While 2015 was a bad year for railroad stocks owing to the decline in coal and oil prices, some investors think the sector will benefit under the Trump administration. Most rail companies have rallied after November 8 as bulls expect the coal industry to rebound somewhat and for regulations to decrease. In this article, let’s take a closer look at some of the smart money’s favorite railroad stocks and their performance during the last quarter.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
Canadian Pacific Railway Limited (USA) (NYSE:CP) – The number of investors tracked by Insider Monkey with long positions in Canadian Pacific Railway Limited (USA) (NYSE:CP) increased by one and the aggregate value of their holdings jumped by $98.78 million during the June-to-September period. This railroad stock was the top 13F buy of funds like Jaorge Paulo Lemann’s 3G Capital Partners and John Armitage’s Egerton Capital Limited during the third quarter. After a number of failed attempts, the company finally gave up on its plan to acquire Norfolk Southern Corp. (NYSE:NSC) in April this year. The latter commented that the merger would have drawn intense scrutiny under the then Obama administration and believed CP’s takeover bid was too low. The end of this prospective deal also came as a blow to activist investor Bill Ackman, who publicly favored the deal. Another proposal to combine with CSX Corporation (NASDAQ:CSX) was also rejected by the latter. Despite this merger drama, Canadian Pacific Railway Limited (USA) (NYSE:CP) successfully gained investor confidence after reporting upbeat Q3 earnings.
Click next to see more of the smart money’s favorite rail road picks.
Norfolk Southern Corp. (NYSE:NSC) saw an increase in hedge fund investment by 24% to $758 million in the third quarter. The number of funds having this stock in their portfolio also increased by 4 to a total of 36 in the last quarter. The company reported revenue of $2.52 billion and an earnings per share of $1.55 for the quarter. The company recently announced a quarterly dividend of 59 cents to be paid in December, representing an annualized dividend yield of 2.56%. At the end of the third quarter, New York based hedge fund Luminus Management held 1.29 million shares in the stock worth $125 million, making it one of the top holdings of this fund. The stock has a mean recommendation of overweight, with 11 analysts rating it as a buy while no analyst rating the stock a ‘Sell’.
Kansas City Southern (NYSE:KSU) was present in 35 elite fund portfolios that we track, unchanged from the previous quarter. However, the value of their holdings declined by $33 million during the third quarter. Stockbridge Partners and Robert Bishop’s Impala Asset Management had large holdings in this stock as of September end. Of the five railraods on our list, Kansas City Southern (NYSE:KSU) may be the most interesting because it might face headwinds under the Trump administration as a result of potential trade restrictions on Mexico, which is a big market for the company. Approximately 50% of the company’s revenues come from Mexico. As per Donald Trump, the free-trade agreement with Mexico and Canada is not in USA’s best interests.
CSX Corporation (NASDAQ:CSX) saw the aggregate value of hedge fund holdings decline by almost 12% to come in at $734 million at the end of the third quarter. However, the number of funds long on this stock increased to 43 from 41 in the quarter earlier. The stock has returned more than 60% in the last five years and is currently trading very near to its yearly high. Like Norfolk Southern Corp. (NYSE:NSC), CSX Corp (NASDAQ:CSX) had also turned down Canadian Pacific Railway Ltd.’s (NYSE:CP) acquisition proposal made earlier this year. The company has a dividend yield of 1.97% and an earnings of $0.48 per share was reported during its most recent quarter ending September. The stock was a top holding for some of the hedge funds such as Tide Point Capital, YG Partners and Impala Asset Management.
Union Pacific Corporation (NYSE:UNP) witnessed an increase of 7 funds bullish on the company’s prospects during Q3. According to our data, 62 funds that we track held shares worth $25 billion in this stock at the third quarter end. The company reported revenue of $5.17 billion for the quarter ending September, up from $4.77 billion in the earlier quarter. The stock has returned more than 340% to its shareholders in the last ten years. It is trading very near to its 52 week high price.While Hilltop Park Associates increased their stake in this stock, other funds like Skylands Capital, Dulcet Capital and David Zusman’s Talara Capital Management reduced their holding in Union Pacific Corporation (NYSE:UNP).