2 Champions of the Fiscal Cliff

Focus: STOCKS

John Mauldin Image John Mauldin Chairman, Mauldin Economics

If you're looking for solid income in the years beyond the fiscal cliff mess, look no further than these two stocks, writes John Mauldin in Yield Shark.

Some $165 million of free government money is designed to pay for track maintenance, but we believe that the railroad car industry is going to be one of the prime beneficiaries, because the taxpayer subsidy frees up capital that would have been spent on maintenance and purchasing more rolling stock of railroad cars.

And boy, does the railroad industry need more cars. Shipments of petroleum on US railroads rose more than 46% in 2012 as shale oil producers put record amounts of crude on trains to overcome pipeline capacity constraints.

According to the Association of American Railroads, petroleum shipments reached 540,000 carloads in 2012, up from 370,000 carloads in 2011. That big increase is from the booming US shale oil sector, and the opposition to the construction of new pipelines, such as the Keystone Pipeline, has created a shortage of tankers.

One company set to cash in is American Railcar Industries (ARII), a leading manufacturer of tanker and hopper (grains, fertilizers) railcars. The booming business was evident in the most recent quarter:

  • Revenues jumped to $168.2 million, a 37% increase from the $125.8 million for the third quarter of 2011.
  • Earnings per share rose to 66 cents, a new all–time quarterly record.
  • Orders continue to pour in, with the order backlog growing by 7,630 railcars. ARII sold 1,460 railcars last quarter, so that backlog is about 1 1/3 years of business on the books, and new orders continue to pour in.

ARII is cheap at ten times earnings and pays a quarterly dividend of 25 cents a share, giving it a dividend yield of roughly 3%. By the way, Carl Icahn—a man who knows a thing or two about investing—is the majority shareholder of ARII.

Fiscal–Cliff Winner No. 2
Congress and the Obama White House may talk a tough game about Wall Street and the top 1%, but they continue to dole out tax breaks to them.

As we've mentioned, hedge funds and private–equity investors will continue to enjoy the “carried interest” treatment on their profits.

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