11 Best Railroad Stocks To Buy Now

Published on July 5, 2023 at 5:50 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 11 best railroad stocks to buy now. If you want to skip our detailed analysis of the railroad industry, head directly to 5 Best Railroad Stocks To Buy Now.

In 2022, the global railroad market was worth $307.6 billion. According to IMARC Group’s projections, the market is anticipated to reach $503.3 billion by 2028, indicating a compound annual growth rate (CAGR) of 4.11% during the forecast period from 2023 to 2028. Since global transportation demand is increasing rapidly, the International Energy Agency predicts that passenger and freight activity will double the current levels by 2050. While this is a sign of economic prosperity, it goes hand in hand with higher emissions and atmospheric damage. High speed railways are a perfect solution for a swiftly urbanizing world, as rail is considered one of the most energy efficient means of transport.

Currently, about 75% of passengers use electric trains, compared to about 60% of the passengers boarding these energy efficient trains in 2000. As a result of this heavy reliance on electricity, the rail sector is the most diverse mode of transport in terms of energy sources. Europe, Japan, and Russia have the highest number of electric trains, while North and South America are largely reliant on diesel. Over the past two decades, there has been a consistent increase in freight rail activity. Currently, the movement of freight by rail is primarily concentrated in China and the United States, with each country accounting for about one-quarter of global rail freight activity. Additionally, Russia holds a prominent share, making up one-fifth of the global freight movement. The transportation of minerals, coal, and agricultural products constitutes the majority of freight rail activity worldwide.

Don’t Miss: Top 15 Railroad Companies In The World

The trade trends from CNBC Supply Chain Heat Map data have consistently demonstrated a decline in inbound freight over the last few months. This reduction in freight has had a negative impact on the earnings of both trucking and rail industries, as their revenue depends on the transportation of goods. According to United Parcel Service, Inc. (NYSE:UPS) CEO Carol Tome, a downturn in US retail sales and persistently weak demand in Asia contributed to lower-than-expected freight volume for the company. Similarly, Shelley Simpson, the president of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), recently characterized the current state of the industry as a “freight recession.” During the Q1 earnings call of Union Pacific Corporation (NYSE:UNP), CEO Lance Fritz identified inflation, elevated inventory levels, and sluggish consumer spending as immediate challenges in the industry. On the other hand, CSX Corporation (NASDAQ:CSX) surpassed earnings expectations as it experienced a surge in merchandise freight and coal transportation volumes. Similarly, Norfolk Southern Corporation (NYSE:NSC) also reported robust performance in merchandise and coal sectors.

While the railroad and freight industry is experiencing mixed performance, its significance as a lucrative part of the economy cannot be overlooked. Some of the best stocks to buy in the railroad sector include Norfolk Southern Corporation (NYSE:NSC), Canadian Pacific Kansas City Limited (NYSE:CP), and CSX Corporation (NASDAQ:CSX).

Our Methodology

We selected the following railroad stocks based on the hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the first quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm.

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Best Railroad Stocks To Buy Now

11. FreightCar America, Inc. (NASDAQ:RAIL)

Number of Hedge Fund Holders: 3

FreightCar America, Inc. (NASDAQ:RAIL) designs, develops, and sells railcars and railcar components for the transportation of bulk commodities and freight products in North America. On May 9, FreightCar America, Inc. (NASDAQ:RAIL) reported a Q1 non-GAAP EPS of -$0.21, beating market estimates by $0.02. However, the revenue of $81 million missed Wall Street consensus by $17.9 million. The company also agreed to issue non-convertible preferred stock with a financial partner to lower debt and provide additional growth capital.

According to Insider Monkey’s first quarter database, Ken Griffin’s Citadel Investment Group, Minerva Advisors, and Jim Simons’ Renaissance Technologies were bullish on the stock.

In addition to Norfolk Southern Corporation (NYSE:NSC), Canadian Pacific Kansas City Limited (NYSE:CP), and CSX Corporation (NASDAQ:CSX), FreightCar America, Inc. (NASDAQ:RAIL) is one of the best railroad stocks to invest in.

10. L.B. Foster Company (NASDAQ:FSTR)

Number of Hedge Fund Holders: 10

L.B. Foster Company (NASDAQ:FSTR)’s Rail, Technologies, and Services segment is involved in various aspects of the rail industry. L.B. Foster Company (NASDAQ:FSTR) provides new rail to passenger and short line freight railroads, industrial companies, and rail contractors. This segment also specializes in friction management products and application systems, railroad condition monitoring systems and equipment, wheel impact load detection systems, wayside data collection and management systems, track fasteners, and engineered concrete railroad ties. It is one of the best railroad stocks to invest in.

On May 9, L.B. Foster Company (NASDAQ:FSTR) reported a Q1 GAAP EPS of -$0.20, falling short of Wall Street consensus by $0.01. The revenue of $115.49 million climbed 16.9% on a year-over-year basis, beating market estimates by $2.58 million.

According to Insider Monkey’s first quarter database, 10 hedge funds were bullish on L.B. Foster Company (NASDAQ:FSTR), with combined stakes worth $24 million. Mario Gabelli’s GAMCO Investors is the largest position holder in the company.

Here is what Sterling Partners Equity Advisors has to say about L.B. Foster Company (NASDAQ:FSTR) in its Q4 2021 investor letter:

“L.B. Foster is a manufacturer and distributor of transportation and energy infrastructure products and services with locations in North America and Europe. This has been a very long-term holding on the thesis of a growing share of rail and pipelines in transportation and FSTR’s low-cost manufacturer role in the supply chain. During the quarter, management reported increased Q2 revenues substantially driven by strength in the rail, precast concrete products, and fabricated steel markets. Backlog increased by 12.4% compared to the prior year quarter driven by the significant increase in the infrastructure solutions segment.”

9. GATX Corporation (NYSE:GATX)

Number of Hedge Fund Holders: 12

GATX Corporation (NYSE:GATX) operates as a railcar leasing company in the United States, Canada, Mexico, Europe, and India. The company is divided into three segments – Rail North America, Rail International, and Portfolio Management. It is one of the best railroad stocks to watch.

On April 25, GATX Corporation (NYSE:GATX) reported a Q1 non-GAAP EPS of $2.20 and a revenue of $338.9 million, outperforming Wall Street estimates by $0.49 and $10.7 million, respectively. The company also distributed a quarterly dividend of $0.55 per share to shareholders on June 30.

According to Insider Monkey’s first quarter database, 12 hedge funds were bullish on GATX Corporation (NYSE:GATX), compared to 13 funds in the prior quarter. Alexander Mitchell’s Scopus Asset Management is a prominent stakeholder of the company, with 177,248 shares worth $19.50 million.

8. The Greenbrier Companies, Inc. (NYSE:GBX)

Number of Hedge Fund Holders: 12

The Greenbrier Companies, Inc. (NYSE:GBX) designs, manufactures, and commercializes railroad freight car equipment in North America, Europe, and South America. The company’s operations are divided into three segments – Manufacturing, Maintenance Services, and Leasing & Management Services. It is one of the best railroad stocks to monitor. On June 29, The Greenbrier Companies, Inc. (NYSE:GBX) reported an FQ3 non-GAAP EPS of $1.02 and a revenue of $1.04 billion, outperforming Wall Street estimates by $0.44 and $135.06 million, respectively.

On June 29, The Greenbrier Companies, Inc. (NYSE:GBX) declared a $0.30 per share quarterly dividend, an 11.1% increase from its prior dividend of $0.27. The dividend is payable on August 8, to shareholders of record on July 18.

According to Insider Monkey’s first quarter database, 12 hedge funds were bullish on The Greenbrier Companies, Inc. (NYSE:GBX), compared to 14 funds in the last quarter. Ryan Tolkin’s Schonfeld Strategic Advisors is the biggest stakeholder of the company, with 408,561 shares worth $13 million.

White Brook Capital made the following comment about The Greenbrier Companies, Inc. (NYSE:GBX) in its Q1 2023 investor letter:

“The Greenbrier Companies, Inc. (NYSE:GBX): Greenbrier positively preannounced its quarter in the waning days of March, but the stock, after an initially positive reaction, did not have a sustained positive response. The unveiling of its full quarterly report and subsequent first-ever-investor day during the second week of April has undone many of the concerns raised after the previous report and supports the view that it is successfully addressing its operational problems. Demand is also strong. While the stock rallied on the strong full results, it has since sold off –back to the levels of its problematic release in early January –and is as undervalued as we previously related, but with less risk than previously thought. I continue to believe the stock is significantly undervalued.”

7. Trinity Industries, Inc. (NYSE:TRN)

Number of Hedge Fund Holders: 13

Trinity Industries, Inc. (NYSE:TRN) offers rail transportation products and services under the TrinityRail brand in North America. On May 9, Trinity Industries, Inc. (NYSE:TRN) declared a $0.26 per share quarterly dividend, in line with previous. The dividend is payable on July 31, to shareholders of record as of July 14. It is one of the best railroad stocks to buy now.

On June 26, Trinity Industries, Inc. (NYSE:TRN) announced that it plans to issue senior notes maturing in 2028, with a total principal amount of $400 million. The company intends to utilize the funds obtained from the offering to repay its existing debts under the corporate revolving credit facility and for general corporate needs. This may include paying off other debts, such as the 4.55% senior notes due in 2024.

According to Insider Monkey’s first quarter database, 13 hedge funds were long Trinity Industries, Inc. (NYSE:TRN), compared to 11 funds in the earlier quarter. Chuck Royce’s Royce & Associates is a significant position holder in the company, with 429,542 shares worth $10.4 million.

6. Canadian National Railway Company (NYSE:CNI)

Number of Hedge Fund Holders: 39

Canadian National Railway Company (NYSE:CNI) is a major player in the rail and transportation industry. It operates various services related to rail transportation, including equipment provision, customs brokerage, transloading and distribution, business development, real estate, and private car storage services. On April 24, Canadian National Railway Company (NYSE:CNI) reported a Q1 non-GAAP EPS of C$1.82 and a revenue of C$4.31 billion, topping Wall Street estimates by C$0.10 and C$60 million, respectively.

According to Insider Monkey’s first quarter database, 39 hedge funds were bullish on Canadian National Railway Company (NYSE:CNI), compared to 41 funds in the earlier quarter. Bill & Melinda Gates Foundation Trust is the biggest position holder in the company, with 54.8 million shares worth $6.46 billion.

Like Norfolk Southern Corporation (NYSE:NSC), Canadian Pacific Kansas City Limited (NYSE:CP), and CSX Corporation (NASDAQ:CSX), Canadian National Railway Company (NYSE:CNI) is one of the best railroad stocks to monitor.

Click to continue reading and see 5 Best Railroad Stocks To Buy Now.

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Published on May 1, 2024 at by Inan Dogan, PhD

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Published on May 2, 2024 at by Insider Monkey Staff

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