Railroad stocks have seen some volatility over the past few years, due in part to the falling fortune of coal, which accounts for nearly 40% of America's railroad tonnage. Declining oil and gas production, as well as the increasing use of pipelines over railways, also hurt the industry.
However, depressed prices may provide an opportunity for value investors to enter this space, taking their cues from Warren Buffett and even Bill Gates, both of whom are heavily invested in railroads. Buffett's Berkshire Hathaway acquired Burlington Northern Santa Fe in 2009, and Gates holds a significant stake in Canadian National Railway Company.
Railroads transport the vast majority of major industrial and consumer goods, so railroad companies are very sensitive to movements in the economy. A growing economy could point to growth in public railroad stocks. If you are looking for exposure to this sector, here are the four largest North American railroad stocks for 2019. (Note: All figures are as of August. 10, 2019.)
- Railroad stocks offer an opportunity to investors looking for value plays that could benefit from an improving economy.
- Railroad stocks have taken a hit in recent years amid rising fuel costs, and the falling value of coal, but the biggest companies are likely to recover in the near-term.
- Union Pacific Corporation, Canadian National Railway Company, CSX Corporation, and Norfolk Southern represent large value plays for investors looking to buy railroads.
Union Pacific Corporation (UNP) is the granddaddy of American railways. Established in 1862, it now has a market cap of $118.4 billion. It is the supply chain link for much of the western United States, connecting approximately two-thirds of the country—and some 20 states—by rail. It operates roughly 9,000 locomotives and connects the Canadian rail lines with the Gulf of Mexico. Its rail network covers around 32,000 miles.
Union Pacific has reported revenue of $22.8 billion for the 12 months ended Dec. 31, 2018, and has trailing 12-month earnings per share of $8.43. It currently trades at $169.70, up 21.5% in 2019. Target prices for the stock range up to $206, and it has a 52-week range of $128.08 and $180.54.
Canadian National Railway Company
Canadian National Railway Company (CNI) has a market cap of $67.159 billion. Although it is technically a Canadian railway, it operates 20,000 miles of track across the United States and Canada, connecting the Atlantic and Pacific Oceans and the Gulf of Mexico. It moves freight for several major commodities groups—including oil, liquid natural gas, and chemicals—and it has access to all the NAFTA countries.
The company reported revenue of $14.3 billion for the 12 months ended Dec. 31, 2018, and earnings per share of $5.87. It currently trades at $94, up 26.82% year-to-date, with a 52-week range of $70.36 to $96.49. The high estimate for the stock is $120.61.
Shares of Union Pacific Corporation and Canadian National Railway Corporation are both up more than 20% year-to-date.
CSX Corporation (CSX) has a market cap of $53.14 billion and revenue of $12.3 billion over the 12 months ended Dec. 31, 2018. The Florida-based company operates mainly on the East Coast and is the third-largest Class I railroad. The company operates in three main areas—merchandise, intermodal, and coal—and it handles domestic coal shipments to power plants, as well as exports to deep-water port facilities. Its merchandise line transports food, agricultural, automotive and forest products, among other goods.
CSX currently trades at $66.74, up 7.2% year-to-date, with a 52-week trading range of $58.47 to $80.73. The high price target for the stock is $87.
Norfolk Southern (NSC) has a market cap of $46.81 billion. Revenue for the 12 months ended Dec. 31, 2018, was $11.46 billion. Norfolk Southern is a railroad transportation business incorporated in August 2009. It has its headquarters in Norfolk, Va.
The company operates approximately 19,500 miles of railroad in the United States, with services primarily in the Southeast, East, and Midwest. Its industrial railways connect with ports, manufacturing plants, electric generating facilities, mines, and other distribution centers in the United States. It transports a range of goods including lumber, livestock, commodities, chemicals, consumer products, metals, and automotive vehicles.
NSC currently trades at $177.70, up 18.83% year-to-date, with a 52-week trading range of $138.65 to $211.46. The high price target for the stock is $238.