Railroads are an integral part of Americana, and when many people think of railroads, they think about the nostalgia of the Old West and the role trains played in the industrialization of the nation.
While there’s certainly nothing wrong with waxing nostalgic when it comes to railroads, if you’re an investor you had better start thinking about railroad stocks in a more important light — i.e., as one of the best sub-sectors of an industry that can help you capture market-beating performance.
You see, when it comes to equity performance, transportation stocks in general are easily outpacing industrials and other sectors in 2014. Year-to-date, the Dow Jones Transportation Average is up 10.1%. Compare that to the Dow Jones Industrial Average, which is higher only fractionally, the Nasdaq-100 at +4% this year and the small-cap Russell 2000 Index, which actually is down 2%.
Helping to lead the transports higher are railroad stocks, many of which have vaulted to new all-time highs.
So, which railroad stocks are riding to new all-time highs, and which railroad stocks are likely to keep riding conditions in the sector higher? Here are three of my favorite railroad stocks that are anything but nostalgia.
Hot Railroad Stocks: Norfolk Southern Corporation (NSC)
Click to Enlarge Rail giant Norfolk Southern Corporation (NSC) is one of the Dow Jones transports that recently broke out to a new all-time high. The stock has logged a hefty 8.8% year-to-date gain, but over the past 52 weeks, shares are up a very impressive 31%.
The move higher during the past month actually came after a Q1 earnings report that showed a year-over-year EPS decline, although the $1.17 per share earned by Norfolk Southern did manage to beat estimates.
In the case of NSC stock, investors are betting on continued growth in the economy in general, and in the transportation segment in particular. They’re also buying the outstanding momentum in NSC stock.
Hot Railroad Stocks: Union Pacific Corporation (UNP)
Unlike Norfolk Southern, UNP stock got a big boost in April after its first-quarter EPS surged some 17% over the prior year to $2.38 per share. Revenue also was higher by 6.6% year-over-year.
Despite some relative weakness in the auto and chemical segments, UNP keeps pushing higher on growth in its industrial and agricultural transport segments.
Here again, UNP stock keeps benefiting from the momentum, and if the underlying numbers continue improving, look for more upside in Union Pacific in the coming quarters.
Hot Railroad Stocks: Canadian Pacific Railway (CP)
Click to Enlarge Canadian Pacific Railway (CP) isn’t part of the Dow Jones Transports, but it’s still a member of the all-time high club. Shares have delivered a 10.6% gain in 2014, and over the past year the stock is up 25%.
CP stock is benefiting from a combination of factors, not the least of which is the booming North American energy renaissance. The newfound supply of shale oil has to make it to the rest of the continent somehow, but thanks to political opposition from the left side of the spectrum, projects such as the Keystone XL pipeline haven’t yet received a regulatory green light.
This political delay is good for railroad firms like Canadian Pacific, who do a lot of oil transport from Canada to the rest of North America.
Look for CP stock to continue benefiting from the political gridlock on the pipeline issue, and from continued strong demand for shale oil.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.