Rail Traffic Improves

Rail freight traffic for the week ended December 26th continued to show improvement over last year's levels. Total U.S. Rail Traffic was up 4.8% compared with the same week last year. Shipments of grain and chemicals were up 31.4% and 18.6%, respectively. However, it is also relevant to compare weekly freight traffic to 2007 levels; 2008 numbers were severely depressed as the economic crisis was in full force. When compared to the same week in 2008, rail traffic was down 39.1%.

Railroad companies such as Union Pacific (NYSE: UNP) and CSX Corporation (NYSE: CSX) are sitting just below their current 52-week highs. The railroad industry has benefitted from an economic turnaround and renewed media interest after Warren Buffett's Berkshire Hathaway acquired Burlington Northern Sante Fe (NYSE: BNI) for $26 billion in November. While the railroad industry may be a solid bet for the long-term as the economic recovery plays out, Union Pacific and CSX offer little upside in the near-term at these valuations. Union Pacific and CSX trade at forward p/e ratios of roughly 15. I would look to start building positions in Union Pacific at $62/share and CSX at $47/share. Patience will be rewarded with greater returns!