Union Pacific Corporation (UNP), CSX Corporation (CSX): Should You Make a Bakken Oil Play With the Railroad Companies?

However, it has similar advantages: its proximity to the Bakken, and just as importantly, a low exposure to coal — less than 10% revenue-wise in 2012. Its revenue also grew in all of its segments except for agriculture and for energy, which includes coal.

The one main upside here is that coal was the only sector where CSX Corporation (NYSE:CSX)’s revenue fell.  Automotive had the strongest growth at 23%. In other words, an investment in CSX Corporation (NYSE:CSX) is not as much a Bakken oil play, but rather a bet on U.S. industrial output. With industrial improvement and CSX Corporation (NYSE:CSX)’s low P/E of 13.78, it might actually be an attractive bet, but it’s not a bet on Bakken Oil.

Norfolk Southern Corp. (NYSE:NSC)

is more of a bet on coal than anything else, with coal representing 26% of its revenue in 2012. Consequently, revenues and profits fell year-over-year but, thankfully, did not turn negative. Its revenue increased in all other sectors, with the strongest growth in automobiles at 18%, and did so while expenses were falling in almost every area, including compensation, rent and fuel.

Again, it has learned from the recession how to be leaner and more efficient. As such, it is well-placed to take advantage of a resurgence in industrial production, particularly automobiles. Also, if coal has hit bottom as some think it has, Norfolk Southern Corp. (NYSE:NSC)’s profitability and stock price will rise as coal resurges.

Wrapping up

Because the railways are affected by the fall in coal and the rise in oil, the Bakken oilfield won’t affect the industry’s bottom line really all that much. It will help western railroads and hurt eastern ones. Thankfully, the industry is leaner and more efficient coming out of the recession, and hence poised to take advantage of the resurgence of industrial production, particularly the automobile industry. As such, a railroad may well lay in your track to a higher return.

The article Should You Make a Bakken Oil Play With the Railroad Companies? originally appeared on Fool.com and is written by Paul Sangrey.

Paul Sangrey has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Paul is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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