Railroad Stocks the Best Market Predictor for Investors?

Railroad Stocks the Best Market Predictor for InvestorsIt really is a great time to be in the railroad business. Cash flow is abundant and these stocks are poised for more capital gains.

While coal shipments have been a weak spot for railroad companies, virtually all other major customer sectors are producing excellent comparable growth.

And that growth is directly reflected in share prices. Railroad stocks have been—and continue to be—on a tear.

When the broader market corrected in October, Union Pacific Corporation (UNP) dropped just below the $100.00-per-share level for an approximately 10% correction.

It was another great buying opportunity. The position just broke $122.00, which is a very material gain for a $100-billion enterprise.

Some 22 Wall Street research analysts increased their earnings estimates on the company for this current year and all of 2015.

Railroad companies (and stocks) are great predictors for the broader economy. And transportation stocks, in general, often lead the broader market in terms of direction. (See “Two Off-the-Radar Stocks with Record Results.”)

Union Pacific is generating record results. And it’s buying back a lot of its own shares.

The good news for shareholders is that the company plans to keep buying a lot of its own shares. So far this year, by the end of the third quarter, Union Pacific bought 24,307,000 of its own stock at an average price of $96.47. The company has 95,693,000 that it can repurchase under its current authorization, which ends December 31, 2017.

Agriculture, industrial, automotive, intermodal, chemical, and even coal products all experienced increases in comparable freight revenues in the third quarter this year.

And the company’s dividends have been going up steadily. While so many institutional investors opted to branch out their portfolios into smaller-cap companies this year, dividend-paying blue-chip winners continue to be some of the market’s best performers. I think these stocks are poised for continued price strength in 2015. They have the momentum both operationally and on the stock market.

Of course, not all investors are interested in owning railroad stocks. But the corporate performance of railroads is material information and can help with your own economic outlook and stock market view. Statistical data provided by the Association of American Railroads (AAR) regarding rail freight is very worthwhile.

U.S. rail traffic for the month of October among class I railroads originated 1,507,917 carloads according to the AAR. This was 4.4% higher than October of 2013; the third time since 2008 that average weekly carloads for any given month were over 300,000; and the best month ever in the history of U.S. intermodal rail traffic.

There’s lots of statistics to cherry-pick in support of a variety of outlooks. But doom and gloom always sells better in the marketplace for views.

From my perspective, a great deal of underlying data is still very supportive for stocks going into 2015, and the railroad industry is definitely holding its own with its earnings growth, solid outlooks, and current performance data.