Few sectors are as telling of the health of the broader market and economy as the rail sector is.
Economic data such as the gross domestic product or gross national product, available only quarterly, are backward-looking and subject to revisions or tweaks down the road, so they offer little clarity into potential economic growth ahead. The trading action in rail stocks, however, acts as a real-time gauge of import and export demand both domestically and internationally, thus serving as an important economic barometer of the health of the global economy.
For example, if per-ton rates and cargo levels per hopper or railcar are high, it's safe to assume that worldwide demand for various commodities are also running high, thus hinting at a robust global growth picture.
The rails still have the lowest costs for moving freight of any shipper, and for now, decreased fuel surcharges are bulking up their bottom lines. If the economic recovery plan starts to work, the rails will benefit as volume of freight increases again.
Keep an eye on these stocks as an indicator of the world's economic health.
CSX (CSX): CSX has traded in a 52-week range of $70.70 to $27 and was hovering trading right above that 52-week low. On Jan. 12, CSX lowered its fourth-quarter earnings to 63 cents per share and projected revenue of $2.7 billion. On Jan. 21, CSX said that it sees shipments continuing to decline this year, but it reassured investors that the firm will be able to raise prices. Revenue for the fourth quarter rose 4% year-over-year based principally on rail efficiencies and higher prices.
Rail volumes for CSX from 7.4 million in 2006 to 6.8 million in 2008, while revenue went from $9.6 billion to $11.3 billion in the same period. Revenue per unit went from $1,300 in 2006 to $1,649 in 2008, while operating margins increased from 20.7% to 24.6% in the same time period.
Burlington Northern (BNI): Burlington Northern has traded in a 52-week range of $114.68 to $59.91 and was recently at about $62.34. Fourth-quarter earnings jumped 19% as the benefit from cheaper fuel offset lower demand for shipments. Burlington Northern earned $615 million, or $1.79 per share, in the fourth quarter, compared with $517 million, or $1.46 per share, a year ago. Revenue edged up 3% to $4.37 billion.
Warren Buffett , whose latest holdings were revealed in an SEC filing on Tuesday, owns 20% of Burlington Northern.
Canadian National Railway (CNI): Canadian National Railway has traded in a 52-week range of $30.40 to $58.50 and lately was trading at about $33. 15. Viewed by many as the world's leading railway, it has gross margins north of 48%, the highest in the group, compared with an industry average of 30.1%. It also has the highest operating margins in the group at 35.8%, compared with an industry average of 14.1%.
During its proxy fight with CSX, The Children’s Investment Fund consistently referred to Canadian National Railway as the best railroad in the world.
In addition, Bill Gates' investment fund Cascade Investments is one of the largest shareholders in Canadian National.
For more rail-related stocks, including Union Pacific (UNP), American Railcar (ARII), Norfolk Southern (NSX) and Greenbrier (GBX), check out Rail Stocks Portfolio on Stockpickr.
Posted at 11:37 a.m. EST on Feb. 19, 2009
