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Chicago is the third-largest metropolitan area in the United States in both size and population. It was incorporated as a city in 1837 and today ranks seventh in the Global Cities Index. Chicago ranks fourth (behind Tokyo, New York, and Los Angeles) in terms of GDP and has the second-busiest airport in the world. Chicago is one of the most important financial centers in the world and contains the second-largest central business district in the United States. It is home to several financial and future exchanges including the Chicago Stock Exchange and the Chicago Board of Trade.

I plan on writing a series of articles that take a look at and review stocks issued by companies headquartered or based in the city of Chicago or surrounding suburbs. For the purposes of these articles, there will be occasions in which companies outside of Chicago will be included (cities in Illinois such as Peoria, Springfield, and Champaign), but the vast majority will be Chicago-based companies.

Carl Sandburg's famous poem "Chicago" begins:

Hog Butcher for the World,

Tool Maker, Stacker of Wheat,

Player with Railroads and the Nation's Freight Handler;

Stormy, husky, brawling,

City of the Big Shoulders

In recognition to Chicago's history as the nation's railroad center during the early 20th century, I will be looking at five companies within the transportation industry in this first part. For this article (and future parts), I will look at each company's history, financials, earnings, growth, current valuation, stock movement, and future outlook. I will not be ranking the stocks against each other, but will look at them separately as to whether I find them to be a Buy, Hold, or Sell in terms of long-term holdings.

Stock No. 1

Echo Global Logistics, Inc. (NASDAQ:ECHO) provides technology-enabled transportation and supply chain management services in the United States. ECHO provides services for more thousands of clients across a wide range of industries, such as manufacturing, construction, consumer products, and retail. ECHO was founded in 2005 and is headquartered in Chicago, Ill.

Financial Performance

Profit Margin (Trailing 12 Months)1.53%
Return on Assets (Trailing 12 Months)6.74%
Return on Equity (Trailing 12 Months)9.09%
Revenue (Trailing 12 Months)831.92M
Revenue per share (Trailing 12 Months)36.70
Quarterly Revenue Growth (Year Over Year)21.00%

ECHO has seen a steady increase in both revenue and gross profit the past several years. The company is on pace to see similar increases this year after reporting better-than-estimated Q2 revenues.

Current Valuation and Recent Trading Activity

ECHO has a current price to earnings value of 34.1x and a price to book value of 3.4x with earnings per share of $0.64. ECHO closed Wednesday at $21.43, $1.22 lower than its 52-week high and $5.93 higher than its 52-week low. It is currently trading higher than both its 200-day moving average of $20.85 and its 50-day moving average of $19.57.

Earnings

For Q2, ECHO reported earnings per share of $0.17, which was a $0.01 beat over estimate. The company has a one-year earnings growth rate of 27.94%. It was ECHO's 16th consecutive positive quarterly earnings report.

Company Outlook

ECHO has been busy lately, adding several acquisitions. In 2012, the company acquired Plum Logistics, LLC, all of the assets of Shipper Direct Logistics, Inc., and Sharp Freight Systems, Inc. In March 2013, the company acquired Open Mile Inc. I think ECHO is a solid company poised for future growth.

The stock has a high price to earnings compared to the transportation sector in general, but I feel that ECHO's consistent revenue and profit growth help to ease concerns over that. I think there's a decent chance, ECHO could temporarily dip under $20 again, to make an even better buying opportunity. But even at its current price I consider it a buy for long term investors.

Stock No. 2

FreightCar America, Inc. (NASDAQ:RAIL) designs, manufactures, and sells railroad freight cars in North America, Latin America, and the Middle East. It's primary focus is on coal cars. The company operates in two segments: 1) manufacturing, and 2) servicing. The company was founded in 1901 and is headquartered in Chicago, Ill., with manufacturing facilities located in Danville, Ill., Roanoke, Va., and Johnstown, Pa.

Financial Performance

Profit Margin (Trailing 12 Months)-0.55%
Return on Assets (Trailing 12 Months)-0.19%
Return on Equity (Trailing 12 Months)-1.09%
Revenue (Trailing 12 Months)411.90M
Revenue per share (Trailing 12 Months)34.49
Quarterly Revenue Growth (Year Over Year)-74.00%

RAIL has seen significant drops in revenue and profit recently. As the coal industry has suffered, so has RAIL. For Q2, manufacturing revenues were $37.1 million compared to $171.8 million for the same period last year.

Current Valuation and Recent Trading Activity

RAIL has a price to book value of 1.1x and has a negative earnings per share of $0.15. Rail closed Wednesday at $18.13, $7.02 lower than its 52-week high and $1.60 lower than its 52-week low. RAIL is currently trading lower than its 200-day moving average of $19.56, but higher than its 50-day moving average of $17.86.

Earnings

RAIL missed earnings by $0.18 with its report of -$0.29 per share for Q2. This was the third big miss for RAIL in a row as it reported Q1 earnings of -$0.18 per share and Q4 of last year earnings of -$0.08 per share.

Company Outlook

RAIL is trying to stop the bleeding and has made steps to improve its bottom line. Recently, the company saw a successful start up of a manufacturing facility in Alabama that focuses on non-coal cars. RAIL is also making strides in improving its services business operations. However, at this time I recommend avoiding this stock. The company offers a relatively safe dividend, but with a yield of just over 1%, it doesn't justify taking the risk of further drops in stock price if the company is unable to reverse its trend of negative earnings.

Stock No. 3

GATX Corporation (NYSE:GMT) is a finance and leasing company engaged in the rail and marine markets. GMT operates in four divisions: 1) rail north america, 2) rail international, 3) American Steamship Company, and 4) portfolio management. As of the end of 2012, GMT operates a fleet of 18 vessels, approximately 131,000 railcars, and 561 locomotives. GMT was founded in 1898 and is headquartered in Chicago, Ill.

Financial Performance

Profit Margin (Trailing 12 Months)11.43%
Return on Assets (Trailing 12 Months)2.41%
Return on Equity (Trailing 12 Months)12.19%
Revenue (Trailing 12 Months)1.27B
Revenue per share (Trailing 12 Months)27.27
Quarterly Revenue Growth (Year Over Year)4.90%

GMT's revenue and gross profit have fluctuated over the past few years with 2009 and 2012 having nearly the same values ($1,154 million vs. $1,243 million in revenues and $661 million vs. $661 million in gross profit).

Current Valuation and Recent Trading Activity

GATX Corporation has a price to earnings value of 17.5x and a price to book value of 1.7x with earnings per share of $2.59. GMT closed Wednesday with a price of $45.16, $9.03 shy of its 52-week high and $5.33 higher than its 52-week low. GMT is trading below both its 200-day moving average of $49.09 and its 50-day moving average of $45.55.

Earnings

GMT missed Q2 earnings by $0.17 with its report of $0.68 per share. This was a 15% decrease from the $0.80 earnings per share reported for the same period last year. However, the company still has a 33.78% one year earnings growth rate.

Company Outlook

GMT currently provides a 2.74% dividend yield. It has been a steadily increasing dividend since 2004 (with increases nearly every year) and with a payout ratio under 50% remains safe. GATX recently raised its full-year 2013 earnings estimates to $3.20 to $3.30 per share. The company remains committed to expanding its asset base and diversifying its revenues (through moves like acquiring a 50% equity stake in Rolls-Royce and Partners Finance Limited).

I think in the short term, GMT's earnings may remain flat, but I feel management is making the right moves to ensure long-term success. With a steady dividend, yielding nearly 3%, I feel that investors will be rewarded as they wait for GMT's future earnings growth. With a reasonable price to earnings value, I consider GMT a buy for longer-term investors.

Stock No. 4

Hub Group, Inc. (NASDAQ:HUBG) is a full service transportation provider, offering intermodal, truck brokerage, and logistics services in North America. HUBG was founded in 1971 and is headquartered in Downers Grove, Ill.

Financial Performance

Profit Margin (Trailing 12 Months)2.22%
Return on Assets (Trailing 12 Months)7.84%
Return on Equity (Trailing 12 Months)14.17%
Revenue (Trailing 12 Months)3.21B
Revenue per share (Trailing 12 Months)86.90
Quarterly Revenue Growth (Year Over Year)7.50%

HUBG has seen steady increases in revenues and profit since 2009. For Q2 of this year, revenue increased 7.5% compared to the same period last year ($836.7 million vs. $825.68 million).

Current Valuation and Recent Trading Activity

HUBG has a price to earnings value of 19.7x and a price-to-book value of 2.6x with earnings per share of $1.93. HUBG closed Wednesday at $37.38, $3.80 shy of its 52-week high and $9.21 higher than its 52-week low. HUBG is trading below both its 200-day moving average of $37.60 and its 50-day moving average of $37.60.

Earnings

For Q2 of this year, HUBG reported earnings per share of $0.50. The company has a one year growth rate of 10% and a five year growth rate of 5.10%.

Company Outlook

HUBG has a small profit margin, but the company has managed to see increases across the board for several years. The company is focused on continuing revenue growth, growing margins, and improving utilization rates. HUBG's management has taken the correct moves to continue its track record of increased growth into the future. I consider this stock a buy for long term investors.

Stock No. 5

United Continental Holdings, Inc. (NYSE:UAL) provides passenger and cargo air transportation services as the holding company for United Airlines and Continental Airlines. The company was founded in 1934 and is headquartered in Chicago, Ill.

Financial Performance

Profit Margin (Trailing 12 Months)-1.51%
Return on Assets (Trailing 12 Months)2.20%
Return on Equity (Trailing 12 Months)-39.41%
Revenue (Trailing 12 Months)37.33B
Revenue per share (Trailing 12 Months)111.78
Quarterly Revenue Growth (Year Over Year)0.60%

UAL has seen increases in revenue through several years, but has struggled with management effectiveness.

Current Valuation and Recent Trading Activity

UAL has a price to earnings value of 26.4x and a price to book value of 8.2x with earnings per share of $1.14. UAL closed Wednesday at $29.73, $7.01 shy of its 52-week high and $11.75 higher than its 52-week low. UAL is trading below both its 200-day moving average of $31.20 and its 50-day moving average of $32.91.

Earnings

For Q2, UAL reported earnings per share of $1.35. This was the first positive earnings report in the past three quarters as the prior earnings were negative $0.98 per share and negative $0.58 per share.

Company Outlook

Consolidated traffic for UAL has decreased the past three months (May, June, and July). With low margins, decreased traffic is not good news. I feel that UAL will struggle in the near term to increase earnings. The stock is currently priced to high for me and I think a drop is more likely than a rise in the coming months. I recommend avoiding this stock at the moment. UAL is definitely capable of seeing increased revenues, but until it is able to consistently translate this to its bottom line, I would not initiate a position.

Conclusion

I reviewed five stocks in this article. Three of them I consider worth a buy for long-term investors and two of them I think should be avoided for long-term investors. In my opinion, the three companies worth buying are Echo Global Logistics, GATX Corporation, and Hub Group. The two companies I think should be avoided are FreightCar America and United Continental Holdings.

Source: Windy City Stocks, Part 1: Transportation Industry