Top Railroad Stocks for Q3 2020

The railroad industry is one of the major components of the transportation sector and is closely tied to the economy's growth. Railroad companies operate vast networks that transport agricultural products, packaged foods, commodities, electronics, and other goods to companies and consumers. Major companies in the industry include Union Pacific Corp. (UNP), Norfolk Southern Corp. (NSC), and CSX Corp. (CSX). Railroad stocks, as represented by the Dow Jones U.S. Railroads Index (DJUSRR), have underperformed the broader market with a total return of -0.7% compared to the S&P 500's total return of 10.6% over the past 12 months. These market performance numbers and the statistics in the tables below are as of June 16.

Here are the top 3 railroad stocks with the best value, the fastest earnings growth, and the most momentum.

Best Value Railroad Stocks

These are the railroad stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Source: YCharts

• Central Japan Railway Co.: Central Japan Railway is a Japan-based company primarily focused on railway services. The company also offers bus transportation and real estate services, and operates department stores, hotels, restaurants, and construction businesses. Central Japan Railway reported a 7.6% decline in operating income on a 1.8% drop in revenue for its 2020 fiscal year (FY), which ended March 31, 2020. The company said that revenue decreased mainly because of the COVID-19 pandemic.
• Trinity Industries Inc.: Trinity Industries provides rail transportation products and services. It also provides products and services to the energy, chemical, agriculture, transportation, and construction sectors. Trinity Industries posted net income growth of 439.2% on revenue growth of 1.7% for Q1 2020, which ended March 31, 2020. However, the income growth was boosted by a tax benefit of $154.7 million resulting from provisions under the CARES Act. CEO Jean Savage said that the company expects COVID-19 to have negative future impacts on demand for the company's products and services.
• West Japan Railway Co.: West Japan Railway is a Japan-based provider of passenger railway transport services. The company also operates department stores, convenience stores, restaurants, and shopping centers. It also engages in the sale and leasing of real estate, rental of automobiles and equipment, and other activities.

Fastest Growing Railroad Stocks

These are the railroad stocks with the highest year-over-year (YOY) earnings per share (EPS) growth for the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders.

Source: YCharts

• Trinity Industries Inc.: See above for company description.
• Greenbrier Companies Inc.: Greenbrier Companies is primarily engaged in the design, manufacture, and marketing of railroad freight car equipment. The company manufactures both railcars and marine vessels, provides repair and refurbishment for intermodal and conventional railcars, and provides complementary leasing and services. Greenbrier Companies announced in mid-April that it had suspended new railcar production at its Greenbrier Gunderson manufacturing facility in Portland, Oregon due to the economic impact of COVID-19.
• Kansas City Southern: Kansas City Southern is a holding company that, through its subsidiaries, operates a railroad system providing shippers with freight services in commercial and industrial markets in the U.S. and Mexico.

Railroad Stocks with the Most Momentum

These are the railroad stocks that had the highest total return over the last 12 months.

Source: YCharts

• Kansas City Southern: See above for company description.
• Trinity Industries Inc.: See above for company description.
• Canadian Pacific Railway Ltd.: Canadian Pacific Railway is a Canada-based company that offers rail transportation services, including intermodal shipping, rail siding construction, and logistics services. The company recently announced that it had completed its previously announced acquisition of the Central Maine & Quebec Railway U.S. Inc. (CMQ US). The acquisition follows the earlier acquisition of the Canadian portion of the track, thus completing Canadian Pacific's purchase of the entire CMQ network.