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3 Reasons To Ride Railroad Stocks

August 14, 2014 1:33 pm
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3 Reasons To Ride Railroad Stocks

Railroad stocks such as CSX (NYSE: CSX), Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC) offer long-term investors ways to profit from three economic forces that no other industry does for a variety of factors.

The first is growth at home.

Railroads offer arguably the most economical way to transport merchandise across the United States.

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If housing is booming, railroads are doing well from hauling more lumber and building supplies. For greater power demands in American utilities, railroads carry the coal to the plants. Crops are taken from farms to tables across America.

This is also the case for increasing international trade.

Coal, corn and a host of other commodities are carried by railroads in the United States to ports to be shipped to China. That is a major reason Warren Buffett bought Burlington Northern Santa Fe Railway.

Coal exports from the United States are rising and train stocks seem to be benefiting.

It's that way for the entire energy sector, too.

Trains haul oil and coal to market. With oil and coal production increasing in the United States, so are earnings for the railroads that carry the commodities.

That is expected to continue as earnings-per-share expected to rise by 14.73 percent over the next five years for Union Pacific, 11.05 percent for Norfolk Southern and by 9.6 percent for CSX.

Train transport is critical for any economy. Railroad stocks were decimated during The Great Recession.

That is why Buffett bought Burlington Northern Santa Fe at the nadir of The Great Recession. The "Oracle of Omaha" expected the economic recovery to favor railroad.

The future may favor it as well, which is why CSX, Norfolk Southern and Union Pacific could reward long-term investors.

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