Obviously there’s going to be a lot of investment opportunities available out there for smart and knowledgeable investors to get in on. It seems like a sure thing. A no-brainer. I imagine rail related industries are one of few guaranteed to be growing in this current financial crisis. The money is coming from the Feds. Obama signed the stimulus. The trick of course is knowing what companies and suppliers to invest in that will be at the forefront of this rail investment explosion taking place.
Right-of-way is in scarce supply and everyone will be eyeing it hungrily. Observe what railroad stocks are doing compared to the general market average. The expectation of the market is that the value of the railroad franchise is going up.
Everything else (steel, cement, civil engineers) is somewhat fungible or a lot fungible, and will tend to track the general health of the economy rather than diverge sharply, I think.
Are there particular locomotive or passenger rail car manufactures that might be positioned better to take advantage of the stimulus investment coming? Especially in regards to the high-speed initatives?
Not really. The U.S. no longer has a passenger-rail vehicle manufacturing industry. Light-rail vehicles are all only assembled here, which is about 10% of the value of the vehicle. The components come from other countries. Overseas manufacturers I do not know about. Beaulieu and oltmannd are more knowledgable than I.
Freight rail is different; the U.S. has many manufacturers with strong global presence such as GE, EMD, Harsco, Holland, Greenbrier, Safetrans, and Wabtec. Some of that will come into play for passenger rail and high-speed.
What about the suppliers of ties, rails, signaling and other related components that’ll be needed for the rail expansion and modernization that will be now taking place?
Only if the total demand exceeds the demand of the last few years will it create any growth, and I don’t think too many are thinking of that.
There are three domestic rail mills – ArcelorMittal at Steelton, Pa., Evraz Rocky Mountain Steel Mills at Minnequa, Colo., and Steel Dynamics in Indiana. A substantial amount of the premium rail is imported.
The market for concrete ties might increase.
The major wayside and grade-crossing signal manufacturers are GE (formerly Harris-Harmon VHLC wayside equipment and grade-crossing equipment), Safetrans (mostly its GCP grade-crossing equipment), Union Switch & Signal (Microlok wayside, now owned by Ansaldo of Brazil), Alstom (wayside, French company that bought General Railway Signal), and Siemens (German, mostly transit, not much Class 1-type presence). Wabtec has become the winner in the PTC market for Class 1.
One other play might be Trinity Industries. Trinity not only manufactures railcars (freight), but also is constructing wind farm components.
Their freight car orders are slow at this time, so it might be a bumpy investment for awhile…but then again, most equity investments are rather bumpy now.
Warren Buffet, who in recent years started picking up railroad stock, looks to be continuing that love affair by putting even more of his money into rail. Despite the terrible economic climate, railroads still look to be a good buy …and not only because of the massive federal stimulus infusion being pumped in. That appears to be simply a whole lot of icing being added to a already delicious investment cake.
Where to invest is the question. In pockets of strength is one answer. Where might these be?
Warren Buffett likes railroads and recently upped his stake in Burlington Northern. He now owns 22% of the company.
The railroads are interesting because they have put up increases in earnings despite declines in freight volume. Union Pacific (NYSE:UNP) reported a 35% rise in fourth-quarter earnings, despite a 12% decline in carloads. CSX (NYSE:CSX) reported a 16% gain in earnings. Burlington, Buffett’s darling, reported a 19% increase. Canadian National Railway chipped in an 11% increase. […]
In fact, railroad executives have been pretty confident in their ability to continue to raise prices on their customers. Railroads have to compete with truck and other means of transport in many cases. The railroads say that even with the increases, it’s cheaper to ship by rail than it was 28 years ago — adjusted for inflation.
Railroads are also pretty green. One rail car can carry freight 436 miles on
The problem with most rail suppliers is that if their stock shares are publicly sold, the rail division is usually only 1 - and a small one at that - market segment of a large company. So the beneficial effect of the rail market gain gets diluted a lot. If instead it’s a small or privately-held company - you & I can’t usually get a piece of the action.
One other supplier to look into - with which I have no affiliation - is Bombardier, which furnished the Acela to Amtrak [] plus commuter cars to SEPTA, and maybe others. Same problem as noted above, though.
Buffett also bought a big piece of a family-owned supplier based in Chicago within the past year or so. I want to say Marmon, but don’t rely on that.
Any thoughts anyone on these RR’s and companies as to who might be best positioned to take advantage of the current boom in rail?
Burlington Northern Santa Fe Corporation (NYSE: BNI) Norfolk Southern Corp. (NYSE: NSC) CSX Corporation (NYSE: CSX) Genesee & Wyoming Inc. (NYSE: GWR) Providence & Worcester Railroad Company (AMEX: PWX) Kansas City Southern (NYSE: KSU) Union Pacific Corporation (NYSE: UNP)
Pioneer Railcorp holding company that operates in two business segments: railroad operations and railroad equipment leasing.
Westinghouse Air Brakes Technology Corporation, or Wabtec (NYSE: WAB) produces locomotives, rail cars and transportation equipment.
Trinity Industries, Inc (NYSE: TRN) largest North American freight rail manufacturer with 30% of the market. It produces freight cars, passenger railcars, boxcars and others.
] plus commuter cars to SEPTA, and maybe others. Same problem as noted above, though.