How Aurizon delivered

When the Queensland government decided to deregulate its railways in 2010 to form QR National a friend expressed surprise to me that I would buy the shares, but I thought a government-owned monopoly being privatised sounded like an interesting investment. And, living in Queensland, I qualified for the bonus 1:15 share offer if I hung on to them for a year.

Eventually that bonus lowered my cost base for those shares from the $2.45 they started trading at in November 2010 to $2.30. With QR National trading a year later at $3.50, having received the bonus shares and being past the level of any profit being 100% capital gains tax liable, offloading them was tempting. But with coal and iron exports raging and the company’s wagons full, I decided to keep them for a bit longer. Just seeing one train with dozens of carriages go through a bush rail crossing was enough to inspire you.

When the price spiked at $3.59 in early May 2011 and then fell away for several months, I thought I’d missed the opportunity for a good profit. So when they hit $3.68 December last year, I decided it was time to take some profits and I sold my personal holding. That was the same month the company was rebranded to its current incarnation, Aurizon (ASX: AZJ), so it seemed even more appropriate. I kept the shares I owned in my super fund, but when the stock hit $4 late last January it got too much for me and I sold those too.

But what about now? Would I buy back in confident of another good profit? No, I don’t think so. The rail freight business still presents opportunities of course, but business has gotten a lot harder. Coal exports on the east coast and iron exports on the west are under pressure from lower commodity prices. Aurizon is positioning itself for expansion into the Pilbara and may eventually do really well there too.

However, with the stock closing Friday at $4.36, down 0.46% in a market up by much the same margin, it seems under pressure. Morningstar puts its intrinsic value at $3.70, about the price I first sold it at. I think I’ve seen the best from this stock I’m going to see over a short time. Long-term prospects are another matter, but require an understanding of a very complicated business, better than I can probably muster. Mind you, if it went back a long way under $4 again, I could be tempted!

Foolish takeaway

The moral of this story is: The conventional wisdom of course is to cut your losses and let your profits run, to hang on to the stocks that are doing well for you. But with every stock, eventually, there comes a time when you should be content to sell and put the profits to some other use.

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Motley Fool contributor Andrew Ballard does not own shares in any company mentioned. 

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