Cramer: Add Some Locomotion to Your Portfolio

"Right now we have a roaring bull market in the railroads," said Jim Cramer. But how do you harness the runaway bull?

Rather than ride CSX, Kansas City Southern or any of the other railroads, Cramer suggested hopping on a different play.

"When the railroads are doing well, they order more rail cars," explained the Mad Money host.

And lately, they've ordered a lot.

In the fourth quarter, the industry received orders for 11,021 new railcars, when the analysts were only expecting 10,000.

Therefore – Cramer suggested playing the theme with rail car makers.

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But not just any old rail car maker. He's most interested in companies that make tank cars. That's because of all new orders in the fourth quarter, tank cars made up 62% of that total.

(Tank cars are basically big tanks on wheels that are used to transport all sorts of liquids, which need to be handled with care—everything from crude oil to various types of chemicals to corn syrup.)

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Why do the railroads need so many new tank cars?

"It's because energy companies are now shipping much more oil, due in part to the major domestic discoveries in areas that don't have enough pipeline infrastructure, like the Bakken Shale in North Dakota," said Cramer. "The producers have to rely on the rails to get the oil where it's wanted. In fact, these days, there are whole trains made up entirely of tank cars that can be a mile long."

Now, how do you harness the bull?

Cramer said there are four main players in the railcar business, Trinity, Greenbrier, FreightCar America, and American Railcar.

However, he added that the two names with the most tank car exposure are American Railcar and Trinity Industries. Following are his insights:

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American Railcar

"American Railcar is a pure play on this business, one that gets 20% of its sales from tank cars," said Cramer. "I think American Railcar has the most leverage to this bull market, as well as the most upside, and it also sports a solid 2.8% yield."

Trinty

"Trinity is the largest and broadest railcar supplier out there, but it also happens to be a diversified multi-industry company with a lot of exposure to other businesses," Cramer explained.

"Trinity makes construction products like cement, they make energy equipment like wind towers, and they also make inland barges. That said, railcars are the biggest part of the equation for Trinity—between making the cars and leasing them out, railcars account for about half of the company's revenues."

"And to drill down further, tank cars make up 20% of Trinity's revenues, about the same proportion as American Railcar."

FreightCar America

As mentioned above there are two other major players in the rail car industry.

"I would stay the heck away from FreightCar America," said Cramer. "This company mostly focuses on coal, and as we just heard from CSX and Norfolk Southern, the business of shipping coal is still in tough shape."

Greenbrier

"Greenbrier is the diversified railcar name that just rejected a bid from Carl Icahn at $22 a share at the end of last year," said Cramer. "Now the stock is at $18 and change. Maybe they should have said yes. Greenbrier was getting a major lift from the potential Icahn investment, but the company's made a series of missteps, and it has a ton of exposure to intermodal railcars, which is one of the weaker areas. Greenbrier's said they're still open to conversations with Icahn, but I say this one's not worth the risk."

The Bottom Line: "If you're looking to profit from this bull market, American Railcar is the pure play, but Trinity is best of breed, even as only half of its revenues come from making or leasing railcars. This business is so strong, I think both are buys," said Cramer.

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