• Re: Railroad Stock Thread

  • For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.
For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.

Moderator: Jeff Smith

  by Gilbert B Norman
Here is an article appearing in Today's Wall Street Journal that was the front page lead :

http://online.wsj.com/news/articles/SB1 ... 2454740162" onclick="window.open(this.href);return false;

Brief passage:

  • In the best year for U.S. stocks since 1995, the smart way to play the markets has been to follow the dumb money.

    So-called dumb-money strategies, which involve buying and holding a plain-vanilla portfolio of U.S. stocks, did much better than the more complex approaches employed by hedge funds and other professional investors.

    Fueled by easy money from the Federal Reserve and signs of improvement in the economy, the Dow Jones Industrial Average goes into the final day of 2013 with a gain of 29% once dividends are included, while the S&P 500 index has climbed 32% with dividends. Those gains far outpace the rally predicted by even the most bullish Wall Street strategists.
Yes, I am a railroad security investor holding long positions in CSX KSU and UNP. All told these three, as well as any others in the sector 'hit the S&P out of the park'. You can go to any of several investing sites and chart this comparasion. Here are symbols for the other publicly traded Class I's: NSC, CNI, CP
  by 2nd trick op
You can get the basics on any of the major players via the Value Line Investement Survey; it's pricey (about $300/yr when I subscribed back in the Eighties, undoubtedly much more now, but many college libraries, and the public libraries in upscale areas (Lower Macungie Township here in the Lehigh Valley is where I go) undoubtedly subscribe.

Beyond that, I think it should be pointed out that the real potential for gains in the stock market is with emerging companies (and there are always a few of those) or special situations (C&NW and Rio Grande both had healthy comebacks years ago). With the entire economy in a paralysis similar to the early Seventies (not long befre deregulation shook things up), and a lot of safety valves tied down, and public-sector interference on the increase (I'm currently reading The Great Deformation, David Stockman's new book) I'd "wait for the shoe to drop" before going much further. If inflation picks up, the railroads, in a manner similar to electric utilities, will take a huge hit, but would also a huge opportunity for people with patience, or legatees they're actually playing for.
  by Gilbert B Norman
Here is a comprehensive report on the railroad industry's 2014 investment outlook. I personally feel it might be a bit too optimistic, but then, optimisim has never been one of my long suits in this life:

http://www.investopedia.com/stock-analy ... c-ksu.aspx" onclick="window.open(this.href);return false;

Brief passage:

  • Within the Zacks Industry classification, railroads are broadly grouped in Transportation (one of 16 Zacks sectors).

    We rank all the 260-plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.

    As a guideline, the outlook for industries with Zacks Industry Rank of #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.'

    The Zacks Industry Rank for the railroad industry is currently #24, implying that the outlook remains positive on this sector. This highlights an optimistic outlook on the industry as railroads are delivering margin growth with gradual recovery in Coal shipments. Further, the upsurge in petrochemical shipments has also uplifted the markets conditions of this industry leading to earnings improvement.
This report seems to overlook any concern of the hazards with regards to handling Bakken crude, for which the industry and the shippers of such still appear to be on a learning curve. While any incident resulting in 47 fatalities can only be considered tragic, Megantic was initially dismissed as a poorly managed Class II playing in the Class I sandbox, but now that well managed Class I's such as BNSF have now had major incidents, albeit non fatal, there simply need be more thought given safe handling to this volatile commodity.

The report I think glosses over potential problems in Mexico, of which lest we forget, both KCS and UP are major players by means of their stakes, and management control, of both the former NdeM and FCM. The political unrest in the area of the Lazero Cardenas maritime port, which is being presented as a lower cost alternative to the US West Coast ports or post-PANAMAX trans canal shipping, is 'uh, not exactly' a drawing card to routing Asian imports by such - and hence adversely affecting rail interests in the region. To what extent this is a factor in that KSU (KCS) is down 24% year to date remains to be seen.

But finally, I do hold the piece to be informative and worthy of the attention of any investor considering a position in railroad industry securities.

disclaimer: author holds long positions CSX, KSU, UNP
  by Gilbert B Norman
A very encouraging article on railroad security investing:

https://www.wsj.com/articles/railroads- ... 1617706806

Fair Use:
An equal-weighted basket of shares of the remaining six Class 1 North American railroads bought the day before Berkshire Hathaway announced the deal would have had a total return of 862% through Monday compared with less than 300% for the S&P 500. Kansas City Southern, including the jump following announcement of its merger with Canadian Pacific, is the best performer over that time with a more than 1,000% return.

A successful deal could bode well for other players if it unlocks further consolidation. Analyst Bascome Majors of Susquehanna Financial Group notes that more deals could follow after 2022 if the official attitude toward consolidation has improved.
disclaimer: author long UNP
  by Gilbert B Norman
Still another favorable article from The Journal on railroad security investing in light of the "who gets the KCS" drama moving forth:

Fair Use:
But that ignores the long-term opportunity and the scarcity of the asset in question. While railroad valuations are at the high end of their historical range and recent volume trends just so-so, they are a uniquely valuable asset. Their networks represent natural monopolies that are impossible to replicate. The industry’s cash cow, hauling coal from mines to power plants, has been dying for years, but the fight against global warming makes them an attractive option for inland transport in terms of energy efficiency compared with trucks.