FreightCar America (NASDAQ:RAIL) is the leading manufacturer of coal freight cars in the United States. It has a whopping 80% market share.
Recently, the coal market has been in a slump, taking the coal freight car market down with it. The problem RAIL is facing is inventory backlogs, which of course become worth less and less over time due to depreciation expenses. Orders are declining for freight cars which is really hurting the company.
Fortunately, the company is still making money and while the latest quarter operating cash flow was negative, it seems like the worst is here. Any book on coal will tell you that coal demand for the next ten years is bound to increase which would substantially help the share price of RAIL. With much of its market cap in cash, the company will not go bankrupt.
One should also take note that the company has a very high return on assets due to a lack of cap-ex. Every commodity company will face blips along the way (or in this case an industry directly correlated with commodities). The time to buy is when things are looking bad.
This is a best of breed company at a bargain price. This does however drift away from my usual strategy of buying deep value stocks, ones trading below their liquidation values, etc. This is no Bexil or FEC Resources — rather, a really well run company at a bargain price.
Disclosure: Author is long RAIL
RAIL 1-yr chart: