Let's Get Back to Stock Picking

 | Oct 11, 2013 | 1:00 PM EDT  | Comments
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Let's hope that the d├ętente in Washington will carry on into next week and substantial progress can be made in compromising on the budget and lifting the debt limit. It would be nice to go back to stock picking and talking about some of the positive things in the economy and the market.

One of those positives is that the United States is poised to be largest energy producer in the world by 2015. The production unleashed by improving fracking technology continues to drive impressive production growth in oil and gas throughout the country. Here are some follow-ups on a couple of smaller concerns that are riding this production growth to greater profits.

Hi-Crush Partners (HCLP) -- I highlighted this "frac" sand producer organized as a limited partnership back in July. This high yielder has advance some 30% since the article, but still feels like it has some upside left in it.

The stock was buoyed Thursday by the announcement that it has reached an amicable settlement with Baker Hughes (BHI) in a piece of litigation that had been ongoing. This removed a big concern for shareholders.

Since I highlighted the company it has posted a quarterly earnings report that beat the consensus on both the top and the bottom line. The distribution yield is over 7%, revenues are tracking to better than 80% growth this year and analysts believe another 30% sales increase is in store for FY2014. The stock is priced at 10x forward earnings.

Railcar manufacturer American Railcar Industries (ARII) is up some 30% since I did my last piece on it in early August. At the time the shares had sold off due to the tragic oil train derailment and explosion outside Quebec. As I stated at the time, this was likely to end up to be a long-term positive for the company. It was not going to face liability and new rules could force railroads to buy new tank cars or to have them retrofitted to meet new standards, either which would be positive for demand.

Long-term production growth of crude oil is exceeding pipeline demand, which continues to drive increases in the amount of oil carry via tank cars. This trend should continue for the foreseeable future.  Overall rail traffic also just posted its strongest monthly increase in September since 2012, which also bodes wells for demand for the other railcars the company manufacturers.

Consensus earnings estimates for both FY2013 and FY2014 have risen significantly over the past three months, the company has a solid balance sheet and the shares go for under 10x forward earnings; a substantial discount to its five year average. The shares also provide a 2.4% yield.

I believe both these concerns have a bright future despite their recent gains. I also hope that we can continue to highlight attractive, fast growing companies in the coming weeks rather than worrying about every sound bite coming out of Washington. 

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