Should i buy railroad stocks

Railroad stocks are often overlooked as they are relatively plain investments in an industry that might eventually be phased out. However, most industry experts insist rail service will be in use for the foreseeable future. Invest in the right rail stocks, and you could make money while diversifying your portfolio. Though rail companies are rarely featured on CNBC and other investing media, plenty rake in the cash year after year. Part of the appeal of investing in rail stocks is the fact that there is less risk.

Though the rails don't have as high of a ceiling as some other stocks, these companies have proven their business models work. Let's shift our attention to two specific rail stocks every investor should consider adding to their portfolio. CSX is one of the country's top transportation businesses. Headquartered in sunny Jacksonville, CSX railroad cars will likely cross a railroad track near you at some point today.

The company provides freight transportation services, including the transportation of intermodal containers along with trailers. Investors who would like to find out how CSX fares in the Value, Growth, and Stability components can do so by clicking here. Of the 17 stocks in the Railroads industry, CSX is ranked third. Click here to find other top stocks in this industry. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at or visit www.

We've detected you are on Internet Explorer. For the best Barrons. Google Firefox. Subscribe Now. Subscribe or Sign In. The revenue of these railways also fluctuates with the economy. On the other hand, if the economy is struggling and consumer confidence is low, then railroads will likely struggle. There are two main reasons why investors buy railroad stocks. First, they usually provide income by paying consistent dividends.

Second, since there will always be a need to transport goods, railroads are considered a stable industry. This will give us a good idea of which railroad stocks are a good buy. However, most railways have since transitioned to an operating model known as precision scheduled railroading PSD. This new model was pioneered by Hunter Harrison and allows freight trains to operate more like passenger trains.

This means that trains are dispatched on set, pre-determined schedules. This new PSR system has greatly improved railroad profitability. It comes down to a combination of headwinds from lousy weather and an increase in fuel prices -- both factors that won't necessarily repeat. In fact, without these headwinds, the OR would have fallen to However, what caught the eye was CFO Jennifer Hamann outlining on the earnings call that "guidance around full-year pricing, productivity, and operating-ratio improvement in the range of to basis points all remain intact," and "we will likely be closer to the than the All told, the stock is probably not a buy for most investors.

The valuation looks like it's fully up with events, and it's worth noting that Union Pacific's OR guidance received the boost of a better end-market environment.

Moreover, there's no guarantee that Union Pacific will reduce its OR beyond , meaning that its earnings could end up on a low-single-digit growth trajectory in line with economic growth in general. As such, the stock remains attractive for a certain type of investor. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Average returns of all recommendations since inception.

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