Even throughout all the subprime mess and the credit concerns that snaked their way through the markets, there were groups, sectors or parts of sectors that more than held their own. One such group, the rails, have reacted better than other transports such as trucking or airlines, despite facing both industrial and consumer slowdowns, and in the case of trucking and airlines, another large whammy with fuel cost increases.
The rails, led by such names as Norfolk Southern Corporation (NYSE: NSC), Burlington Northern Santa Fe (NYSE: BNI), Union Pacific Corporation (NYSE: UNP), and CSX Corporation, (NYSE: CSX), hung in there in a poor stock market and some show signs of potentially heading up again.
Norfolk Southern recently traded in the low 50’s, near the mid-point of its last twelve-month share prices, trades at 14 times earnings and pays a dividend over 2%. While other transports and sector groups bottomed, Norfolk hit its year low but quickly fought back, nearly rising straight up. Some technical analysts see this as not only bullish, but a potential breakout for the stock, where others see a temporary peak. Long term investors and value players note that Norfolk Southern looks to earn $4.03 a share in 2008 and $4.60 a share in 2009, a 14% growth rate.
Burlington Northern has been Buffetized, that is, anointed by legendary value and growth investor Warren Buffet, who now owns 18% of the railroad, recently upping his hefty stake. While its growth is slated at 12%, many investors hop on simply to piggyback the Berkshire Hathaway scion’s pick. The stock was trading in the mid-80’s, down from its high of 94 in the last twelve months. Union Pacific looks to be growing even faster, at 15% annually, while CSX is similar.
These stocks appear very much alike, indeed many investors simply buy the group whether they are long-term plays or momentum plays should the stocks breakout to the upside. The railroads all have in common well-running business models and have worked through the kinds of issues years ago that paralleled the airline difficulties of today: capacity and competition, mainly, but also diversification of product mix. What looked like a fading industry a couple of decades ago has had a resurgence with better management, including a vastly better handle on costs, as well as a vital role in the moving of goods and services across the country. The rails, for example, often precede the trucks in moving goods.
Why some investors miss out on these stocks is that such dull-looking companies are viewed as either industrial versions of Amtrak, which they are clearly not, or as a very old economy, unsexy no-growth industry, somewhat like utilities were or are viewed. Instead, the railroads are a modern, vibrant industry, growing and adapting, which these stocks reflect.
Let us hear your thoughts below: