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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13.85% Return in 13 Days!
Value investing allows investors to earn outstanding returns with a much lower risk. This is another example of excellent returns on a high quality stock. The example value investment fund purchased Norfolk Southern 13 days ago while the share price was 10% discounted from a prior market peak price. The sell trigger was preset at 103% of the prior peak. The only action that needed to occur is market recovery which happened this morning. The buy/sell frequency was extremely quick for this transaction which accelerates the return on the investment.
Sold PUTS Norfolk Southern Railroad
With options, an owner of stock fears a sudden steep drop in price and thus they may purchase an option called 'PUTs' to force someone to buy the stock at a preset price. The key for the owner of a PUT is to set a floor price for their existing stock position. A seller of a PUT desires to own the stock at a certain price if it can get there.
Sold Union Pacific – 23.66% Return in 72 Days
Value investing is about buying low and selling high. The investor creates a model to set buy/sell triggers and exercises this program with investmetns.
Sold 113.6363 PUTS on Union Pacific Railroad
In keeping with the value investment fund's pattern, on Friday the 29th of January, 2021 the Fund sold 113.6363 PUTs on Union Pacific Railroad.
Sold Union Pacific PUTs
Union Pacific is a high quality stock. Over the last twenty years, this company has never failed to earn a profit.
Dividends and Earnings Analysis – Railroad Stocks
Dividends and earnings analysis is one of the core requirements of calculating intrinsic value via security analysis. There is a relationship between dividends and earnings; one is a function of the balance sheet.
Sold 104.712 PUTs on Norfolk Southern Railroad
Within the railways pool of investments for the Club's Value Investment Fund, Norfolk Southern Railroad is considered one of the better investments of the six existing railroads in the pool (soon to be five with the merger of Canadian Pacific and Kansas City Southern).
Union Pacific Loses $20 Billion of Intrinsic Value in 2021
In 2021, Union Pacific had sales of $21.8 Billion, the 2nd highest ever recorded. Union Pacific generated a pretax profit of $8.5 Billion, the highest in its entire history.
Sold PUTs on Norfolk Southern Railroad
This morning, 09/29/22 at 10:37 AM, the Value Investment Fund sold 200 PUTs on Norfolk Southern Railroad at $6.20 netting $5.20 each after transaction fees.
Bought Norfolk Southern Corporation
The Value Investment Fund purchased 100 shares of Norfolk Southern Corporation at $199 per share.