Top Railroad Stocks

TRN, CNI, and CP are top for value, growth, and momentum, respectively

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 Norfolk Southern Corp. and CSX Corp. In mid-September, a potential rail strike threatened to disrupt the industry the U.S. economy, but the Biden administration secured a tentative deal with company and union leaders a day before the strike deadline on Friday, Sept. 16. The deal still must be ratified by members of multiple labor unions, which may take several weeks.

The railroad industry does not have its own benchmark, but as a part of the broader transportation sector, its performance can be reasonably approximated by the iShares Transportation Average ETF (IYT). IYT has outperformed the broader market with a total return of -8.1% over the past 12 months, above the Russell 1000's total return of -13.1%. These performance figures and all others below are as of Sept. 15, 2022.

Here are the top 3 railroad stocks with the best value, the fastest 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.

Best Value Railroad Stocks
  Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Trinity Industries Inc. (TRN) 23.38 1.9 13.5
Greenbrier Companies Inc. (GBX) 28.72 0.9 16.6
CSX Corp. (CSX) 30.17 64.6 17.0

Source: YCharts

  • Trinity Industries Inc.: Trinity Industries provides rail transportation products and services in North America. The company offers railcar leasing and management services. It also offers railcar manufacturing, maintenance, and modifications.
  • Greenbrier Companies Inc.: Greenbrier Companies is a supplier of equipment and services to global freight transportation markets. The company designs and manufactures freight railcars and marine barges. It also provides freight railcar wheel services, parts, and maintenance, as well as railcar management and leasing services. On Sept. 1, Greenbrier announced that Bill Krueger had been appointed president of Greenbrier Manufacturing Operations. He was previously chief operating officer (COO) for the business. In this new role, Krueger oversees all new railcar manufacturing operations in the U.S., Mexico, Brazil, Poland, Romania and Turkey, as well as functions including design, engineering, and logistics.
  • CSX Corp.: CSX is a transportation company that provides rail, intermodal, and rail-to-truck transload services and solutions. It serves customers in a variety of markets, including energy, industrial, construction, agricultural, and consumer products. CSX announced earnings results for Q2 2022 on July 20. Net income increased modestly year-over-year (YOY) as revenue surged. Revenue rose across nearly all markets.

Fastest Growing Railroad Stocks

These are the top railroad stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company.

On Nov. 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which will invest approximately $550 billion in America's roads and bridges, water infrastructure, resilience, internet, and more. Of this $550 billion, $66 billion will be allocated to improving America's passenger and freight rail system.

Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.

Fastest Growing Railroad Stocks
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Canadian National Railway Co. (CNI) 118.53 80.9 26.4 16.0
CSX Corp. (CSX) 30.17 64.6 3.9 27.6
Westinghouse Air Brake Technologies Corp. (WAB) 87.85 16.0 37.9 1.8

Source: YCharts

  • Canadian National Railway Co.: Canadian National Railway is a Canada-based transportation company that offers rail and other transportation services, including intermodal, trucking, and more. On July 26, the company announced a quarterly dividend of CA$0.7325 (approximately $0.55) per common share. The dividend is payable Sept. 29 to shareholders as of Sept. 8, 2022.
  • CSX Corp.: See company description above.
  • Westinghouse Air Brake Technologies Corp.: Westinghouse Air Brake Technologies, known as Wabtec Corp., provides equipment and services for the freight and transit rail industries. It manufactures and provides components for new and existing freight cars. The company also builds new commuter locomotives and sells infrastructure and rail control equipment. Westinghouse Air Brake reported Q2 2022 earnings results on Aug. 5. Net income attributable to shareholders climbed by 32.8% YOY. The company said higher sales and increased operating margins drove growth.

Railroad Stocks With the Most Momentum

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

Railroad Stocks with the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Canadian Pacific Railway Ltd. (CP) 75.77 70.5 11.0
Union Pacific Corp. (UNP) 218.36 136.4 9.2
Canadian National Railway Co. (CNI) 118.53 80.9 2.9
Russell 1000 N/A N/A -13.1
iShares Transportation Average ETF (IYT) N/A N/A -8.1

Source: YCharts

  • Canadian Pacific Railway Ltd.: Canadian Pacific Railway is a Canada-based railroad company. It provides rail and intermodal transportation services across Canada and the U.S., including transportation of bulk commodities, merchandise freight, and retail goods.
  • Union Pacific Corp.: Union Pacific connects the western two-thirds of the U.S. by rail. It operates rail transportation services from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems, and serves all major Mexico gateways. In late July, Union Pacific announced that it had signed a major deal with Wabtec to modernize approximately 600 locomotives. The agreement is valued at more than $1 billion.
  • Canadian National Railway Co.: See company description above.

Analyzing Railroad Stocks

When analyzing railroad stocks, it is helpful to consider the company's operating ratio. This is the ratio of its operating expenses to revenue. Carefully analyze the company's management team and what they plan to do to lower this ratio in the future. You can also look into train speed and "terminal car dwell." This is the amount of time a rail car remains idle on the platform. If it's unusually high or trains are particularly slow for one company, that should be a red flag. You'd want to see fast-moving freight with little downtime.

You should also survey the railroad's competition in the transportation sector, such as the trucking industry.

Risks of Railroad Stocks

Railroad stocks can be highly volatile during weak economies or when some other sectors are under strain, because railroads and their deliveries connect many sectors of the economy. For example, if there's a shortage of timber and you invest in a railroad company that specializes in transporting timber, that company and your stock may face some losses. Also note the economic state of commodities such as coal, oil, and gas as well as precious metals like gold, silver, and cobalt when considering investing in railroad companies.

The U.S. rail industry, like the airlines and other modes of transportation, took a big hit during the start of 2020 when the pandemic broke out. However, the industry is slowly recovering from the slump.

Another factor that could affect the performance of railroad stocks is political turmoil. Some people are critical of the oil and gas industry, for instance, so if countries pass laws that limit the production or exposure of oil and gas companies, the railroad companies that serve them may suffer.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

Article Sources
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  1. Wall Street Journal. "Rail Shippers Applaud Labor Deal, Seek Rapid Ratification."

  2. Reuters. "U.S. rail strike averted, but labor deal faces tough union votes."

  3. YCharts. "Financial Data."

  4. Greenbrier Companies Inc. "Greenbrier Appoints New President of Manufacturing Operations."

  5. CSX Corp. "CSX Corp. Announces Second Quarter EPS of $0.54," Pages 1 and 3.

  6. The White House. "Updated Fact Sheet: Bipartisan Infrastructure Investment and Jobs Act."

  7. Canadian National Railway Co. "CN Declares Third-Quarter 2022 Dividend."

  8. Westinghouse Air Brake Technologies Corp. "Wabtec Reports Strong 2nd Quarter 2022 Results."

  9. Union Pacific Corp. "Union Pacific Signs Largest Locomotive Modernization Deal in Rail Industry History with Wabtec."

  10. Finder. "Investing in Railroad Stocks."

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