Buy These 5 Railroad Stocks Before Its Too Late
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
2012 should be another outstanding year for railroads and there are five in particular that are positioned to make solid moves this year.
CSX Corp (NYSE: CSX) has proven to be resilient and consistent over the last decade despite constant naysaying and doubts in its ability to maintain its course. Kansas City Southern (NYSE: KSU), the smallest class I railroad, has also proven to be one of the more reliable. Union Pacific (NYSE: UNP) makes the list as the largest North American railroad and on the path to recovery, while Norfolk Southern (NYSE: NSC) comes in as the most efficiently run railroad on the continent. Canadian Pacific (NYSE: CP) completes the list as a wildcard with room for improvement, but the stock shows consistency that simply cannot be argued with.
CSX posted a $1.5 billion profit in 2010 and continued on a decade long recovery plan that brought the railroad significant gains over the past three years. This railroad has consistently proved doubters wrong since 2003 and is beginning to build momentum as investors show confidence in both the railroad and its stock. CSX Corp looks attractive to both the short term and long term buyer due to its show of consistency over the years and lack of any real threat to its progress.
Kansas City Southern is one of the more volatile railroads on the list but it shows too much potential for positive gains for it not to receive consideration. The stock has risen from $17 per share to $68 over three years and shows no signs of a course change in sight. Kansas City Southern has taken considerable measures to protect itself from its competition and will continue to show gains through 2012 as a result.
Union Pacific is another example of consistency and has tripled its stock value in the last 10 years with the majority of its gains coming in the years of 2009-2011. The railroad is on the path to recovery after a drop in 2008 and has remained in a state of growth ever since. Like CSX and Kansas City Southern, this stock appeals to both the short term and long term investor because it shows consistent growth with very little changes in direction.
Norfolk Southern is the best managed railroad in North America and consistently shows a net income of $1 billion or more each year. Its value took a major hit in 2008 with Union Pacific, but the railroad made an astonishing comeback in 2009 and has gone nowhere but up since. Ten years ago, the stock traded for $19 per share compared to $76 at the beginning of 2012, showing that it has long term investment appeal and comes with little risk.
Canadian Pacific is the most risky of the railroads on this list but the stock has earned merit through the same level of consistency as the others. It is argued that the most recent inflation of this railroad’s stock value has been manipulated by a single investor who acquired 14.2% of the railroad’s stock to become the largest shareholder. The investor, William Ackman, acquired $1.3 billion worth of Canadian Pacific stock in an effort to influence the board to abandon CEO Fred Green in favor of Hunter Harrison, the retired Canadian National CEO.
Canadian Pacific’s fate rests on whether or not William Ackman gets his way and a change in leadership comes with uncertainty. While Hunter Harrison tripled the worth of Canadian National (NYSE: CNI), it is still uncertain whether he will even accept the position at Canadian Pacific if it is offered to him. These circumstances make Canadian Pacific a true wildcard on the list as its future remains uncertain. Despite the drama over its CEO, the railroad looks great on paper and has shown consistent growth over the past three years.
If you haven’t yet considered any of these railroads, 2012 is the sure time to do so as each one is positioned for another year of gains, with the exception of Canadian Pacific, which remains a calculated risk that is worth taking, especially if you hedge your position by investing in a combination of the other four. CSX, KSU, UNP and NSC are all safe bets and you should get in now while you can still afford to and the price is right.
Motley Fool newsletter services recommend Canadian National Railway. The Motley Fool has no positions in the stocks mentioned above. Vatalyst has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.