Railroad Stock Investments – The Standard of Measurement to Buy and Sell Railway Stock
The transportation sector of the United States economy is composed of nine industrial groups. One particular group moves more volume of tonnage based on ton miles than any other form of transportation – Railroads. In accordance with the Federal Department of Transportation, railroads move 39.5% of all freight in the US (based on ton miles which is the length freight travels). It’s a $60 Billion industry with over 140,000 miles of track. It is dominated by seven major carriers (referred to as Class I Railways). They are:
- Union Pacific
- BNSF (100% owned by Berkshire Hathaway)
- CSX Transportation
- Norfolk Southern
- Canadian National
- Kansas City Southern (Merged in Late 2021 with Canadian Pacific)
- Canadian Pacific
There is a close eighth, but it is classified as a Class II railroad. It is a holding company called Genesee and Wyoming Inc. which holds over 100 short line railroads in its portfolio.
Of the seven Class I Railways, five are currently publicly traded. BNSF is a wholly owned subsidiary of Berkshire Hathaway (I think Warren Buffett knows something here).
Another interesting aspect of this article deals with Genesee. As of today’s date, 10/08/19, Genesee & Wyoming have an offer from Brookfield Infrastructure Partners awaiting federal approval. Brookfield’s offer is $112 per share and today’s trading price is $110 per share and has held steady since the offer was made in early July. Prior to the offer, the stock was trading at $97 per share. For the purposes of this article, I will compare six of the Class I Railways and Genesee since it has many of the attributes of the six above and prior to the offer, Genesee had a market capitalization of nearly $6 Billion.
This article is designed to educate the reader in understanding the core business ratios used by this industry and to identify a standard bearer, a particular stock (railroad company) that can act as the standard to measure others against.