Portec Rail Products, Inc. (NASDAQ:PRPX)

carlson capital controlling stake

I'm following cleantech/alt-energy investor Tom Konrad on this one. See his article on "10 Clean Energy Stocks for 2010":

http://seekingalpha.com/article/180084-10-clean-energy-stocks-for-2010

Of all his picks, PRPX is the one I like best. (I have no opinion on the others.)

This is a long-term bet on the continued re-emergence of rail. PRPX still looks reasonably priced and should see some growth over the next decade, so long as oil scarcity and increasing prices continue to be an issue. Even if not, there are other macroeconomic currents that benefit rail, including the increasing inability for the states and the Federal govt to subsidize the highway system without implementing new user fees/tolls.

I don't believe that PRPX is necessarily "cheap" any more, but it still appears to be slightly undervalued and I like the growth potential of just about anything rail-related for the next decade or two, so I am going to go ahead and give it the green thumb.

stats geek

As oil cost continue to skyrocket up and above the $5/gal mark, you will see more distributor networks utilizing the rail systems across the country. This company is a supplier to those companies, and as the rail industry increases their production so will PRPX.

Member of the "Mini-Cap Monsters."

This will go up, pencil

HR6003, if passed, could cause a big surge of changes in the American railroad industry. Part of the bill will penalize freight carriers for delaying Amtrak. This and other new regulations are going to drive demand for current and future Portec products.

Portec sells products to railroads. Railroads are setting record profits and are upgrading all their lines. Just makes sense that Portec will continue to do well.

Upward pressure on oil will continue to fuel the railroad sector's continued climb this summer, and the upcoming confirmation of an American recession this summer along with a continuation of the dollars fall here at home will only accelerate the integration of business and railroad to offset higher energy prices.

rail

Business: Portec Rail Products, Inc.
Nasdaq: PRPX

Portec Rail Products, founded in 1906, manufactures, supplies, and distributes rail products including rail joints, data management systems, rail anchors, and freight car securement systems in the U.S., Canada, and the United Kingdom.

Reasons to be interested:

1. Record gas and oil prices continue to make railroads the next best option for transporting goods when put against the trucking industry - which suck up gas and aren't at all economical when compared to freight transportation. Portec Rail Products is in a great position to benefit from the increasing trend to railroads as long as management makes wise decisions, which shouldn't be too much to expect given that most of the company's executives and directors have been with the company for at least ten years and have quite a bit of experience in the industry. Management owns 36% of the company's outstanding shares.

2. Since 2003 Portec's cash flow production has steadily increased, standing at $8.93 million in 2007. The company rarely brings on debt and for the most part the company's cash flow production has fueled growth. In the most recent quarter earnings grew at a very respectable 33% and margins increased as well. An interesting side note is that stock options do not dilute the company's shares as we are used to with most companies, for the past three years the share count has stood at 9,600,000 and hasn't budged.

3. Ever since going public in January 2004 the company has paid a consistent dividend every quarter, not missing a single quarter or ever lowering the dividend. Currently the dividend stands at 2%.

Main risk:

1. Portec Rail Product's balance sheet isn't especially strong with $4.27 million in cash and $16.33 million in debt. This is certainly a manageable amount, but if the company and/or industry start to face greater challenges, Portec would probably be in a difficult position to continue expansion.

The US cities mass transit systems are in terrible shape. Soon there will need to be some major improvements made on these systems.

Railroad supplier

The demand is going to be there. Railroads are going to be seen as an ever appealing option for freight in the near term over trucks. It's gonna happen.

I hear the train a coming,,, coming round the track

rail maintainence small--should be bought out

PRPX seem to be making a lot of intelligent acquisitions and have what appears to be some promising technologies in the works, including an automatic rail lubrication system and rail stress sensor. They have been increasing sales at a steady clip over the last three years, and although 4Q06 earnings fell short due to acquisition related charges, 1Q07 results were strong. Their operations are centered in the US and Canada, but they recently began operating in the UK as a result of one of their acquisitions, and stated their intentions of diversifying into the rest of Europe and Asia on their 2006 10K. Everyone knows about Buffet's bets on the railroad industry, and since then, it has become very hard to find a good railroad play which hasn't run up 50%. Although PRPX is 40% above it's 52 week low, it's still 10% below it's 52 week high. Railroad freight demand is expected to grow in the long term, and PRPX is a good play on that growth.