial woes The impact of China’s financial industry The financial industry is an essential part of any economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively as it […]

China’s steel output China’s steel output is a leading indicator of iron ore and coal demand. When steel output declines, the fall is often due to adjustments to weaker demand. As China makes up 70% of the world’s total iron ore imports, lower steel output will translate to fewer iron ore imports. This will hurt […]

Why ship prices (value) matter Ship prices (values) are often good indicators of financial health in the shipping industry. When shipping demand grows more than the supply of ships, shipping companies place additional orders of ships, which drives up purchase prices. Additionally, when firms are able to charge higher prices for transporting goods across the […]

The Baltic Dry Index (a benchmark that reflects the overall shipping rate for transporting dry bulks such as iron ore, coal, and grain across the ocean) has fallen quite a bit since the start of the year.

The impact of China’s financial industry The financial industry is an essential part of an economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively as it could. So, a collapse in the financial industry would grind […]

Why is capacity important? Capacity is an important factor that directly impacts companies’ top line (revenue) in a highly commoditized industry, like shipping. When capacity grows faster than what’s demanded, competition rises among individual shipping firms as they try to use idle ships and cover fixed costs. This lowers day rates, which negatively affects bottom […]

The impact of China’s financial industry The financial industry is an essential part of any economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively as it could. So, a collapse in China’s financial industry would grind […]

As store count grew over the past few years, Starbucks’ forward P/E valuation metric also expanded. What used to be just 17x gradually grew to roughly 27x, a 58% based solely on expansion in the valuations.

It’s been a while since the dry bulk shipping index has had such as large impact on the share prices of shipping companies. This reflects the fact that the market wasn’t really expecting such an increase.

Continued from Part 3 The importance of capacity Capacity, in a commoditized industry like shipping, is an important metric that directly impacts companies’ top line, or revenue performance. When capacity grows faster than demand, competition will rise among individual shipping firms as they try to use idle ships and cover fixed costs. This will lower […]

Investors seeking exposure to dry bulk shipping who don’t want to buy six companies like Soros did can use the Guggenheim Shipping ETF (SEA).

US oil rig count is a leading indicator of US oil production and oil imports. Since 2008, a boom in US oil industry has negatively impacted demand for tankers (see Tankers will likely underperform dry bulk ships in 2013)— vessels that transport oil across ocean. Higher US oil production, due to application of technologies called […]

Because the month-to-month data can contain short-term statistical noise that doesn’t reflect long-term fundamental changes, a six-month change or year-over-year change is often used.

Dry bulk shipping companies lag behind economic recovery Despite the U.S. stock market surpassing its 2008 highs recently, with the Dow Jones Industrial Index hitting 15,464.30 and S&P 500 hitting 1,680.19 as of July 12, 2013, dry bulk shipping companies have done poorly. These companies primarily transport raw materials such as iron ore, coal, and […]

The importance of capacity utilization Capacity utilization measures how much of an industry’s or company’s available production output is being used. It’s based on dividing actual output by potential output. Because an industry or firm will often try to match production to demand, a rising capacity utilization rate means faster growth in demand relative to […]

Natural gas is a major input in the production of nitrogenous fertilizers, such as urea and ammonia. Therefore, when the natural gas price in the United States rises, it is a negative move for producers. Natural gas price rose on the week ending March 15th The Henry Hub Natural Gas Spot Price, a benchmark for […]

Tanker stocks tied to oil prices Tanker stocks often move in tandem with oil prices in a demand-driven market. But because tanker companies also use oil to run their ships, a price increase in oil due to supply shocks (such as political disruptions in the Middle East) also affects tanker firms differently. To get a […]

Inflation’s impact on spending and investment Central banks often set a target on inflation rate because a mild inflation rate encourages people to spend more, while it also points out that demand is rising more than supply—a situation that suggests a growing economy. When inflation is high, however, central banks will use monetary policies to […]

The two main markets for shipping companies, such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM) and Safe Bulkers Inc. (SB), are spot (voyage) and time charter (period). Companies that engage in the spot market will charge a one-time fee that customers pay to have a certain amount of goods […]

Natural gas and nitrogenous fertilizers Natural gas is a major raw material input in the production of nitrogenous fertilizers, such as urea and ammonia, ranging from 40% to 70% of cost of goods sold. A higher natural gas price increases the cost of goods sold and compresses margins. This in turn lowers earnings and free […]

In a highly commoditized industry, like the shipping industry, capacity is an important metric that directly impacts companies’ top line, or revenue performance. When capacity grows faster than demand, competition will rise among individual shipping firms as they try to utilize idle ships and cover fixed costs. This will lower day rates, which will negatively […]

The dry bulk shipping industry is cyclical mainly due to economic or business cycles as well as a long lead time between the placement of orders and the delivery of new vessels.

Ship orders apply most to long-term investments Ship orders reflect managers’ assessments of the industry’s future demand and supply balance. Dry bulk shipping companies will often place new orders when future demand is expected to increase more than supply, on the condition that they expect to generate profits with new vessels.[1. Dry bulk shipping companies […]

Back to Part 1 Share of market cap While $3.7 billion and $2.7 billion of cash may not seem like a lot compared to Apple’s ~$150 billion, it’s crucial for investors not to get distracted by the absolute amount. What’s important for investors is knowing how much “excess cash” they’re receiving based on how much […]

The dry bulk shipping industry’s service is commoditized. So, supply and demand balance is one of the most important drivers for dry bulk companies’ top- and bottom-line performances.

Without an understanding of factors that affect crop prices, it would be difficult to formulate a view on future crop prices and demand for nitrogenous fertilizers.

Why should you watch ship purchase prices? Purchase prices for ships are often good indicators of financial health in the shipping industry. When shipping demand grows more than the supply of ships, shipping companies place additional orders, which drives up purchase prices. Additionally, when firms are able to charge higher prices for transporting goods across […]

Update to Shipping capacity growth drops but outpaces demand, negative for tanker stocks The importance of capacity In a highly commoditized industry, like the shipping industry, capacity is an important metric that directly impacts companies’ top line, or revenue performance. When capacity grows faster than demand, competition will rise among individual shipping firms as they try […]

Commodity prices and shipping Commodity prices are leading indicators of an economic cycle. Because suppliers of raw materials require time to ramp up production, an increase in demand during an economic expansion will often lead to higher prices. As a result, commodity prices correlate highly with shipping. Iron ore prices On July 25, the price […]

Supply and demand drives dry bulk shipping companies Unlike imports data that aren’t widely available on a weekly basis, shipping rates (which reflect the difference in supply and demand) are collected daily at the London-based Baltic Exchange and published as the BDI (Baltic Dry Indexes). These indexes reflect the daily shipping rates to transport key […]

Just like the U.S. dollar is a key influence to crop prices, the strength or weakness of the Indian currency, the rupee, has a significant impact on potash demand. As potash is traded globally, the standard currency for exchange is in U.S. dollars. When the Indian rupee weakens, it is often a negative for potash […]

The impact of China’s financial industry The financial industry is an essential part of any economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively as it could. So a collapse in China’s financial industry would grind […]

US rotatory rig count: The forefront of future oil production The US Crude Oil Rotary Rig Count is a valuable indicator that shows how much drilling activity is occurring in the United States, tracking the number of rotating drills that are drilling into the Earth’s crust in search of oil or developing oil wells. The […]

Valuations can often tell investors the outlook of equities in the near future. Although value investors often look for valuations that are low, high valuations can often signal better times ahead. This is especially true for cyclical companies, such as steel producers and shipping companies, as has been mentioned by Peter Lynch in his famous […]

Continued from Why oil price is a key driver of tanker stocks The impact of China’s financial industry The financial industry is an essential part of any economy. Without a stable financial system—one that supplies liquidity to businesses and individuals and bridges the gap between savers and borrowers—an economy can’t function as efficiently and productively […]

Investing in fertilizers and seed stocks Fertilizer and seed stocks are both part of the agriculture industry. As they highly correlate with each other, investors tend to think investing in one is like investing in the other. From September 2005 to mid-2012, the correlation between the two industries, using major companies’ share prices, was 0.86.[1. […]

The price of a Panamax ship depends on two factors: the amount of cash the ship can generate within its useful life and the cost of steel.

Continued from Part 1 The significance of ship orders One measure that reflects managers’ assessment of future supply and demand differences is the number of ships on order. When managers expect future demand to increase more than supply, if they also expect to generate profits with the investment, they will often place new ship orders. But […]

Industry experts often show ex-China global urea capacity utilization because China’s export tax makes domestic producers’ urea more expensive for international buyers.

Continued from Part 1 Monsanto and DuPont Two industry giants dominate the seed industry, Monsanto Co. (MON) and DuPont (DD), which together held ~62% of the industry’s revenue in 2012. Why are these two companies dominant players in the industry? Let’s explore. Patent protection One big differentiator between seed and fertilizer stocks is patentability. Companies […]

Ship orders reflect managers’ assessments of the industry’s future demand and supply balance. Dry bulk shipping companies will often place new orders when future demand is expected to increase more than supply, on the condition that they expect to generate profits with new vessels.[1. Dry bulk shipping companies engage in the transportation of dry raw […]

Continued from Part 4 Why buy back? Investors may wonder why Mosaic Co. (MOS) is looking to buy back shares instead of distributing the earnings as dividends. From a company’s standpoint, the value of the company in the market today doesn’t matter. Whether it returns cash when the share prices are high or low, it […]

While annual capacity growth still remains above 3.5% for crude tankers and even higher for product tankers, it has come down since April, which is a positive sign.

Continued from Part 9 Why should you watch ship purchase prices? Purchase prices for ships are often good indicators of financial health in the shipping industry. When shipping demand grows more than the supply of ships, shipping companies place additional orders, which drives up purchase prices. Plus, when firms are able to charge higher prices […]

Ship orders are useful metrics in uncovering managers’ perspectives of the industry’s long-term demand and supply balance. Dry bulk shipping companies will often place new orders when future demand is expected to increase more than supply, on the condition that they expect to generate profits with new bulk vessels.[1. Dry bulk shipping companies engage in […]

There are several things Frontline can do to pay its maturing $190 million bonds. But activities such as selling assets or raising additional capital would likely put Frontline behind its peers.

China’s crude oil import: The most important factor An indicator that has a first-degree (direct) influence on tanker rates is China’s crude oil import volume. When import volume rises, more tankers will be in use, which pushes up shipping rates. Conversely, lower import volume means an increased number of idled ships, which leads to increased […]

On August 30, the Baltic Dirty Tanker Index and Baltic Clean Tanker Index stood at 622 and 604, respectively.

Despite a recovery in 2014, investors should be warned about the longer-term outlook for the potash business.

As commodities trade globally, often using the US dollar as a medium, price movements in the US dollar have important consequences for fertilizer producers.

The operating rate in China is below average Historically, the expense of using coal to produce nitrogen-based fertilizers has kept Chinese firms away from increasing production, because they would have had to sell the fertilizers at a loss. As a result, the operating rate (capacity utilization) in China has been lower than the rest of […]

The importance of sales volume Companies’ sales and earnings revisions often have significant impact on share prices. Sometimes companies will announce revisions before earnings calls if they’re significant. When earnings are expected to be worse than initially mentioned, share prices can take a hit. Conversely, when management releases upbeat revisions, share prices often jump. Companies […]

However, shares do tend to fall following spinoffs, as they’re widely considered an inefficient means of distributing shares to investors.

Continued from Part 1 The importance of ship orders One measure that reflects managers’ expectation of future supply and demand differences is the number of ships on order. When managers expect future supply to increase more than demand, they refrain from purchasing new ships. However, when they expect demand to outpace supply growth, companies return to […]

In this series, we uncover the key indicators investors should know to help them stay calm and position themselves correctly in the restaurant market. Investing is an art and a science. There is no secret formula.

Investors should recall that the shipping industry is highly cyclical, as demand for fleets is driven by economic cycles and supply is inelastic for about two years—the time it takes to build vessels.

Because China is the largest importer of raw material in the world, China’s manufacturing is a key driver that affects shipping demand and rates.

While U.S. oil imports have been falling over the last few years, tanker companies could benefit from a brighter outlook on U.S. oil imports in 2014.

Ammonia prices Wholesale ammonia prices are a key driver of revenue for fertilizer companies, such as CF Industries Inc. (CF), Agrium Inc. (AGU), Potash Corp. (POT) and Rentech Inc. (RTK). Naturally, higher ammonia prices are positive for these nitrogenous fertilizer producers’ revenues, earnings, cash flows and share prices. But lower prices are negative. Falling wholesale […]

Investors shouldn’t only expect Boston Beer Company’s sales growth of approximately 17% to translate into equal growth in earnings.

Canada, Russia, and Belarus together account for more than 89% of the world’s estimated reserves and a little over 66% of global capacity.

The recent volatility we’ve seen among dry bulk shippers can scare people into thinking they should trade in and out of the stock.

Beating estimates Let’s begin with earnings since that’s often what analysts and investors look at. For the third quarter of 2013, which was released on October 31 in the morning, CPLP reported basic EPS of $0.35 per share, which was five times more than the estimate of $0.07 per share. Basic EPS of $0.35 a […]

As oil production appears to be lagging oil rig count by two to three years, U.S. oil production growth could start to show signs of slowing in 2014. That could be positive for demand for crude tanker companies.

The Indian rupee has been under pressure this year due to two key factors: Ben Bernanke’s announcement of the Fed tapering that started off in June and deteriorating economic growth combined with high inflation.

Natural gas is a major input in the production of nitrogenous fertilizers, such as urea and ammonia. According to Terra Nitrogen Company L.P.…

When looking at an industry, one of the first things investors can look at is demand growth. Just like an eight percent increase in gross domestic product…

The phosphate industry is quite oligopolistic, meaning a handful of firms control most of the supply, with 5 major companies producing 75% of the world’s supply.

Corn prices often drive fertilizer prices. Among the three major crops, corn, soybean and wheat, corn requires more nitrogen based fertilizers.

Brent crude oil price is a leading indicator for nitrogenous fertilizer revenues. When the price of Brent oil rises, it’s generally followed by a rise in ammonia prices.

The eroding middle market Darden’s core brands—Olive Garden, Red Lobster, and LongHorn Steakhouse—face a macro shift in an ever-widening spread in US average income. The graph below shows the difference in household income between the second highest 20% and the second lowest 20% income earnings. The difference is divided by the average income of the […]

So far, global economic growth is expected to pick up in 2014. This case would generally be positive for commodities like coal.