OceanFreight Sinking Amid Reverse Stock Split - Diana Shipping (NYSE:DSX)

OceanFreight

OCNF

is down six percent on the day after announcing a 1-for-20 reverse stock split this week.

The stock is temporarily trading under the OCNFD ticker while the market adjusts to the stock split. After twenty trading days, the ticker will revert back to OCNF. As their name suggests, OceanFreight is a provider of shipping transportation services. OCNF is the owner and operator of drybulk and tanker vessels that operate worldwide. They own a total of twelve vessels, including six drybulk vessels. OceanFreight's main focus involves using its fleet of drybulk and tanker vessels to provide seaborne transportation of commodities worldwide. According to their annual report, for the fourth quarter OCNF is pioneering in new international territories. They recently signed a commitment letter with a major Chinese bank for the financing of up to 60% of the aggregate construction cost of three Very Large Ore Carriers (VLOCs) that they agreed to acquire in March. The facility includes a pre-delivery portion that is equal to the sum of all the yard installments prior to delivery. As for the reverse stock split, every twenty shares of the company are being automatically combined and reissued, with fractional shares being converted to cash for each individual investor. The reverse split should take the company from 118,923,797 shares down to just under six million shares.

Action ItemsBullish:

Traders who believe that shipping stocks like OCNF will turn around, despite the reverse split, might want to consider the following trades:

Well, OCNF would be the obvious pick, but they aren't the only shipping stock out there. Paragon PRGN and Diana Shipping DSX are a few names that stand out.
Another angle to play on the bullish side would be any commodity shipped by OCNF. They specialize in commodities, so look into dry commodities, like wheat, corn, and other food items that may get moved at any price.

Bearish:

Traders who believe that reverse stock splits are a huge red flag may consider taking positions in the following:

The obvious answer is to short OCNF, but there are so many variables involved with OCNF that it may be hard to play that move right. The stock is intertwined with the Greece debt crisis, the overall economy, and their individual company financing concerns. The smartest bear play may be to just stay away from this one.

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