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Hello Lou,

I read your column on globeinvestor.com whenever it appears. What is your view on Stella-Jones, which I have held many times and sold for good profits? Is this a good time to get back in, as it seems to be basing? Although somewhat illiquid, it has not hurt me in the past. Look forward to your comments and the very best of the Festive Season to you and the family.

Best regards, Jim.

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Hi Jim,

Stella Jones Inc. SJ-Tspecializes in producing industrial pressurized wood products such as utility poles and railway ties. The area of weakness in the business model for SJ has come in the railway sector.

With reduced freight traffic there has been less demand for railway ties, and operators have informed the company that they do not intend to build inventory in Q4 to prepare for the 2010 maintenance cycle. In response to weakness in the segment SJ has negotiated the purchase of Tangent Rail Corp. to expand their footprint in the United States.

Looks like management at SJ is taking advantage of the opportunity to expand when the getting is good. The rule of thumb in business is that in a slowing market you need to expand your share of market if your balance sheet is in good shape.

The three year chart provides a good look at the base you mentioned as the stock holds onto support in the $22.50 range.



The three month chart provides a close up of the recent action and the resistance at $25.00. Volume is light at 3,696 average daily volume over the last 3 months.

If you decide to get on this ride, you are entitled to the dividend of $0.36 a year which, at these prices, yields 1.4 per cent.

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I think that you might want to chip away at this one on pullbacks and build a position. When rail traffic picks up, SJ will be in a good position to benefit.

Happy Capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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