[online.wsj.com]

I know the bull case for this one was pretty widespread here awhile back- any ideas on what happened? How could they not get a single new order for rail cars? Is the competition getting the orders or is the business just dead in the water?

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look at rail car loadings

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I sold most of my RAIL stake Sept. at around $26.5. My cost was around $37. Now at $21.7, and 0.7% of my portfolio. This is a case where the intrinsic value of the company was severely damaged by the recession. They make rail cars to carry coal, primarily to electrical plants. Coal cars have a useful lifetime of around 20 years. The problems are (1) electricity demand is shrinking, not growing, coal is losing popularity due to environmental movement, and (3) new orders can be put off for quite a while. I cut my intrinsic value estimate from $70 to $30. At $26.5, I figured I had better places to put the money. I kept a little as a gamble they'd get some new orders. I lost.

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http://www.aar.org/NewsAndEvents/PressReleases/2009/11_WTR/110509_RailTraffic.aspx

read

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I don't know anything about Railcar America but what it faces is something that has kept me worried about capital goods or equipment companies, and hence made me avoid them. What is happening here can happen to other companies like John Deere, Boeing, Black & Decker, Fanuc, and so on.

Clearly what is happening here is that companies are deferring their purchases. If, as Buffetteer17 says above, rail cars last 20 years, companies have room to play around with their replacement purchases. The fact that rail shipments are down, as Commodity above alludes, further strengthens the view that companies don't have to purchase new rail cars or replace them.

What one needs to figure out in my opinion is whether there is excess capacity in rail cars. I don't follow this industry and have no clue. However, I am somewhat aware of what has happened in ocean shipping. There were so many ships ordered in the last few years that so many ships were sitting idle for a few months early this year. Imagine how ship builders would have felt. It is quite possible that ship builders may have had zero orders for an extended period of time.

Railcar America is to railroads what the shipbuilders are to the shipping industry. In other words, if too many rail cars were built in the last few years (railroads were booming in the last decade due to rising oil prices hurting trucking; increased imports/exports; and a commodity boom) then a company like RAIL will probalby suffer for an extended period. This doesn't mean it will go bankrupt or anything but I doubt its future sales will be anything like the past (this is assuming that there is excess capacity in railroads--I have no idea.)

Cylicals are very dangerous and it appears RAIL is one such company...

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Check out my investing blog - contrarian with a macro focus and a value investing tilt: Can Turtles Fly? A Contrarian Investing Blog.

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I sold all of my RAIL at a loss a year or two ago. Haven't followed it much since then. I recall the trailing numbers looked great (which is what got it on the Magic Formula list), but it was heading into an apparent cyclical nadir in terms of rail car demand.

Buffetteer17,

Re this:

coal is losing popularity due to environmental movement

I wouldn't worry so much about that aspect of it. Coal has never been popular with coastal elites, but it supplies 50% of our electricity needs and there is no viable replacement on the horizon.

My blog: [www.thehackensack.blogspot.com]

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