Increased exports of US crops and other products to China and India have railcar stocks such as FreightCar America (NASDAQ: RAIL
), Trinity Industries (NYSE: TRN
), GATX Corp (NYSE: GMT
), American Railcar Industries (NASDAQ: ARII
) and Greenbrier Companies (NYSE: GBX
) rising due to the greater amount of freight shipments.
This demand will only increase, according to a recent report from Barclay Capital, a unit of Barclay LLC. The findings of the research project that, unlike the 2008 crash in prices, the recent surge in commodity prices is sustainable as it is based upon fundamental economic demand due to China and India importing more wheat, corn and other foodstuffs to meet the evolving dietary needs of their burgeoning middle class. Both wheat and corn prices are up sharply this year. Chinese buying for corn from American is at a record high. The greater demand from Asia for US goods is a major reason why Warren Buffett is so bullish on the railroad industry, evinced by Berkshire Hathaway's purchase of Burlington Northern Santa Fe for $34 billion in 2009.
FreightCar America delivered 1309 railcars in the second quarter of 2011. In 2010, only 614 were ordered. As a result, its earnings per share more than 60% on a quarter by quarter basis. Sales have boomed by almost 70% on a quarter by quarter standard. Over the next year, earnings per share are projected to soar by more than 428%.
Trinity Industries expects to deliver 14,200 new railcars in 2011 as opposed to only 4750 in 2010. From this, on a quarter by quarter measure, sales have increased by more than 30% for 2011 and earnings by almost 67%. Earnings per share this year are up almost 150%.
It is not just food exports driving the railcar boom. According to Kevin Norris, Managing Director of Barclays Capital commodity research, “The booming economies of China and India will continue to drive strong demand growth for most commodities over the next ten years. As a consequence, the price outlook for those commodities where physical supply is struggling to keep up like oil, coal and copper is very good. Geopolitics will also drive volatility in the energy markets and will be a key factor in driving returns in oil.” US exports of coal are at the highest level since 1992, as a result.
Overall, total railcars on US railroads are 2.2% greater than in 2010, and up 10% more than in 2009. Railcar deliveries are at the highest level in years. With demand from China and India increasing, production at and stock prices for railcar manufacturers such as FreightCar America, Trinity Industries, GATX Corp, American Railcar Industries, and Greenbrier Companies will only rise.