Because of those potential volume numbers going over rail, many pipeline projects in the region have actually been canceled. And with the energy sector and the Bakken being one of the few real bright spots in the U.S. economy, crude-by-rail will be here to stay.
And a few specific railroad stocks are a great way to play that trend.
3 Railroad Stocks to Buy Now
The first whistle stop for investors could be Canadian National (CNI). As the owner of the two trains that collided in North Dakota, CNI shares fell pretty hard on the crude-by-rail accident and aftermath. However, Canadian National is the largest operator of railways in Canada, giving it unprecedented access to not only Bakken-based crude-by-rail shipments, but oil sands shipments as well. And that makes it one of the best railroad stocks to consider.
See, that fact has already boosted overall CNI carloads by 3% in 2013 and profits by 13% in 2013 — mostly due to rising crude-by-rail volumes. Another win for Canadian National stock? The company’s rail lines also head straight through frac-sand mining country. Shipments of frac-sand at CNI have grown by 300% throughout the past year.
Overall, CNI could be one of the best railroad stocks to play crude-by-rail. Canadian National stock can currently be had for a forward P/E of 15.
Another prime choice in the world of railroad stocks could be the chief Canadian rival of CNI: Canadian Pacific (CP). Like CNI, CP has made crude-by-rail a top contributor to its revenues and profits. Canadian Pacific has expanded into new terminal partnerships and projects, and its crude shipments should reach 70,000 oil-tank cars by the end of the year. Oh, and that number will expand roughly to 140,000 by the end of 2015.
That should continue to boost profits at Canadian Pacific, and is part of the reason CP is one of the top railroad stocks. Not that it really needs any help there, though. Canadian Pacific managed to increase profits in the third quarter by 45% versus a year ago. And CP stock can be had for a forward P/E of under 18.
Finally, any new tank-car regulation will benefit those firms that actually build and supply all those new cars. So our last pick in the wide world of railroad stocks is Trinity Industries (TRN). The firm already has seen its tank-car order backlog surge so much — currently sitting at 40,000 cars — that it has shifted much of its capacity at its wind turbine tower business towards the manufacture of rail cars.
TRN may also be a play on another growing energy nich: barges. Shipping via crude-by-barge is also growing by leaps and bounds and Trinity Industries is one of the largest manufacturers of tank barges as well. Overall, energy now makes up about 72% of the company’s total revenues. Meanwhile, shares of TRN stock are still dirt cheap at a Forward P/E of just 9.
All in all, crude-by-rail is here to stay … and railroad stocks are a great way to play it.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.