Railways Pool

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). Six of these carriers are publicly traded. The seventh is owned by Berkshire Hathaway. A recent announcement by Canadian Pacific Railroad to merge with Kansas City Southern will consolidate this railways pool to five potential investments in the third quarter of this calendar year 2021.

The key to success with this pool is determining intrinsic value. This is one of the few times that the discounted cash flows method is warranted in the intrinsic value formula. Once calculated, given the high stability of earnings, the intrinsic value is adjusted annually about four to five percent higher depending on financial and actual performance in accordance with each railroad’s key performance indicators.

The following articles articulate this railways pool of investments and provide all the decision model justifications, formulas, changes and reasoning for the respective buy/sell model. You must be a member of the Value Investment Club in order to access the respective articles and the buy/sell model. Click here to join: Membership.

Currently, late April of 2021, all the railroad stocks are performing at new historical highs. This has been the case now for almost five months. Historical analysis of railway stocks identifies that they are highly correlated with the overall economy which makes sense given their strong relationship to movement of freight. Thus, in order to have an opportunity to buy, the major indices must have retrenchment of some significant percentage, typically more that 15%. This is when opportunities to buy will come to fruition. Until then, a value investor can only wait.

The following graph illustrates the performance of the railways pool during the first year. In effect, this pool outperformed the market by a factor of 3.5. Furthermore, it was able to achieve this with only FIVE full cycle transactions.

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• 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). 

• Railroad Companies – A Solid and Steady Investment

  
  These six are behemoths when it comes to transportation. All have revenues greater than $2.5 Billion per year and hold at least $4 Billion in fixed assets. The key to this investment is the asset allocation model. 

• Railroad Stock – Discovering Opportunities

  
  Railroad stocks are solid and steady investments. There is limited downside risk and adequate historical data to illustrate buy and sell points for an investor.

• Railroad Fund – Status as of 11/06/19

  
  This is purely a historical record of the investment fund for railroad stocks based on the value investing concept developed using business ratios.

• Canadian Pacific Railroad – Sold Stock at $241.47

  
  Today is November 15, 2019 and Canadian Pacific Railroad recovered in accordance with my railroad fund investment model to $241.47 per share.

• Union Pacific – Buy/Sell Model

  Union Pacific's stock carries the highest price to book ratio among the six Class I Railways. It is about a 1.43 times factor over the next best price to book ratio of CSX at 4.73.

• Railroad Fund – Status as of 12/31/19

  
  It's the end of the quarter and time to report on the railroad fund.

• Railroad Fund – Status on 01/31/2020

  
  During the last 30 days, the fund held 13.52375 shares (original investment of $2,500) and sold them on 01/17/2020 at 9:40 AM when the price in the market hit the target under the value investment principle at $207.17. 

• Railroad Stocks – Analysis 02/15/2020

  
  Every one of the six railroad stocks are at or above their all-time highs.

• Railroad Fund – Update on 02/24/2020

  
  Volatility is necessary to create market fluctuations. Market fluctuations create price disparity for either intrinsic value (buy side of the buy low/sell high tenet of value investing) or price recovery, i.e. unsubstantiated high market prices for stock.

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