Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Railroad Stocks

Railroad stocks are a group of equity securities representing publicly traded railroad companies that are based in North America. Within this group, companies are mostly largely capitalized with long operating histories.

One Group of Stocks Investors Can’t Ignore

By for Profit Confidential

Stocks That Really MatterSo long as transportation stocks are ticking higher, the stock market is much less susceptible to a price retrenchment.

The Dow Jones Transportation Average just blew past 8,500, recently hitting a new record-high after taking a well-deserved break around mid-July and August.

Airline stocks led the index’s recent price strength. Some examples: JetBlue Airways Corporation (JBLU) was $8.00 a share in May, now it’s pushing $13.00. Meanwhile, Southwest Airlines Co. (LUV) was $20.00 a share at the beginning of the year, recently hitting a price of more than $33.00 for a new all-time record-high.

But it isn’t just airline stocks that are doing well on the Dow Jones Transportation Average; railroad stocks and trucking companies are pushing through to new highs, too, and earnings estimates for a lot of these companies are increasing, especially for 2015.

It may seem like an old-school concept, but strength in transportation stocks is still a leading indicator for the broader market. Price strength in these stocks often shows up at the beginning of a new business cycle.

Union Pacific Corporation (UNP) is one of my favorite railroad stocks for investors and it’s a great benchmark for determining your investment strategy, even for those not interested in the company. Monitoring this stock is a great way to gain market and economic intelligence.

This position still has good potential for further capital gains and earnings forecasts have been going up across the board—including estimates for the company’s third and fourth quarters, all of 2014, and all of 2015.

The stock’s been in a well-deserved price consolidation since May, but it recently broke out of this trend … Read More

Why These Stocks Are a Leading Indicator of the Market and What They Foresee Now

By for Profit Confidential

Why the Cycle in Transportation Stocks Isn't Over YetIt’s no surprise that the railroad business is doing well. We’ve been looking at Union Pacific Corporation (UNP) and other railroad stocks consistently in these pages for a number of years.

But not only are pure-play railroads doing well, offshoots within the industry are also booming.

It’s a good time to be in railroad stocks, and if you believe that the economy is ready to experience a new business cycle like I do, then these stocks have a lot more legs in this market.

I still like Union Pacific and Canadian National Railway Company (CNI) both for capital gains potential and income for investors.

The railroad business isn’t complicated. If there is demand for the shipment of freight, railroad companies add railcars. Accordingly, a company that manufactures railcars and other related products is likely doing pretty well considering how strong railroad stocks have performed over the last several years.

The Greenbrier Companies, Inc. (GBX) is a company we’ve looked at before. This business is headquartered in Lake Oswego, Oregon and business conditions are pretty good.

The company manufactures railcars for the North American market as well as Europe. But it’s not just a pure-play railcar supplier; the company makes barges for marine transportation and also sells specialized industrial fabrication for electrical, construction, and energy customers.

A lot of stocks related to the transportation/freight/railroad industry are doing great. The Greenbrier Companies is riding a wave of new manufacturing demand, and the stock just hit a new all-time record-high after reporting another great quarter. (See “Why These Four Rail Picks Are on My Radar.”)

According to the company, its bottom-line earnings for … Read More

This Company a Benchmark for the Entire Stock Market?

By for Profit Confidential

One Company, One Benchmark Stock for EverythingUnion Pacific Corporation (UNP) is a company that’s getting upgraded by the Street and earnings estimates are ticking higher. It’s great news for this benchmark stock and top wealth creator.

The business cycle in old economy industrial businesses still has legs, and while Union Pacific’s share price is up some 25 points over the last 12 months, I think this stock can keep ticking higher into 2015.

The railroad business has proven to be a good one over the last several years. Most railroad companies have been able to increase their prices for freight without affecting demand, and that’s a very important metric and telling indicator.

Union Pacific’s share price was around $26.00 a share this time in 2009. Now it’s just over $100.00 (the company recently effected a two-for-one stock split) and the company has increased its dividends paid seven times since 2009. This is a good business, and it continues to pay as a stock market investment.

The company’s volume growth is coming from both agricultural and industrial products. And even its coal transportation business is showing improvement.

Union Pacific is moving a lot of freight cars related to the domestic oil business. While many might see this as carloads of crude, the company actually ships more carloads of fracturing sand than oil. It’s a growth area for the business, and it has been for several years.

The company’s one-year stock chart is featured below:

Union Pacific Corporation Chart

Chart courtesy of www.StockCharts.com

This is a stock that has proven to be a worthy buy when it’s down. It hasn’t been down for long, and it remains a favorite among institutional investors, … Read More

Stocks the Broader Market Can’t Move Without

By for Profit Confidential

This Company Is a Barometer for the Whole MarketIt’s been a very choppy start to the year for stocks and with no real trend to latch onto, the news of the day is the catalyst for the trading action.

There is still a positive undercurrent in the equity market, and it’s evidenced, in part, by particular strength in a number of key stock indices. (See “If This Indicator Turns, the Stock Market’s in Trouble…”) But it’s also apparent in a number of leading stocks—the positions that led the stock market in its 2013 breakout performance.

One of these stocks that continue to be a standout and outperformer is Union Pacific Corporation (UNP), an old economy railroad stock that is very much a canary in the coalmine for the U.S. economy.

The railroad business has been exceptionally good the last few years. And if coal shipments have diminished, then oil and fracturing sand have made up the difference and then some.

But for regular freight, business conditions have been pretty decent, according to the railroad companies, and this is material news that rises above the noise. Vehicle shipments have been strong, which has helped a lot.

According to Union Pacific, in spite of what management referred to as significantly weaker coal shipments, volume growth and pricing gains in regular freight produced a record fourth-quarter operating ratio (a measure of profitability) of 65%.

The company reported that its fourth-quarter operating revenues grew seven percent to $5.6 billion, up from $5.25 billion in the same quarter of 2012. Management said that volume growth from agriculture, automotive, intermodal shipments, and industrial products more than offset declines in coal and chemicals.

Agriculture volume … Read More

What the “Microsoft Indicator” Says Now

By for Profit Confidential

Microsoft the Best Market Indicator at This TimeEarnings estimates for Microsoft Corporation (MSFT) are going up and the stock, which recently accelerated, finally looks like it has broken out of a 13-year consolidation.

Microsoft has been an income play for quite a while. Currently yielding three percent, the company’s forward price-to-earnings ratio is around 12.5 and is not dissimilar from many other blue chips.

Then there’s Intel Corporation (INTC). This company has been struggling for capital gains, but it’s yielding 3.6% and isn’t expensively priced.

What these technology companies illustrate so well is the business cycle, both in terms of operational growth and also as equity securities. Getting the cycle correct (the right place/stock at the right time) is the toughest thing for any investor or businessperson.

Regarding stocks, both Microsoft and Intel’s long-term charts clearly show how extremely overpriced their share prices were during the bull market of the 90s. Intel’s long-term stock chart is featured below:

INTC Intel Corp. Nasdaq GS Chart

Chart courtesy of www.StockCharts.com

The benefit of the very long term is that it provides a normalized but still decent rate of return with these kinds of stocks. No enterprise or investor can escape the business cycle, whether it is industry-specific, a local reality, or the general economy.

Railroad stocks have been super hot over the last several years, but for long periods of time, they were not. The solid dividend-payers that they are, you’d be hard-pressed to find Union Pacific Corporation (UNP) competing with Apple Inc. (AAPL) or Google Inc. (GOOG) for headlines.

I feel that stocks have broken out of their previous consolidation phase in favor of a new long-term cycle. But while last year’s stunning price … Read More

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