Near-term Opportunity In GATX Corporation? (GMT)

Jan.25.06 | About: GATX Corp. (GATX)

I see a near term buying opportunity in GATX Corp. (GMT).

GMT, part of the DJTA, owns more than 168,000 railcars and leases them to shippers on short- to long-term contracts. It operates in three segments: GATX Rail (Rail), GATX Air (Air), and GATX Specialty Finance (Specialty). GMT is up 7% so far this year and its potential looks very good.

Catalysts that qualify GMT as a buy:

Catalyst 1: Rail leasing rates have been firming up, and as old contracts roll off and new ones are signed, GATX will be able to get clients to pay 10% to 15% more than they're paying now. The Railway Supply Institute has reported that railcar demand was strong in the fourth quarter of 2005, with orders doubling and the backlog up 18%. Orders for all of 2005 were at the highest level since 1979. (source: RSI)

Catalyst 2: The upward shift in steel prices suggests that investors may start to put a larger premium on GATX purely as a play on its metal holdings, as they think of its railyards as a big reserve of potential scrap.

Catalyst 3: GMT isn't well covered by the analyst community or widely held, creating an opportunity for investors. Optimism over improved railcar lease pricing should lift the stock. Investors' patience in the meantime is paid off with a 2.1% dividend yield.

Investors should be careful, as the recent write downs on sale of older airplanes (worth $450 million) will muddle the EPS, but over the next 12 months, I expect a modest rise in its stock price, to around $48-49 -- obtained by PE of 16.5 times its $2.9 EPS.

I believe with these three catalysts in mind, their stock should be trading higher in the near term. Your thoughts are welcome.

Disclosure: I do not own the stock personally

GMT 1-yr chart:

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