Thursday, February 08, 2007

Railroad Stocks are On Track

The railroad industry is an area that has been overlooked by many investors, maybe because they consider it "too 19th century". However, this group may have several investment opportunities as most of the railroads pay dividends and many have relatively low P/E ratios. So how do you analyze a railroad, besides looking at the usual statistics? First, you have to look at the items they transport. Is there a strong demand for the commodities that they haul? Is that demand expected to get stronger in the future? In addition, you have to look at the cost of fuel for their locomotives, and their ability to pass on that cost to their customers. Here is a list of the major rails, most of which are traded on the New York Stock Exchange.

Burlington Northern Santa Fe Corp. (BNI) This Texas based railroad serves North America by hauling motor vehicles, vehicle parts, food items, cotton, salt, rubber, construction products, building products, chemical products, plastic products, and petroleum products. P/E 15.5, P/S 1.9, yield 1.2%.

Canadian National Railway Company (CNI) This Montreal based railroad covers both the U.S. and Canada. They transport petroleum, chemicals, grain, fertilizers, coal, metals, forest products, and automotive products. P/E 13.7, P/S 3.5, yield 1.2%.

Canadian Pacific Railway Ltd. (CP) This Calgary based railroad serves the Midwestern and northeastern U.S. along with Canada. They transport grain, coal, sulphur, fertilizers, vehicles, automotive parts, and forest products. P/E 12.7, P/S 2.2, yield 1.2%.

CSX Corp. (CSX) The Florida based company operates in the eastern U.S. and hauls fertilizer, metals, forest products, food products, agricultural products, chemicals, coal, and iron. P/E is 13, P/S is 1.7, and the pay a 1.1% yield.

Florida East Coast Industries, Inc. (FLA) Owns a Florida based railroad and real estate. P/E 31, P/S 4.9, yield .4%.

Genesee & Wyoming Inc. (GWR) Owns railroads in the United States, Canada, Mexico, Australia, and Bolivia. Hauls coal, paper, lumber, petroleum products, metals, cement, gravel, chemicals,food products and auto parts. P/E 8.8, P/S 2.5, no dividend.

Guangshen Railway Co. Ltd. (GSH) This railroad transports freight and passengers between Guangzhou and Shenzhen in China. P/E 34, P/S 6.4, yield 2.4%.

Kansas City Southern (KSU) This Kansas City based company has routes in Missouri, Alabama, Louisiana, Mississippi, Texas and Mexico City. They transport chemicals, petroleum products, lumber, metals, agriculture, mineral products, and automotive products. P/E 44, P/S 1.5, no dividends.

Norfolk Southern Corp. (NSC) This Virginia based railroad serves both the United States and Canada. The products they haul include automotive products, chemical products, metals, agriculture products, consumer products, paper, clay, forest products and coal. P/E 13.7, P/S 2.1, yield 1.8%.

Providence & Worcester Railroad Co. (PWX) The Massachusetts based company is a regional freight railroad that serves Massachusetts, Rhode Island, Connecticut, and New York. They haul iron, steel, chemicals, lumber, scrap, resins, cement, coal, debris, and food. Price earnings ratio is fairly high at 52, the price sales is 2.8%. The pay a small yield of .9%.

RailAmerica Inc. (RRA) This Florida based short line railroad owner operates railroads in 26 states and three Canadian provinces. P/E 17, P/S 1.4, no dividend.

Union Pacific Corp. (UNP) This Omaha base company serves all of North America. They transport agricultural products, automotive parts, lumber, steel, paper, food, chemicals, coal, and cars. P/E 17, P/S 1.7, yield 1.4%.

Author does not own any of the above.

1 comment:

curt504 said...

I worked for one of these rails for 2.5 yrs in an IT architecture group and say some of the insides and learned from insiders about RR's. My view is that the rails are the new growth trans companies. They move goods with 50x (5000%) more energy efficiency than trucking and don't have the same ceiling on capacity that trucking currently has.

But, the rails are poor at just in time shipping, which is where their IT groups come in. So how to choose the stock that's most likely to rise?

More investigation into what the growth segment of each RR and what the company is doing to increase efficiency and capacity (usually through advanced mathematical algorithms and recently by laying new track).

A RR that should profit well with future GDP rises would: be moving toward multi-modal in a big way (trucks off boats onto trains), adding supply side integration to better compete in just in time and where is my box customers.

What RR's are advanced in these areas? What RR has hedged it's fuel costs the best?

To be determineed eh?