Today’s recommendation is a new play on the strength of the railroad industry, from The Complete Investor. (Note: It seems that WAB is currently not appearing on some stock quote sites, including Google and Yahoo finance, but the share is listed on the NYSE with the ticker WAB. If you can’t find it where you usually look up stocks, try another service.)
“Wabtec Corporation (WAB, $83) joins Growth Portfolio this month. Wabtec provides a wide variety of products to the rail industry, from technologically sophisticated items to the more mundane. In other words, the company has positioned itself as a one-stop shop for rails. ... Currently the U.S. provides the largest portion of the company’s revenues, but Wabtec has been working to establish an international footprint. Recent acquisitions have given the company a strong foothold in both Brazil and Great Britain. The company serves both the freight and passenger segments of the rail business, though freight with about 60% of revenues and more than 80% of operating profits is the more important.
“As with the railroads themselves, profits started to accelerate during the 2004-2005 period and have continued to soar, with only a small interruption in 2009. The company has a pristine balance sheet and generates a great deal of free cash. However it pays only a nominal dividend and does not repurchase its own stock. The reason is that it uses the free cash to tack on strategically important companies. Any meaningful acquisition, if not immediately accretive — and most are — is a strategic win in that it buttresses the company’s worth as a one-stop shop. This is especially true in foreign countries, where the company still lacks some critical ingredients to become the go-to player. We expect annual profit growth to top 15% for the foreseeable future, easily justifying the company’s valuation.”
- Stephen Leeb, The Complete Investor, December 2012