Finding Solid Capital Gains in a Slow Market

The one thing a business can’t do is manufacture growth. An enterprise is at the whim of the marketplace and the economic conditions that are present. This doesn’t mean, however, that there aren’t very good businesses to own, even if they do experience the business cycle. 

All companies go through periods of slower, sometimes negative business growth. Once having identified a really good business, the catalyst for ownership becomes valuation. 

AAON, Inc. (AAON) is a micro-cap company based out of Tulsa, Oklahoma. This enterprise sells heating, ventilation, and air conditioning (HVAC) equipment. It has a long track record of producing solid business growth and providing good capital gains on the stock market. 

The company’s most recent quarter actually came in below consensus, but this is still a good enterprise to consider, as it is fairly valued. 

Second-quarter sales were a record $92.3 million, but only grew 1.2% over the same quarter last year. Earnings were down 6.2% during the quarter, from $12.1 million to $11.4 million, comparatively. 

Management noted that the increase in sales was mostly due to rising prices. The company finished the second quarter with lots of cash in the bank. The company is debt-free and expects full-year 2014 revenues and earnings to be stronger than last year. 

As a business, AAON has a very good record of fairly consistent growth—and this is from the HVAC industry, which is mature and saturated. 

The company’s first quarter of 2014 was very strong and contributed to a record first half of the year in terms of sales and earnings. 

Another good business that’s very likely to keep producing good capital gains on the stock market is The Greenbrier Companies, Inc. (GBR). This enterprise is selling the right product at the right time. 

The company is based in Lake Oswego, Oregon and is currently experiencing a strong business cycle related to the railroad industry. (See “Why These Stocks Are a Leading Indicator for the Market and What They Foresee Now.”) 

Greenbrier manufactures railcars, mostly for the North American market, but also in Europe. The company also manufactures barges for marine transportation and offers specialized industrial fabrication for electrical, construction, and energy customers. 

Business conditions for this micro-cap company remain strong. In its third fiscal quarter of 2014 (ended May 31), total sales grew from $434 million to $593 million, comparatively. 

During its third fiscal quarter, the company received $1.65 billion in new orders for approximately 15,600 new railcars. 

The company’s total railcar backlog was 26,400 units as of quarter-end, representing an estimated $2.75 billion. The average sale price of a new railcar is approximately $104,000. 

This backlog compares to 15,200 units worth $1.54 billion as of February 28, 2014, indicating that business conditions are improving. 

Greenbrier is likely to keep doing well right into 2015. In spite of a slower quarter for AAON, there’s no reason why Greenbrier’s business can’t accelerate as it’s done so many times before. 

This article Finding Solid Capital Gains in a Slow Market

was originally posted at Profit Confidential