Keep It Moving

Recovery-minded investors can benefit from owning stock in select railroad and freight companies

Gilbert

Like most investors, Joe A. Gilbert pays close attention to a company’s business fundamentals and financial performance before he makes an investment. But as a self-described “catalyst-driven investor,” Gilbert also likes a stock with a compelling story to tell. “There are always inexpensive stocks, but some are cheap for a reason,” says Gilbert, one of five portfolio managers of Integrity Asset Management’s Veracity Small Cap Value Fund (VSCVX). “We’re looking for a catalyst of some kind—whether it’s legislation or new developments in the industry—anything that’s being underappreciated by the market that will allow the stock to move upward in a timely fashion.”

With Gilbert’s help, the Veracity Small Cap Value Fund posted a total return of 29% last year, compared to the S&P 500 index’s total return of 15% over the same period.

Gilbert believes the economy and financial markets can continue their recovery-related advances in 2011. “We see double-digit gains again in the market,” he notes, “and slow, gradual improvement in the economy and job market. That should give investors more confidence in investing in the market.”

This year, Gilbert likes the story freight and trucking companies are telling. Freight and trucking firms—those that help transport products and materials— have historically seen a large increase in activity when the economy goes through a recovery, Gilbert notes. black enterprise talked to Gilbert about three companies whose shares are likely to benefit from the new growth.

1 OLD DOMINION FREIGHT LINES (ODFL)
is a truckload carrier. It has a good management team. More important, its top competitors have enacted pricing increases. It gets volume and secondarily it gets pricing. There have been tonnage improvements in the overall industry, meaning more goods and materials are being shipped. That’s a good tailwind for Old Dominion. The company is small, commanding about 5% of the market. But the company’s revenue growth has been up 6% compounded over the last five years, while the rest of the industry has been shrinking. Effectively its operating margin is about 9% versus 2% for the industry. FedEx Freight, Conway, and YRC Inc. are its main competition.
PRICE: $30•  P/E: 22.95

2 WABASH NATIONAL CORP. (WNC)
designs, manufactures, and sells truck trailers and other transportation equipment. The stock was the best performing stock in the S&P 500 in 2010. It was up more than 500%. In July 2009 it was trading at 60 cents. People were pricing it for bankruptcy. Volumes went away for Wabash during the recession. Management has done a massive restructuring. It produces 24,000 trailers per year. It brought back workers that had been previously let go. Profitability should be better this time around given that it has improved the balance sheet. There is now an industry backlog in orders for Wabash’s products. Regulatory changes in trucking could demand a third axle for some trailers—meaning that trucking companies will have to place orders for new trailers from Wabash.
PRICE: $11  •  P/E: N/A

3 THE GREENBRIER COS. (GBX)
makes railroad cars. There’s a lot of need for railcars. It’s more energy efficient to use rails for transport. And as retailers across the country continue inventory restocking in anticipation of a continued recovery, we see an increase in the need for railroad companies to order new equipment. So, Greenbrier should be busy in 2011. In fact, the last four months of 2010, it received three high-volume orders. It has the largest backlog of any company in the industry. There are many big tailwinds for Greenbrier. Looking at the price-earnings ratio, this stock appears expensive, but the P/E is only high because the company is coming off of a depressed earnings base. We believe they’re about to rebound.
PRICE: $24  •  P/E: 140

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