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Greenbrier On The Right Track


One can argue that the railroad industry has never been in better shape and this plays right into the story at Greenbrier.

"Life is old there
Older than the trees
Younger than the mountains
Growin' like a breeze"
Country Road (John Denver)

Yes folks, John Denver. Seems appropriate today for a number of reasons, not least of which the Colorado Rockies being a game away from a National League Championship. The Rockies are now the first team since the 1935 Chicago Cubs to win 20 out of 21 games after September 1st. Mind you, they are doing all of this with the 25th lowest payroll in all of Major League Baseball. One can not help but root for these guys and trust me I will be donning my Rockies' cap especially if they face the Red Sox of Boston in the Fall Classic.

But John Denver (along with Bill Danoff and Taffy Nivert) wrote Country Road not about the fine state of Colorado, but about The Mountain State of West Virginia. For natural beauty there may be no other state that can compare to West Virginia. And if you are looking for one of nicest resort destinations in the country you need look no further than The Greenbrier, located in White Sulphur Springs, West Virginia.

But, as usual, I try to find a trade in all of this and to that end I present you with The Greenbrier Companies (GBX). Headquartered in Lake Oswego, Oregon, Greenbrier Companies is about as far away from West Virginia as it can possibly be in the continental United States. What both share however, are leadership positions in their respective industries.

According to its website, "The Greenbrier Companies is an international leading supplier of transportation equipment and services to the railroad industry". Now if you have been following the rails at all over the last few months you will have noticed that the likes of Atticus Capital, Jana Partners, Carl Icahn and Warren Buffett have all built significant positions in a number of different railroad stocks. One can argue that the railroad industry has never been in better shape and this plays right into the story at GBX. And to that end, on October 10, GBX announced an agreement to provide General Electric's (GE) railservice with 11,900 railcars in the next eight years, a deal that JP Morgan (JPM) said was a "key strategic win" for GBX.

Now the chart pattern in GBX looks a bit daunting to say the least. With a series of lower highs since May of 2006 the trend has definitely been lower.

But we saw a similar chart pattern that began in December of 2004 that came before a sharp move higher at the start of 2006. I think we are setting up for a similar move higher. At 11 times forward earnings, GBX is cheaper than FreightCar America Inc (RAIL), which is trading around 19 times forward earnings. Now that valuation means nothing if GBX comes in and misses its fourth quarter, which it is scheduled to report on or around October 31. I think, however, there is a very good chance it reports a solid quarter.

With the stock trading about 28% off its 52-week high, coupled with a tiny float and 16% short interest, a solid quarter should be enough to get the stock back up to the mid $30's.

So root for the Rockies and keep your eyes on the rails and the stocks that service the industry. I think with GBX we could have a "diamond in the rough."
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No positions in stocks mentioned.

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