Thursday, May 21, 2009

Rails Good Indicator of Economic Reality

I've been studying various railroads lately, with the idea of picking up some shares on recent and possibly further weakness in the economy. Rails provide us one of the clearest pictures into the health of our broad economy. They haul food, building materials, metals, chemicals, autos, and energy products. The short answer to this is that railroad volumes are continuing to drop across all metrics. No sign of a bottom yet. As someone looking to buy some stock, that's a good thing; better deals are coming. As someone trying to figure out of the economy has recovered, its not so good.

This page shows some excellent data (railfax report).

After looking at this data, I'm continuing to see Burlington Northern (BNI) as the strongest among the US majors. They actually have gained a little market share during this, and they have the least amount of exposure to autos, which have basically be cut in half. Quite frankly, autos will still be a huge question mark: what will happen with GM?

If you're looking to buy BNI, also be aware that Warren Buffett has a huge position in it. This can be good and bad. Good in that you have proof its a good company; bad in that the stock will carry a couple % points "Buffett Premium". Still I wouldn't let that prevent you from buying.

Also, you can find a nice post on rails at The Pragmatic Capitalist.

Keep in mind, this won't be a "fast money" trade. Rails won't be bought up by speculators on hopes of "green shoots." They will need some recovery in the economy first, which could be a little while off. But when the economy returns, rails will have a lot of advantages like efficiency and some insulation to higher energy prices. You can be patient here, and wait for a better price. I'll post when I buy some shares.

Disclosure: None.

No comments: