Small-Cap Transport Trio

04/28/2015 9:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

In his Upside newsletter, Richard Moroney focuses on smaller-cap stocks, assessing recommendations based on a proprietary Quadrix model, which ranks stocks based on 90 fundamental and technical variables. Here, he looks at a trio of transportation-related issues.

Greenbrier (GBX)

Shares of railcar maker Greenbrier have taken a beating in the last six months, hurt by sharply lower oil prices and several tankcar accidents. Yet the company’s growth outlook remains bright.

Since the start of its fiscal year in September, Greenbrier has received orders for 24,200 railcars valued at $2.33 billion. About 80% of the orders are for customers outside of the energy sector.

Greenbrier earns an Overall Quadrix score of 96 (out of 100). The stock seems to discount investor concerns regarding a slowdown in crude-by-rail shipments, as shares trade below five-year averages for P/E and price/cash flow.

Greenbrier trades at a reasonable 16 times trailing earnings, a 20% discount to capital-goods stocks in the S&P 1500 Index. Greenbrier is a Best Buy.

Trinity Industries (TRN)

Trinity shares remain well off its all time high of $50, set last September, shortly before oil prices began to tumble and a lawsuit raised concerns over the safety of Trinity’s highway-guardrail systems.

At least 42 states went on to ban installation of the guardrail system while officials performed a series of safety tests.

In March, Trinity said its guardrail passed all eight crash tests, though more tests could be needed. The guardrail systems are part of Trinity’s construction-products group, accounting for 9% of 2014 revenue.

Plenty of pessimism weighs on the stock. At 10 times trailing earnings, the stock trades 46% below its five-year average. Trinity is a Best Buy.

Wabash National (WNC)

Wabash seems cheap from several angles. At less than 16 times trailing earnings, the stock trades 24% below its five-year average. The shares also trade below their five-year norms for price/sales (15% discount) and price/cash flow (20%).

The Value score is 93, well above the average of 61 for capital-goods stocks in the S&P 1500. A leading maker of semi-truck trailers, Wabash operates in a highly cyclical industry.

Still, the company is seeing strong demand fueled by solid freight volumes at shippers and trucking companies. An aging US trailer fleet, lower fuel prices, and an expanding order backlog should help sustain growth.

Meanwhile, surging cash flow should allow for stock buybacks and debt repayment. Wabash, capable of climbing 20% in the year ahead, is rated a Best Buy.

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