Railroad stocks are good businesses to own. It is very likely trains will transport things for us for a very long time. This article will give you a quick overview of the reasons you might want to invest in railroad stocks and links to each railroad stock analyzed in detail alongside a comparative railroad sector investing analysis.
Railroad stocks list with detailed analysis
If you are interested in any specific railroad stock and its investment thesis, you can find the links to the analyses below.
Railroad stocks list with detailed analysis:
- Canadian National Railway Stock – NYSE: CNI – good
- Canadian Pacific Railway Stock – NYSE: CP – good
- CSX Corporation – Nasdaq CSX – best cash flow yield
- FSTR stock analysis – wait for single digit stock price
- Kansas City Southern Stock Analysis – Takeover and buyback upside
- Norfolk and Southern NSC stock analysis – cash cow stock
- Union Pacific Railroad stock analysis – good
- Burlington Northern with Berkshire – amazing
If you prefer enjoying a coffee and listening to the content, here is the video on rail stocks, article continues below.
Railroad stocks investment thesis
There are 4 key investment factors when it comes to considering adding a rail stock to your portfolio: Moats and business quality, environmental impact, profitability and valuation.
Here is the detailed railroad stocks investment thesis explanation. Here is the summary:
1) Railroad stocks offer security because the infrastructure has been built and the companies can now enjoy the dividends coming in.
2) Transporting cargo via rail is the cheapest form of transport and also the most environmentally friendly.
3) Given that nobody will build a new railroad because of legal reasons (not in my back yard) and the unlikely profitability of such a venture – railroads are able to increase prices and focus on becoming more and more profitable as demand for traffic grows.
4) Railroads stocks definitely offer partial ownership of a great business. Unfortunately, great businesses usually come at fair or high prices. The average free cash flow yield for a railroad stock is around 3.5%. The businesses offer quality but you have to see at what price level it is worth to add quality to your portfolio.
Railroad stocks comparative analysis – the best railroad stock
This is an overview of the key metrics related to railroad stocks.
Investing in railroad stocks now offers safety from a perspective but the main risk I see are the high valuations. Free cash flow yields of 3% create a big risk for the stock price. If the market starts requiring a 6% free cash flow yield because interest rates go higher or inflation hits, the stock price could be down 50% very quickly.
Actually, that would not even be that strange as most railroad stocks went up 100% over the last few years. So, in case of a 6% yield being required, all what could happen is for railroad stocks to return to 2018 levels.
Before investing in railroad stocks, you should ask yourself whether you are looking for good long term investments where you can behave like an owner or you are looking for stocks that will go up. Given the buyback craziness in the rail sector, railroad stocks could go still go up but the buyback party will be over at some point in time, which is again a risk for railroad stocks.
If you are looking for an investment and want to avoid the buyback at any price railroad environment but still own a railroad, the best railroad stock investment might actually be Berkshire Hathaway as it owns Burlington Northern Santa Fe. It is about you and what kind of investment you are looking for. (article to come)
Transportation stocks at multi year lows are airport stocks, another sector I have analyzed lately.
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