Five Reasons to Buy Railroad Stocks
Apr 22nd 2011 8:00AM
Updated Apr 22nd 2011 8:09AM
Railroad stocks are poised for resurgence despite Wednesday's post-earnings slips for Union Pacific (UNP) and CSX (CSX). Union Pacific shares were down again on Thursday, but CSX had bounced back 1.3%
The fundamentals for the industry are solid – and that includes other railroad operators like Kansas City Southern (KSU), which beat first-quarter earnings estimates on Thursday, and Norfolk Southern (NSC) which reports next week.
Given that, here are five reasons railroad shares are a strong bet right now:
- Union Pacific and CSX may have underperformed the market this week, but they're up dramatically over the past nine months. Union Pacific has been steadily climbing and is up nearly 41% over its $68.24 price last July. CSX has gained 59% since its $46.51 price last July.
- Both railroads are benefiting from the rise in intermodal (multiple transportation modes) traffic, as is the railroad industry in general. Intermodal traffic increased by 8.5% in March, according to the Association of American Railroads. Intermodal gains bode well for the railroad industry because they are indicators of growth in international traffic.
- Strengthening carload traffic volumes continue to foster growth in the sector. March represents the 13th straight month that railroads have reported increases in carload volumes, a promising sign, even though the percentage increase last month was lower than in February.
- Railroads are hiring again and taking cars that they put into storage out of mothballs. They added nearly 1,200 employees last month and put nearly 23,000 rail cars back into service.
- Coal shipments may be lagging temporarily, but increasing volumes of ethanol shipments last month enabled railroads to post the highest weekly average for chemicals for any month in history.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.