Top Railroad Stocks for Q3 2021

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).

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 54.4% over the past 12 months, above the Russell 1000's total return of 35.7%. The numbers in the Momentum section of this story are as of June 9, and the numbers in the Value and Growth sections are as of June 10.

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.

Source: YCharts

• 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 has been embroiled in a bidding war with Canadian National Railway Co. regarding a potential merger with Kansas City Southern (see below). Kansas City Southern previously terminated a merger agreement with Canadian Pacific in favor of a deal with Canadian National. Canadian Pacific continues to oppose the planned National Railway-KCS merger in favor of its original proposed combination.
• Canadian National Railway Co.: Canada-based Canadian National Railway operates a network of railroad track in Canada and the U.S. The company transports a variety of natural and industrial products and operates a fleet of locomotives and railcars. On May 26, the company announced that it had jointly filed with Kansas City Southern a motion with the Surface Transportation Board for approval of a voting trust relating to the companies' proposed merger. As part of the application, Canadian National committed to divesting a 70-mile line between New Orleans and Baton Rouge that overlaps between the two companies' networks.
• CSX Corp.: CSX provides rail transportation across 23 States, the District of Columbia, and Ontario and Quebec. CSX's network has over 20,000 miles of track with access to more than 70 ocean, river, and lake port terminals. It also operates more than 50 intermodal terminals, facilities which exchange shipping containers between trucks and trains, across the eastern United States.

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. 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.

Source: YCharts

• Norfolk Southern Corp.: Norfolk Southern is a rail transportation company operating primarily in the Southeast, East, and Midwest. The company transports raw materials, intermediate products, and finished goods. Through agreements with other carriers, it also provides service throughout the U.S., as well as transport of overseas freight.
• Canadian Pacific Railway Ltd.: See company description above.
• 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. See above for details of the proposed merger between Kansas City Southern and Canadian National Railway.

Railroad Stocks with the Most Momentum

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

Source: YCharts

• 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. For its fiscal Q2 2021, ended Feb. 28, 2021, Greenbrier reported a net loss versus a profit one year prior as revenue plunged nearly 27%.
• Kansas City Southern: See company description above. (KSU's 12-month trailing total annual return in table above is in USD.)
• Canadian Pacific Railway Ltd.: See company description above.

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