You've Got RAIL

One of my favorite types of purchases is a stock that I've already owned and sold for a profit. A lot of brain damage is saved from the fact that I already know the company. This is the case with FreightCar America (RAIL), shares of which I have previously purchased and sold as discussed here and here.

RAIL manufactures railcars, which is a highly cyclical business. Demand ebbs and flows, while costs are fixed. And so these stocks get heavily beaten down when the outlook is bleak.

As a result, RAIL is now a net-net, trading at $95 million with current assets of $210 million and total assets of $105 million. The company is also debt free, and $60 million of those current assets are comprised of cash and marketable securities. The company trades for less than half of its total tangible book value.

RAIL is cheaper than its competitors because its specialty has been coal cars, which are particularly out of favor at the moment. But the company has been diversifying into other types of cars. New management has been focused on improving quality and reducing defects and costs related to manufacturing different types of cars, which has led to losses in the short-term. Right now there is only enough backlog to keep the lights on for another couple of quarters, so one can understand why the market is spooked.

But with a rock solid balance sheet, I expect the company to outlast a downturn. I also think there is the possibility of a sale to a larger consolidator as the price must look very attractive to competitors at the present time.
 

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Mark Borkowski 10 months ago Contributor's comment

Thank-you Raj for your article on Rail. Always has been and will be a cyclical market.

In the event that you were not aware, the province of Alberta in Canada has not received approval for completion of some of the massive pipeline projects. The Liberal Trudeau government stopped "multiple billions" of investment in Western Canada. At this time, the price of Crude oil in Alberta has dropped to the lowest levels in history. The Alberta government has proposed shipping the huge reserves by rail car. This would involve one of the largest purchases of rail tank cars from Alberta to the US and other Canadian markets. Rail car manufacturers could receive a large boost in orders that anyone could remember.