Tag - Rail

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.  

American Railcar Industries, Inc. (Nasdaq: ARII) shares are derailing after the St. Charles, Mo.-based company reported third-quarter revenue of $139.9 million, below analyst estimates of $173.9 million and down 7% from $150.5 million a year earlier.

“We have experienced less demand and increased competition for some of our hopper railcar products in the third quarter of 2007, resulting in lower earnings for the quarter when compared to the prior year. In addition, the third quarter of 2006 included insurance related gains,” CEO James Unger said in a statement. “Management is controlling costs at our hopper railcar facility during this time of lower production levels.”

The firm’s quarterly net earnings fell to $4.9 million, or $0.23 per share, missing Wall Street projections of $0.43 per share and down 55% from $11 million, or $0.52 per share, during the same period of 2006.

Billionaire and activist investor Carl Icahn, who holds a 28.7% stake in American Railcar, is the firm’s chairman.

The firm shipped 1,276 railcars during the third quarter, down 17% from 1,546 last year.

In afternoon trading, ARII shares are plummeting 24.49%, or $4.71, at $14.52. Over the last 52 weeks, shares have ranged from $12.95 to $43.46.