Thursday, November 16, 2006

Hit #129 (RailAmerica)

Regional rail operator RailAmerica (RRA) announced that it is being bought, by private equity group Fortress Investment Group, for around $1.1 billion in a cash deal. The offer, of $16.35, represents a gain of 47.8% over my average cost per share of $11.06.

I have been holding RailAmerica shares for a long time now, adding to my position multiple times during that period, and had mentioned it in an earlier post.

I am also watching two other small rail operators, though I have not yet made a move on either one. Providence and Worcester (PWX), which I referred to in the same earlier post that talked about RailAmerica, looks attractive due to insider activity or rather the lack of any activity (read selling). I would like a better price, but I may decide to buy some soon.

Kansas City Southern (KSU), the other relatively small public rail operator, will be a target for the handful of large railways. With operations around the Gulf of Mexico, and in Mexico itself, it is strategically well positioned. In addition, a short but extremely significant railroad parallel to the Panama Canal, called, what else, Panama Canal Railway Company, is also owned by KSU. It is still to be seen what impact, if any, the recently approved widening of Panama Canal will have on this route, but it should atleast remain an attractive tourist route for a long time to come. I would like to buy the stock at a much lower price, but will I get a chance ?

I hate to admit it, but I am still delighted to see those long trains crisscross California/Arizona open spaces! And they continue to yield investment ideas all the time. Among others, my investments in Pacer (PACR) and J.B Hunt (JBHT), both major players in intermodal transport/logistics, have been very profitable so far.

RailAmerica itself will have a special place in my investment world, because it was among the initial purchases of unknown, atleast to the general public, stocks that I made. I was met with some surprising looks, at times meant to indicate the lack of coolness, each time I mentioned such investments. It took a while, but I decided that the best way to make the most gains was to invest in such unloved, and hence deeply undervalued companies. I never looked back after RailAmerica!

Previous hit - Essex (#128)


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