NEW YORK — The scene is a dark and windswept afternoon in Virginia’s Shenandoah Valley. A weathervane sporting a thoroughbred spins atop a farmhouse. Then, accompanied by a slow rumbling, a voice says, “There’s a change in the air.”
That rumbling, it turns out, is a Norfolk Southern freight train. The spot by ad firm J. Walter Thompson, which began running last week, is the latest push by America’s commercial railroads to reinvigorate interest in a sector that spent much of the late 1990s struggling through consolidation, according to Forbes.com.
But now, on the other side of the tech wreck, railroads have had a good run as investors moved into defensive industries like consumer goods and tobacco. In the past two years, stock in the six largest publicly traded North American long-haul railroads increased an average of 38.5%. These include Norfolk Southern, Burlington Northern Santa Fe, Union Pacific, CSX, Canadian National and Canadian Pacific.
But it’s not just defensive strategy that had investors buying in. Since the companies have worked through congestion from mergers and labor issues, the major railways are now pitching reliability and growth. Virginia-based Norfolk Southern and CSX, which took earnings hits as they absorbed parts of Consolidated Rail, are forecast for 30% and 39% earnings-per-share growth over the next 12 months, respectively. Even Omaha, Neb.-based Union Pacific, the nation’s largest railway, is forecast for 14% earnings-per-share growth over the next 12 months. In fact, after the second quarter, fund giant Fidelity revealed that it had built up major new positions in many of the railroad stocks.
It was in April that Union Pacific rolled out its first print and TV ad campaign since the 1980s. Narrated by cowboy actor Sam Elliott, the ads are filled with picturesque scenes of the American West which, combined with the nostalgia and romance of the industry, target the business and investing community.
The American Association of Railroads is also steaming forward with its “Tomorrow’s Railroads” radio and TV campaign, designed to raise awareness that more freight shipped by train means “cleaner air, less fuel and less traffic.” Measured against recent revelations by companies such as Ford (nyse: F – news – people ), which said that its efforts to reduce carbon monoxide emissions over the last few years have fallen short, the railroads’ message could even find a “green” audience.
Bob Fort, a spokesman for Norfolk Southern, says that the ads reinforce rail as a solid, but still innovating, industry and a comfortable landing pad for burnt investors. “That we are seen as old-tech definitely helps,” says Fort.
Union Pacific, which absorbed Southern Pacific in the late 1990s, is using ads to reestablish its image. “We took a reputation hit with our own employees, investors and the government,” says Kathryn Blackwell, Union Pacific spokeswoman. “We have worked hard to rebuild trust over the last few years and decided it was time to pull our heads out of the sand and start talking about it.”
This follows companies like Applied Materials (nasdaq: AMAT – news – people ), General Electric (nyse: GE – news – people ), Intel (nasdaq: INTC – news – people ) and, yes, Enron (otc: ENRNQ – news – people ), that used ads to increase mainstream business and investor awareness. The railroad ads, like many of those tech ads, are actually following the stock runup. Investors getting in now could be in for a surprise if the market shifts out of defensive stocks.
But, if economic weakness strikes again, new and old railroad investors could be aided by a second wind, fueled by the industry’s own messages.