Four Rail Transit Stocks Fueled By Peak Oil

Last month, I wrote that investors concerned about peak oil should invest in suppliers of alternatives to driving. One of the sectors I highlighted was public transit: buses and rail, although I did not provide any stock picks at the time.

Here, I will focus just on rail transit. It's a bit tricky to invest in rail transit systems as they are operated by cities, not by private companies, so I took a step up the value chain and started looking for companies which supply transit operators. I focused not on rail line operators, but suppliers, since these companies are most likely to participate in a boom in urban mass transit.

Here's what I found (in order of the strength of their exposure to mass transit.)

Rail Stock #4: A Speculative Hybrid Locomotive Stock

Charles first brought Railpower Technologies to your attention in January. Railpower [RLPPF.pk] is maker of hybrid diesel-electric yard-switching locomotives. We like the technology, but the Railpower story is typical of a lot of cleantech stocks: they're having trouble turning cool technology into sales and profits.

With a recent investment from one of Canada's largest pension funds, a two-bitstock price, and a recent order from Union Pacific (UNP), Railpower's long stock price slide may be over, but despite the investment by Ontario's Teacher's Investment Plan, this is hardy a widows-and-orphans stock.

This company does not have direct exposure to rail transit, and its success or failure is more likely to be driven by company specific factors such as execution and the ability to enter into profitable contracts (their record has been poor in the past, but they have likely learned from painful mistakes.)

Nevertheless, a growing concern about climate change and rising fuel prices create an environment which should make their products much easier to sell than in the past. This is clear from the fact that both Union Pacific and the pension fund cited global warming in their decisions.

Rail Stock #3: Diversified Rail, with a Little Wind

Trinity Industries, Inc. (TRN) is a conglomerate with a strong presence in rail. They also have an inland barge division, another form of highly efficient transport, and an arm which constructs structural wind towers (among other things) . This closely held company has been seeing significant purchases by insiders, but has been recently downgraded by two of the seven analysts following the stock, despite higher 3rd quarter profits.

The recent price drop following the downgrades has me watching for opportunities to buy this stock on the cheap. I always hate it when this happens, but I find myself agreeing with Jim Cramer.

Rail Stock #2: Railway Maintenance

Portec Rail Products (PRPX) supplies rail joints, anchors and spikes; railway friction management products; railway wayside data collection and data management systems; and load securement systems. Regular readers know that I love boring stocks, and railway maintenance fits the bill nicely. Protec is solidly profitable, and the lone analyst following the stock has recently raised his estimate for future earnings. Revenue is growing at 15% yoy, and they have no debt.

Portec serves both railway and transit customers in North American, Canadian, and British markets, and are positioned to benefit not only from any industry growth, but also from a growing need for efficient operations, which should also increase the interest in good track maintenance.

Rail Stock #1: Global Diversification, Strong Mass Transit Exposure

Wabtec Corporation (WAB) is a global rail services firm, with business on five continents. The company has been growing both earnings and margins. Of all these companies, Wabtec has the largest current exposure to mass transit, serving virtually every major intercity passenger transit system in North America.

However, insiders have been selling the stock, despite the fact that analysts have been raising their estimates of future earnings. This one bears watching, but I trust insider actions more than analyst estimates, so I would not be surprised if we see some disappointing news in the next couple quarters. If bad news does emerge, that may be a good time to get some excellent exposure to an industry poised to benefit from rising oil prices.

DISCLOSURE: Tom Konrad and/or his clients did not have positions in any of the stocks mentioned at the time of this writing.

Comments

[calvino]

Tom, good to see you covering Railpower. I have been with them since last year and held through the long slide. Reason - I really like the CEO, Jose Matthieu - completely committed to the company and actually knows what he is doing, having come over from Bombardier and brought management with him. Also, despite its small size, this company knows how to execute, having filled an order for a hundred multi genset locomotives for Union Pacific by the summer's deadline. What has really hurt the shares were the flame ups of the first generation of the hybrid locomotive. Not a problem with the last generation, and management has communicated that they are pursuing advanced battery storage solutions.

Now the upside. Union Pacific is keeping the company going with a small order through winter, and the hybrid gantry cranes are theirs alone in the marketplace and should be a big revenue source. They save seventy percent on the diesel and do not have the load problems that the locomotives did. The orders should come anytime. I also think, from past statements that Railpower took the Teacher's Pension money to develop their own manufacturing facilities, which they have been wanting. I am not happy about the dilution, but the company was facing survival issues. Now they are not, so I told myself to be happy about the dilution, because 45 mil is going to assure this company of survival.

Now, since I always bring in a bit of politics when talking to you. What a disgrace that fund managers and hedgies have enough money to throw at anything with a pulse overseas, and almost let this innovative, can do company die in our own back yard. Speaks poorly for our capital markets, in the extreme.

Regards!