Tag - UNP

Small-cap stocks pressed lower in early trading, pulled down by losses in overseas equities trading, a swollen inflation picture from morning economic data and ongoing jitters over financial shares. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was down 8.60, or 1.20% at 707.55. The Russell is testing short-term support along the 707.50 line; a breach of that point would put the next key support point near 701.00.

This morning’s personal income report provided a mixed picture within the data series, with personal income better than expected, and consumer spending above forecast. However, the market focused on the inflation portion of the report, which showed the year-over-year PCE price index at 4.1%, the highest rate in 17 years. And even though headline personal income was better than expected at 0.1% vs. the projection for a dip of 0.2%, it was still the smallest rise since April 2007. The factory orders report at 10:00 a.m. ET came in at 1.7%, which was well above the forecast for a rise of 0.7%.

In stock market trading around the world, equities were out of favor overnight. Japan’s Nikkei was off 1.2%, Hong Kong’s Hang Seng down 1.5%, and China’s stock market down 2.3%. Elsewhere, Taiwan was down 0.3%, as was Australia. Meanwhile, Singapore was down 1.0%, South Korea off 1.9% and India down 0.5%.

European shares were also down heading into the U.S. stock market open, with financial shares acting as a drag after HSBC reported a 28% decline in first half profits and reported a hefty $14 billion debt write down tied to bad U.S. home loans and other asset losses. Major U.S. banks Citigroup (NYSE:C), Bank of America (NYSE:BAC) and Wachovia (NYSE:WB) were down 2.7%, 2.1% and 4.0%, respectively, shortly after the open. Earlier this morning, Oppenheimer analyst Meredith Whitney predicted on CNBC that housing prices were on tap for further losses and she painted a dreary picture for banks, investment banks and brokers.

Some large-caps to keep an eye on today that could spill trends over into the small-cap arena include Chicago Bridge& Iron Co. (NYSE:CBI), which could get a boost after a bullish article in Barron’s over the weekend. Other stocks finding favor in Barron’s include railroad firms Union Pacific (NYSE:UNP) and Canadian National Railway Co. (NYSE:CNI).

Some relief for stocks could come from a pullback in crude oil prices this morning, with futures down more than $1 a barrel, slipping below $124. Bears were pointing to rising output from OPEC on the supply side, and pinched demand from major customers tied to high prices and soft economic growth. However, a new storm was brewing in the Gulf of Mexico, which could keep the bears in check. Elsewhere on the commodity inflation front, platinum prices tumbled 5% overnight as concerns about a global slump in the automotive industry take hold. Copper prices – which are a key indicator of global demand – slumped to 4-month lows. There was some thought that demand from China would basically be at a standstill for a few weeks for the Olympics, which kick off later this week. Also, orange juice and coffee futures were taking a hit this morning, so physical goods price pressures were not a big concern early today for equities.

Given the smart money that has been piling into shares of North American railroad operators in recent months, now might not be a bad time to look at a little-known micro-cap play in the sector.

Back in May, billionaire investor Warren Buffett caused quite a market stir after it was disclosed that he had taken several large positions in U.S. railroad stocks. While more recently he has moderately reduced his sector bet, he still retains an outsized position in Burlington Northern Santa Fe Corporation (NYSE: BNI). Other well-regarded investors that have amassed stakes in rail stocks include Carl Icahn, Jana Partners, Atticus Capital and The Children’s Investment Fund.   

While one way to “shadow” the smart money is to simply purchase shares in big-cap rail names like Burlington Northern, CSX Corporation (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC) and Union Pacific Corporation (NYSE: UNP), another strategy is to look for small or microcap plays in this sector.

One name that has recently caught our eye is $98 million market capitalization Portec Rail Products, Inc. (Nasdaq: PRPX). Pittsburgh, Pa.-based Portec is a provider of a broad range of railroad products, including rail joints, rail anchors and spikes, railway friction management products, railway data collection and management systems, and load procurement systems.

Portec certainly isn’t glamorous, but the rail infrastructure company has posted solid growth in recent years on a combination of organic and acquisition-driven growth. The company believes it has the “dominant market share” in most of its lines of business. The users of Portec’s rail products include Class I railroads, short-line and regional railroads and transit systems. For calendar year 2006, Portec’s two largest customers were Canadian Pacific Railway Limited (NYSE: CP) and Canadian National Railway Company (NYSE: CNI), which collectively accounted for 19% of total sales for the year. In addition to its Pittsburgh headquarters, Portec maintains operations in Ohio, West Virginia, Illinois, Canada and the United Kingdom.  

Not all microcaps have recovered since the August market meltdown, which could spell opportunity for investors who are looking in the right places and are willing to roll the dice.

Case in point is South Bend, Ind.-based MISCOR Group, Ltd. (OTC: MCGL). Shares of the scrappy $40 million market capitalization industrial services provider have been sliced in half since July. Over this time, the only news out of MISCOR has been the release of its fiscal second quarter earnings report. Earnings weren’t great, but they certainly weren’t bad either.

While microcap MISCOR trades on the lowly OTC Bulletin Board, it has been on our radar for the past year, given that it has a very credible major financial backer in hedge fund group Tontine Associates. Headed by Jeffrey Gendell, Tontine has wracked up 35%-plus net returns per year on average. In January, MISCOR shares began a sharp rally upon the announcement that Tontine had invested $12.5 million in the company as part of a recapitalization.

MISCOR shares hit a high of $0.45 in mid-July before beginning a sharp retreat. As of this writing, MISCOR shares are changing hands for just $0.205, almost in line with the $0.20 a share that Tontine paid for the stock in its January private placement. Tontine isn’t infallible (one of its hedge funds has performed poorly this year), but whenever we can buy a stock near the price a smart hedge fund paid for its position, we generally sit up and take notice.  

Founded in 2000 by industry veteran John Martell, MISCOR has grown into a 450 employee company with 13 service centers in five states through a combination of acquisition and organic-driven growth. Ranked on the Inc. 500 list in 2004 and 2005, MISCOR’s goal is to build a national leader in the unglamorous, but underserved and growing industrial services sector. Blue chip clients include names like United States Steel Corporation (NYSE: X), Luxembourg-based ArcelorMittal, Union Pacific Corp. (NYSE: UNP), CSX Corporation (NYSE: CSX), Marathon Oil Corporation (NYSE: MRO) and France-based Alstom S.A.