American Railcar Industries (ARII) + The Ichans = RUN D.M.C. (The King of Rock)

From The Stock Masters

Railroads are boring. For most of us, owning stake in railroads comes as close as buying B&O Railroad, Short Line, Reading Railroad, or Pennsylvania Railroad for $200 when playing one of our favorite board games. When it comes to modern day transportation do most of us think of traveling by railcar? That would be no. So if you’ve never heard of American Railcar Industries (NASDAQ: ARII) or if you did hear about it last year during the IPO and thought about it for 2 seconds then went back to your ticker tape, I would understand. So what is ARII and why should you care? For lack of a better term, “All Aboard” and off we go…

Thomas the TrainAmerican Railcar Industries is the leading North American manufacturer of covered hopper and tank railcars. That’s right, if your train is broken, you don’t call Thomas the Train, you call these guys. They repair and refurbish railcars, provide fleet management services, design & manufacture railcar and industrial components used in the production of railcars. They are more than just train doctors, they are the AAA of the railroads in America and their majority stockholder is no other than Carl Ichan.

Carl Ichan has a 29% stake in ARII, he’s currently holding 6,109,894 shares. When shares dropped a total of 9.79% on February 14th 2006, Carl lost $17,901,989.42Happy Valentine’s Carl. ARII’s board voted in January to increase its size from seven members to nine and guess who got a spot? Carl’s son Brett Icahn (only age 27) was elected to the board making it one big family affair.

But don’t feel bad for billionaire investor Carl Icahn, the man is so money and he knows it. Last month CarlCarl Ichan cut his stake in Time Warner Inc. (TWX) to 20 million shares (down from 55 million shares). The man is a mover and shaker, buying up millions of shares at Motorola (MOT), Blockbuster (BBI), Take-Two Interactive (TTWO), and the list goes on and on. In February Carl forked out $2.8B for Lear Corp. and the employees where not happy about it. To put that buying spree into perspective, I just paid $9 for my latte and sandwich and I didn’t pass go and collect my $200.

Carl isn’t one of those solid gold investors like Warren Buffett, but he knows what he’s doing, and he is the man behind American Railcar Industries. The Ichan’s have a vested interest in American Railcar, and one thing you can count on, Ichan is not going to let ARII’s stock suffer for very long. The man has got more game than Allen Iverson and when big money talks, people listen. You can bet that one year from now ARII will not be below the levels it’s currently trading at, he will push ARII to a new 52-week high before he let’s Wall Street get the best of him. Carl Ichan has been called every name in the book, he’s got RUN D.M.C. - King of Rockskin tougher than leather and comes from Queens, NY – still want to mess with him? Some other guys came from Queens, by the name of RUN-D.M.C. and just like Carl, they’re the King of Rock, there is none higher, sucker MC’s should call him sire, to burn his kingdom – you must use fire, and Carl Ichan won’t stop rockin’ till he retires.

Last month American Railcar swung to a fourth-quarter profit but results fell short of Wall Street predictions, and ARII has been on the slide since. The stock has bounced back a bit since the earnings call, but it’s far from its 52-week high of $40.95 a share. Take a look at the results from the last earnings call, it wasn’t all bad, sure revenue fell to $165.3M from $166M in the year-ago period but for 2006 they earned $34.6M compared with $1.5M in 2005. They paid out a huge a one-time pension settlement expense of $6.8M but ARII’s next two years is going to be a sweet gravy train. On the conference call CEO James Unger said: We see a strong market for our products and services and have a solid backlog to support our future expansion plans. But, most important, we have a capable management team to deliver on our plans. That management team consists of two Ichans swinging their weight around, and guess who wants to make daddy proud? Young Brett Ichan.

So are you saying this stock is valuable just because of the Ichans?

That’s part of it, but the railcar business has been around for centuries and will continue to be. Remember what happened last year when oil and gas prices went through the roof? Shipping freight via railcar became a profitable business, just check the railroad stocks, and guess who’s their supplier and everything else under the sun – ARII.

Still not sold? Fine. Than just stick to buying Baltic Avenue or Marvin Gardens. Now they may pay off but they are no Park Place or Boardwalk. But why Run D.M.C. with JMJnot buy the boring the industries (Utilities & Railroads)? Despite the lack of glamour and grace, people will always have to use them, because It’s like that and that’s the way it is.

Article written by: Frank Lara Jr.
Article posted on: March 9th, 2007

Disclaimer: The Author is long on 100 shares of ARII that were purchased in January 2007.