Yahoo Finance Railroad play on track for long-term gains?
Professional money managers spend countless hours scouring the market for fresh opportunities often in the less obvious areas.
Mike Murphy, president and CEO of Rosecliff Capital has crunched the numbers and he thinks rail cars present big upside opportunity. Not to be confused with the railroad stocks, Murphy is bullish on the companies that make and service rail cars.
Given Norfolk Southern (NSC) recently warned that earnings will be down 15% when it reports earnings later this month, Murphy’s thesis may sound somewhat perplexing. However, he says railroad volumes are only part of the picture. “The belief is that there’s less to ship,” Murphy admitted.
“Also sellers think that lower oil will favor big trucks, which are also used for transportation. However, there’s a lot more at play than just the energy trade.” A refresh cycle is underway in the industry and Murphy thinks investors are missing it.
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Digging down into the numbers, Murphy found that the rail car makers currently have orders for about 140,000 units. “However the 3 major players in the industry can only manufacture about 50,000 cars a year. Their order books are full not only for this year and next year but into 2017.”
Murphy believes that his bullish outlook was confirmed by recent earnings from Greenbrier, which he describes as ‘phenomenal.’ “And the CEO came out and said this is not as good as it gets.”
If you’re interested in exploring the opportunity further, Murphy said there are a handful of publicly traded companies to consider. “There’s Trinty (TRN) but they have other business units, so they’re not a pure play on this theme. In the space, I’d look at Greenbrier (GBX) and American Railcar (ARII).”
It should also be noted, that Murphy said since shares had rallied at the time this post was written, he’d prefer to buy on a pullback. “But, over the longterm, I think there’s a lot of upside, here,” he said.
Disclosure: Murphy's firm Rosecliff Capital holds long positions in Greenbrier, and American Railcar.
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