Why I Sold Freightcar America

I recently sold Freightcar America (RAIL) for $35.51 per share. FCA was a mistake that I held onto because I felt that it became really cheap over the past year. One thing that I noticed in the most recent annual report is that FCA’s market share declined from 81% a few years ago to 70% last year. A few other rail car manufacturers are starting to get into the market. One big risk is when the coal railcar industry does well, it's easy for the major players to enter the market and take market share away from FCA.

One of my reasons for investing was that FCA benefited from the growing shipments of coal in the United States and shipments internationally. We have more energy units in coal reserves than Saudi Arabia has in oil. Coal is also the cheapest source of power. Even with the harmful environmental consequences of current coal fired power plants, many countries have already developed clean coal technology. However, FCA is not a good way to play the future prospects of coal. The best way would be to buy the major rail operators such as Union Pacific (UNP) or Burlington Northern (BNI) (now being acquired by Berkshire Hathaway (BRK.A)). Railroads are 4 times as efficient as trucks and it's nearly impossible to lay down more tracks. So there is no threat of competition. Railroads are a royalty on consumption and energy use. Railroads are a much better way to play coal than FCA.

Another risk besides the market share issue is their unionized work force. FCA closed down their inefficient facility in Johnstown, Pennsylvania over the past few years at a very high cost due to the unions.

Disclosure: I recently sold Freightcar America

Comments

[User 432133:]

Last time RAIL shares were at $35 range was 2008.

Nov 09 08:26 AM

[Bharper:]

Can you introduce me to the person who "recently" paid $35.51 for your shares? I'd like to do business with this individual.

Nov 09 10:40 AM

[Alex Bossert:]

I made in error in the post above. I sold my shares for $25.51 not $36.51.

Nov 09 01:45 PM

[jjp:]

Their last quarter results were bad beyond belief on sales. They had 700 new orders previous quarter this year, last year's quarter that corresponded to current was 2,600 versus ZERO this year. Ironically the power number for them is 8 since the charting folks only look at the past and not the fundamentals underneath current changes. It may look like a bargin to the charters but with no sales I wouldn't touch it if the rating was 10. :)

Nov 10 11:30 AM

[AnonAnon:]

Having just looked at RAIL on Y! Finance I was too was going to post about the $35 price range.

But that stock hasn't done well for years. ARII was another promising one gone dull. But if Buffet invested $35 Billion in railways, maybe there is something there.

Nov 14 11:26 AM

[HinesBrad:]

Could you please cite your sources about the countries that have developed and implemented clean coal technology? What methods are being used? What time scale was the implementation done in?

Nov 15 11:12 AM

[hidflect:]

Ironically, coal may be good for the planet. Contributing to global dimming/cooling as it does.

Nov 15 08:36 PM