In this article, we discuss the best railroad stocks to invest in.
Railroad stocks fueled one of the earliest major investment booms in American history. Railroads are still an important aspect of the economy more than a century later. Over time, the sector has concentrated into a few titans responsible for carrying the majority of products across the country and to and from ports. Railroads fared better than other shippers and truckers during the COVID-19 epidemic due to their unique 24/7 business model and capacity to carry a large amount of freight with a small number of workers. And, in an age when fuel efficiency is increasingly important, trains are becoming the preferred mode of transportation.
Since rail businesses are bigger and more capitalized than trucking companies, they do better in economic downturns than the majority of other transportation equities do. Railroads often do well during periods of high fuel prices since trains can move far more goods than vehicles for every gallon of diesel burnt, despite the fact that high oil prices result in greater fuel expenses.
The railroad industry is expected to expand rapidly in the next years. According to Technavio’s research analysis, the railroad industry is predicted to increase by $337 billion between 2020 and 2025, representing a compound annual growth rate (CAGR) of 10.14%.
Some of the most notable railroad stocks in our list are CSX Corporation (NASDAQ:CSX), GATX Corporation (NYSE:GATX), and USD Partners LP (NYSE:USDP).
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Methodology
In order to identify the best railroad stocks to buy we selected railroad stocks that have long-term growth catalysts and strong offerings. In addition, we also looked at the stocks’ financial sheets, dividend policy, and basic strong fundamentals. The business fundamentals and analyst ratings for the stocks are also covered to offer readers with context for their investment decisions.
10. Westinghouse Air Brake Technologies Corporation (NYSE:WAB)
Number of Hedge Fund Holders: 40
Westinghouse Air Brake Technologies Corporation (NYSE:WAB) manufactures and sells technology-based equipment, systems, and services to the global freight rail and passenger transit sectors. It is divided into two segments: Freight and Transit. Westinghouse Air Brake Technologies Corporation on October 21 declared a quarterly dividend of $0.15 per share, in line with previous. Payable on November 28 to shareholders of record as of November 14. Westinghouse Air Brake Technologies Corporation currently has a dividend yield of 0.68% as of October 25.
On September 20, Wabtec announced the signing of a $600 million memorandum of agreement with Kazakhstan Temir Zholy for 150 FLXdriveTM battery-electric shunters and modernization work to convert the mainline fleet into NextFuelTM liquid natural gas-powered (LNG) locomotives. The battery-powered FLXdrive shunters will allow the railroad to save $75,000 per shunter per year on fuel costs while lowering scheduled maintenance by up to 97%.
Analyst Felix Boeschen of Raymond James on August 18 began coverage on Westinghouse Air Brake Technologies Corporation with an Outperform rating and a $103 price target. According to the analyst, the company’s “multi-year growth algorithm” is undervalued due to growing secular tailwinds such as “considerable runway” for locomotive fleet renewal needs and global decarbonization advantages.
Among the hedge funds tracked by Insider Monkey, 40 funds were bullish on Westinghouse Air Brake Technologies Corporation as of Q2, in line with the previous quarter. Joseph Sirdevan’s Galibier Capital Management is the only stakeholder of the company as of Q3 with 16,850 shares worth $1.37 million.
Just like CSX Corporation, GATX Corporation, and USD Partners LP, Westinghouse Air Brake Technologies Corporation is also one of the most famous railroad stocks.
Here is what TGV Intrinsic Fund has to say about Westinghouse Air Brake Technologies Corporation in its Q2 2021 investor letter:
“The second change concerns the American railway supplier Westinghouse Air Brake Technologies (Wabtec). Wabtec took over the railway division from General Electric (GE) in 2019. As part of this, Rafael Santana – who had come over from GE – became the new CEO of Wabtec. The previous CEO, Ray Betler, is one of the best corporate leaders I know, and I particularly appreciated the decentralised corporate culture he embodied. The operating figures have developed nicely since 2019 under Rafael Santana. However, from conversations with current and former employees of Wabtec, it is becoming increasingly clear to me that the GE culture, which is designed to achieve short-term corporate goals, is establishing itself within the company. This culture is not necessarily bad – but it is a culture that does not fit the long-term orientation of the TGV Intrinsic.
Accordingly, I recommended the sale of all Wabtec shares despite the decent operational development. Wabtec is a good example of a distinction between “process” and “result”. In the long run, the right process typically leads to a good result and the wrong process to a bad one. In the short term, however, even a wrong process can lead to a good result. Considered by itself, Wabtec’s financial development since 2019 (result) is not sufficient to make an investment recommendation for the future. Changes in the corporate culture (process) often only become noticeable in the financial figures after several years and are therefore a more meaningful indicator of the long-term operational development than the short-term historical busines development. Accordingly, my discussions with current and former Wabtec employees about changes in the corporate culture are the crucial reason for the sell recommendation, as I assume that the GE culture will lead to worse operating results in the long term.”
9. Canadian National Railway Company (NYSE:CNI)
Number of Hedge Fund Holders: 41
Canadian National Railway Company (NYSE:CNI) Canadian National Railway Company and its subsidiaries operate in the rail and associated transportation industries. Petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal, and automotive items comprise the company’s product portfolio, which serves exporters, importers, retailers, farmers, and manufacturers.
19,500 route miles of track are owned by Canadian National Railway, which covers both Canada and the United States. Petroleum and chemicals made up the largest commodity category for the railway in 2021, accounting for $2.8 billion in total revenue, or 20% of all freight income. With $2.5 billion, or 17.8% of total freight receipts, grain and fertilizers are in second place.
Barclays analyst Brandon Oglenski on October 26 boosted the his price objective on Canadian National Railway Company to $118 from $110 following the third-quarter results and maintained an Equal Weight rating on the stock. In a research note, Oglenski tells investors that Canadian National is benefiting from high commodities demand in the short term and restoring long-term operational credibility with ongoing steady profits growth in 2022.
Among the hedge funds monitored by Insider Monkey, 41 funds hold Canadian National Railway Company as of Q2, up from 38 funds from the previous quarter. Stephen J. Errico’s Locust Wood Capital Advisers is the largest stakeholder of the company for Q3 with 210,946 shares worth around $22.7 million.
8. CSX Corporation (NASDAQ:CSX)
Number of Hedge Fund Holders: 63
CSX Corporation and its subsidiaries offer rail-based freight transportation services. The firm provides rail services, as well as intermodal container and trailer transportation, as well as other transportation services such as rail-to-truck transfers and bulk commodities operations. CSX Corporation on October 10 declares $0.10 per share quarterly dividend, in line with previous. Payable on December 15 for shareholders of record as of November 30.
CSX Corporation on October 20 posted $0.52 in diluted earnings per share, a 21% increase from the prior year quarter, alongside $3.9B in revenue. Consensus EPS and revenue estimates stood at $0.50 and $3.75B, respectively.
On October 24, Amit Mehrotra of Deutsche Bank reduced their price objective on CSX Corporation from $41 to $36 and maintained a Buy recommendation on the stock. According to the analyst, CSX continues to perform better than Union Pacific despite both firms incurring increased expenses due to network inefficiencies.
Among the hedge funds tracked by Insider Monkey, 63 currently holds CSX Corporation as of Q2, down from 72 funds in the previous quarter. Paul Cantor, Joseph Weiss, and Will Wurm’s Beech Hill Partners is the only stakeholder of the company as of Q3 with 11,200 shares worth around $298,000.
7. Canadian Pacific Railway Limited (NYSE:CP)
Number of Hedge Fund Holders: 42
Canadian Pacific Railway Limited (NYSE:CP) owns and operates a transcontinental freight railway in Canada and the United States through its subsidiaries. Bulk commodities such as grain, coal, potash, fertilizers, and sulfur are transported, as well as commerce freight such as energy, chemicals and plastics, metals, minerals, and consumer, automotive, and forest goods.
After the third-quarter results, Barclays analyst Brandon Oglenski on October 27 boosted the his price objective on Canadian Pacific Railway Limited to $81 from $77 and maintained an Overweight rating on the stock. While Canadian Pacific shares continue to trade at a “significant valuation premium” to those of other railroads, its “best-in-class management team” is expected to deliver “significant” synergy upside next year when the acquisition of Kansas City Southern is expected to be approved, according to Oglenski in a research note.
According to Insider Monkey’s Q2 data, 42 hedge funds were bullish on Canadian Pacific Railway Limited in Q2, up from 41 funds in the preceding quarter. Stephen J. Errico’s Locust Wood Capital Advisers is the largest stakeholder of the company owning 929,521 shares worth more than $62 million.
6. The Greenbrier Companies, Inc. (NYSE:GBX)
Number of Hedge Fund Holders: 11
The Greenbrier Companies, Inc. (NYSE:GBX) is a railroad freight car equipment designer, manufacturer, and marketer in North America, Europe, and South America. Manufacturing, Maintenance Services, and Leasing & Management Services are its three business segments. Over the last two years, The Greenbrier Companies, Inc. has outperformed EPS predictions 75% of the time and revenue estimates 50% of the time. Gross margin overall of The Greenbrier Companies, Inc. was also 13.4% in Q4, up from 9.6% in Q3 and 8.0% in Q2.
Susquehanna analyst Bascome Majors on July 12 reduced The Greenbrier Companies, Inc.’s (NYSE:GBX) price objective from $58 to $38 and maintained a Positive recommendation on the stock. The analyst stated that they produced $0.09 EPS in the third quarter, $0.30 less than his projection and $0.43 less than the consensus.
The Greenbrier Companies, Inc. on October 21 declared a quarterly dividend of $0.27 per share. Payable on November 29 for shareholders of record as of November 8. The Greenbrier Companies, Inc.’s (NYSE:GBX) shares currently delivers a dividend yield of 2.87%.
Insider Monkey’s Q2 database reveals that 11 hedge funds were long The Greenbrier Companies, Inc., down from 16 funds from the prior quarter. Charles Paquelet’s Skylands Capital is the biggest shareholder of the company as of Q3 with 155,283 shares worth over $3.7 million.
Similar CSX Corporation, GATX Corporation, and USD Partners LP, The Greenbrier Companies, Inc. is also one of the most preferred stocks by smart investors.
White Brook Capital made the following comment about The Greenbrier Companies, Inc. in its Q3 2022 investor letter:
“The Greenbrier Companies, Inc. (NYSE:GBX) is a railcar manufacturer, servicer, and more recently, leasor. Railcar manufacturing is a capital intensive industry with low margins and an emphasis on reliable and scalable manufacturing. During Covid and the ensuing supply chain crises, the country’s railroads suffered as service levels dropped and the unanticipated demand for goods moved many loads to truck and air. With higher energy costs, railroad workers returning to work, manufacturing slowly returning to the US, and shippers seeking to reduce their cost burden by shipping on the cheapest mode of transportation, more loads are moving to rail. The railroad industry generally needs to replace ~35,000 railroad cars a year to maintain service level and has tracked materially below that for the last several years. With potential for further revenue growth, margin growth, and higher interest rates benefitting a growing leasing business while also limiting new competitors to their manufacturing business, GBX is priced to do well in this new environment.”
5. GATX Corporation (NYSE:GATX)
Number of Hedge Fund Holders: 17
GATX Corporation is a railcar leasing company that operates in the United States and around the world. Rail North America, Rail International, and Portfolio Management are the company’s three segments. GATX Corporation’s (NYSE:GATX) shares currently deliver a quarterly dividend of $0.52 per share and have a dividend yield of 2.13% as of October 25.
Susquehanna analyst Bascome Majors on July 22 reduced his price target on GATX Corporation from $122 to $112 and maintained a Positive rating on the stock. According to the analyst, the company has significant pricing power due to a limited supply of railcars and high global new car prices.
Among the hedge funds tracked by Insider Monkey, 17 were long GATX Corporation as of Q2, an increase from 14 funds from the previous quarter. Mario Gabelli’s GAMCO Investors is the largest shareholder of the company with over 1.6 million shares worth more than $150 million.
4. Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 65
Union Pacific Corporation (NYSE:UNP) operates in the railroad business in the United States through its subsidiary, Union Pacific Railroad Company. Union Pacific Corporation on July 28 declared a quarterly dividend of $1.30 per share, in line with previous. Payable on September 30 for shareholders of record as of August 31.
On October 24, Amit Mehrotra of Deutsche Bank reduced their price target on Union Pacific Corporation to $216 from $232 and maintained a Buy rating on the stock. According to the analyst, CSX continues to perform better than Union Pacific despite both companies incurring higher costs due to network inefficiencies.
According to Insider Monkey’s Q2 data, 65 hedge funds were bullish on Union Pacific Corporation, down from 89 funds in the preceding quarter. Thomas Bailard’s Bailard Inc currently owns the largest position in the company as of Q3 with 46,381 shares worth $9.03 million.
3. Trinity Industries, Inc. (NYSE:TRN)
Number of Hedge Fund Holders: 18
Trinity Industries, Inc. (NYSE:TRN) offers rail transportation products and services in North America under the TrinityRail brand. It is divided into two divisions: Railcar Leasing and Management Services Group and Rail Products Group. Trinity Industries, Inc.’s (NYSE:TRN) stocks currently delivers a quarterly dividend of $0.23 per share and has a dividend yield of 3.74% as of October 25.
On July 28, Wells Fargo analyst Allison Poliniak-Cusic reduced her price target on Trinity Industries, Inc. to $33 from $38 and maintained the stock’s Overweight rating. According to the analyst, Q2 results were below expectations. According to her, the results are still reflective of an early railcar build cycle combined with macro pressures, as Trinity continues to face component procurement challenges.
Insider Monkey’s Q2 hedge fund data reveals 18 funds were long Trinity Industries, Inc., up from 16 funds from the previous quarter. Mario Gabelli’s GAMCO Investors is the largest position holder of the company with 1.06 million shares worth about $25 million.
2. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 45
Caterpillar Inc. (NYSE:CAT) manufactures train cars, engines, tracks, fasteners, signaling and rail welding, as well as service/repair services. Citi analyst Timothy Thein on October 31 raised the firm’s price target on Caterpillar to $235 from $180 following the third-quarter results and maintains a Neutral rating on the stock. While operating cost headwinds are expected to persist for some time, the combination of strong pricing and historically high backlogs contributes to “higher-than-normal earnings visibility in a backdrop of declining global macros,” Thein writes in a research note.
Caterpillar Inc.’s (NYSE:CAT) shares currently delivers 2.13% dividend yield as of November 10. On October 12, Caterpillar Inc. declared a quarterly dividend of $1.20 per share, payable on November 18 for shareholders of record as of October 24.
Caterpillar Inc. was recently awarded a maximum $1.28B fixed-price with economic-price-adjustment, indefinite-delivery requirements contract for construction equipment on November 3. There were three responses to this competitive acquisition. There are no option periods in this five-year contract.
According to Insider Monkey’s Q2 data, 45 hedge funds were long Caterpillar Inc., down from 54 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest shareholder of the company with 7.2 million shares worth more than $1.19 billion in total.
1. USD Partners LP (NYSE:USDP)
Number of Hedge Fund Holders: 1
USD Partners LP acquires, develops, and operates midstream infrastructure assets and logistics solutions in the United States and Canada for crude oil, biofuels, and other energy-related products. Terminalling Services and Fleet Services are the two business segments of the company.
On October 25, USD Partners LP declared a quarterly dividend of $0.1235 per share. Payable on November 14 for shareholders of record as of November 2. USD Partners LP’s (NYSE:USDP) currently has 10.29% dividend yield.
Among the hedge funds tracked by Insider Monkey, 1 fund holds USD Partners LP as of Q2, in line with previous. Emanuel J. Friedman’s EJF Capital is the only stakeholder of the company with 25,000 shares worth more than $130,000.
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This article is originally published at Insider Monkey.
