Stock Pick Betting on America's Manufacturing Comeback

Let’s talk about American Railcar Industries (NASDAQ:ARII).

The company recently posted 2Q earnings that blew away consensus, driven by a surge in demand for hopper and tank railcars.

Tank cars are used to transport propane, ethanol, asphalt, corn syrup and crude oil -- big of course. Demand is going to hit 17,200 cars industry wide, that’s up from 4,900 in 2009. You can see the trajectory here.

And the same thing goes for the hopper cars, which transport plastic pellets, grain, cement, frac sand (getting huge) food and potash. Demand is going to be 16,100 this year -- up from 4,800 in 2009. Again, serious trajectory… it may sort of plateau, but that’s big numbers.

In the most recent quarter, the company established records in revenue, earnings per share and EBITDA (that’s cash flow). Margins were hurt, but here’s the thing: rail cars for leasing, they account for them differently. The real gross margin was 30% versus 30.1%, still pretty healthy in this business. In the meantime, there is huge opportunity, growing demand, with retrofitting and repair.

So 22% of the float in the stock is short, that means Wall Street has bet against this one. I don’t know why, but there could be a massive short squeeze, with the stock closing above $75. My longer term target is $90.

And now let’s talk about Silicon Motion Technology Corp. (NASDAQ:SIMO).

Silicon Motion makes micro controllers integrated circuits. The company offers two things: NAND Flash, and also specialty RF Integrated Circuits for mobile devices. That’s radio frequency, which you know I love. RF is a big money maker.

Business for these guys is absolutely great and getting better. Second quarter sales are up 35%, gross margins 52.2% from 48.6% a year ago. Operating margins: 23.5% from 16.7%. That’s huge.

The company enjoyed its highest mobile storage revenue in history, and all top ten non-Apple smartphone makers are customers. (That’s up from eight in the preceding quarter.) The pipeline of new clients and design wins absolutely big.

If the stock breaks out from a double top through $25, from there it has a straight shot to $28. Then my target is north of $30.

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