The Winning Area for Stock Picking You Can’t Beat—and You Have to Follow

Railroad stocks—all you have to do is pull up the charts and you’ll see that the entire group has been on a tear. This is a great indicator for the rest of the market and, as Mitchell has written before, a key index to watch is the Dow Jones Transport Index as a predictor for the rest of the market.To illustrate the point of how well railroad stocks have been doing, all you have to do is pull up the charts and you’ll see that the entire group has been on a tear. This is a great indicator for the rest of the market and, as I’ve written before, a key index to watch is the Dow Jones Transport Index as a predictor for the rest of the market.

A large member of that index is CSX Corporation (NYSE/CSX), which is a $30.0-billion railroad powerhouse based in Jacksonville, FL. This stock has almost doubled since September of last year, which is a tremendous performance for any kind of large-cap company. The stock is up about eight-fold since the early 90s. The company just announced a three-for-one stock split, a $2.0-billion new share buyback program, and an increase to its dividend. Business is definitely getting better for this company (and the industry).

The Association of American Railroads publishes all kinds of weekly data on major North American railroads and, by looking at the freight carloads, you can see which areas of the economy are hot and which sectors are not. For the week ended April 30, you can see in the data that shipments of commodities like metals, petroleum, pulp and paper, and grain showed a solid increase over last year. Motor vehicle, and iron and scrap steel shipments showed slight declines. In addition, you can follow the number of containers moved and the intermodal total for an easy look at whether shipping volume is getting better.

For CSX, the company recently announced record first-quarter financial results. Net income for the quarter grew to $395 million, or $1.06 per share, compared to $305 million, or $0.78 per share, in the same period last year. Earnings per share grew 36% year-over-year, while revenues improved by 13% to $2.8 billion.

The company cited that it experienced a seven-percent increase in overall shipment volume, with shipments of merchandise, intermodal and coal reflecting a much stronger economy. Operating income improved significantly and the company achieved a record first-quarter operating ratio.

It isn’t just CSX experiencing much-improved business conditions; the other major railroads are also doing well. It’s no wonder then that Warren Buffett bought Burlington Northern Santa Fe. That was a big bet on the American economy—and the “old” economy at that.

If you want to know how the economy is doing and where the stock market is headed, just follow the railroad companies. It’s an Old-World industry that always sees economic growth first.