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CSX Corporation (CSX), Union Pacific Corporation (UNP), Norfolk Southern Corp. (NSC): Can U.S. Railroads Prosper in Spite of Coal?

Union Pacific Corporation (NYSE:UNP)’s uniquely reliable performance has earned its shares a noticeable premium to those of its industry peers. Whereas Norfolk Southern Corp. (NYSE:NSC) and CSX trade for 13 times trailing earnings, Union Pacific Corporation (NYSE:UNP) changes hands for 17 times trailing earnings. Investors shouldn’t let this well-deserved multiple scare them away from the stock.

Should investors ride the rails?
There’s no denying the impact coal is having on the nation’s railroads, and no guarantee that the current unfriendly economics of coal will reverse anytime soon.  That said, as natural gas experiences rising demand, its price probably won’t stay this low forever.

At the same time, these railroads have demonstrated a remarkable ability to remain strongly profitable and reward shareholders, even with coal bringing down their results.

Therefore, while further share price gains may not materialize in the short term, these stocks should reward shareholders with resilient profits and strong dividends provided you keep a long-term perspective.

In that light, the compelling dividends and reasonable valuations make the railroad industry intriguing. Each of these stocks deserves a closer look for long-term Fools, with Union Pacific Corporation (NYSE:UNP) earning highest praise among the three.

The article Can U.S. Railroads Prosper in Spite of Coal? originally appeared on and is written by Bob Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of CSX.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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