FreightCar America, Inc. (RAIL)

About half of the coal-carrying railcar fleet around the country is at least 21 years old. These railcars have a 25 year life. It is inevitable that the major rails will have to upgrade to newer, more moden/energy efficient cars sooner or later.

Recently, there was a slump in carloads in the rail industry. Carloads among the largest rails have seen year over year declines as the economy as softened a bit over the last year. This seems to be the reason for the dropoff in railcar orders in 2007. I expect when the economy strengthens within the next 18 months or so, there will be a new wave of railcar orders. Freightcar is expecting this as they are currently expanding their capacity by leaps and bounds.

Last year Freightcar delivered ~10,000 cars. If this amount doubles or triples in 2-4 years, I can see RAIL earning any where from $70 million to $100 million in FCF, at least. The beauty of RAIL right now is the pristine balance sheet. The most recent 10Q shows RAIL with $175 million in cash and about $50 million in postretirement liabilities - no long term borrowings. If demand doesn't increase as I expect, then the downside is minimal as I believe the current price is a fair one based on historical data.

I'm not ready to put real money in to this sucker yet. A Wall Street analyst reported that he didn't think demand would come back until 2009 at the earliest. He is proving to be right. This estimate by that analyst would seem to coincide with an economic recovery. As for CAPS, I have nothing to lose. I think RAIL will outperform over the next 3-5years, but I don't know exactly how much which is why I am holding back from investing real money at this point.