(The following appeared at SeekingAlpha.com on August 3.)
Four dollar gas is driving both travelers and shippers to the train station, Barron’s says. In some major cities, as many as 15% of commuters went from cars to trains, driving Amtrak ridership up 12% in June from a year ago. The U.S. Chamber of Commerce sees freight railroad use jumping 88% over the next 25 years.
“All the evidence is there that the train is returning to a degree once never expected [and that] an economic and cultural tsunami is about to transform the United States,” says Harvard professor John Stilgoe, author of the recently published book Train Time. “Change is everywhere along the railroads….Track is being expanded, modernized and relaid, and once-abandoned rail right-of-ways are being reclaimed. And what you are seeing now is only the beginning. The best is yet to come.”
Locomotives get 80% more mileage/gallon now than they did 30 years ago, making them a favorite of both cost-conscious corporations and environmentally concerns. Coal shipments, which already account for 45% of total U.S. tonnage, are growing in reaction to soaring oil and natural gas prices. Timber shipments should climb once the housing market begin to show signs of life. The industry’s fastest growth engine is intermodal shipping, in which sealed truck containers are attached to trains.
Despite strong economic headwinds, train stocks have jumped 26% (Burlington Northern Santa Fe (BNI)) to 32% (Union Pacific (UNP)) this year. Analysts see more growth coming, and shares up 10-15% over the next year and much more than that long-term.
Other plays include CSX (CSX – “improving on last year’s poor results”), Norfolk Southern (NSC – “strong in coal”), Canadian National Railway Company (CNI – “highest margins”), Canadian Pacific Railway (CP – “big in intermodal”), and Kansas City Southern (KSU – “big presence in Mexico”). Wabtec (WAB), a brake manufacturer, is the only U.S.-traded play on passenger travel.
David Powell says CNI is the best recession railroad. Investors have banked almost 1,500% since its IPO in 1995.
Odlum Brown Limited analyst Stephen Boland likes both CNI and CP, but for different reasons.
“We like CNR because it is the best-in-class operator at a below average valuation, and we like CP because it has good global exposure and a solid opportunity for efficiency improvement.”