On December 8, 2014 Dave asked for an evaluation of three stocks he was considering for his portfolio. His investment thesis was that with pipelines out of Canada getting blocked in the United States and inter-provincially in Canada that the movement of oil by rail would drive demand for tank cars. On Monday an analysis of The Greenbrier Companies Inc (GBX NYSE) was undertaken. Today an inspection of American Railcar Industries Inc. (ARII Nasdaq) will determine how it stacks up as a potential home for Dave’s hard earned capital.
ARII designs and manufactures hopper and tank railcars in North America. It operates through three segments: Manufacturing, Railcar Leasing, and Railcar Services. The company manufactures hopper railcars for shipping various dry bulk products; non-pressure and pressure tank railcars; and other railcars. It also manufactures railcar components. What this brings into focus is that the company is not a pure play on crude oil tank railcars which is similar to the situation surrounding GBX.
An inspection of the charts will help identify if ARII is a superior opportunity on a comparable basis.
The three-year chart indicates that the stock has broken the uptrend line that took it to a 52-week high of $82.82. There was an early warning in August that the trend was on the verge of shifting.The MACD and the RSI both generated sell signals that took the shares down to $57.50 by mid October. There was a bounce off of $57.50 but it ran out of steam as ARII met resistance along the 50-day moving average. The resistance persisted through the end of November where a death cross formed indicating that sellers were in control of the market.
The six-month chart highlights the sell signals generated by the MACD and the RSI in August and again in late November. Currently the momentum indicators are not signalling a trend reversal. If ARII doesn’t hold the thin ledge of support at $50.00 it may have to retest support at $45.00.
ARII is in the midst of an aggressive selloff and may produce a buying opportunity at some time but its not at this time. On Friday an analysis of Westinghouse Air Brake Technologies Corp (WAB NYSE) will complete Dave’s assignment.
Make it a profitable day and happy capitalism!