Friday, July 10, 2009

Railroad Traffic Still Down

An important indicator to watch, if you want a true picture of the economy, is railroad traffic. Warren Buffett also pays close attention to this.

Buffett follows this gauge more closely than any other index, Bianna Golodryga, a reporter for ABC’s “Good Morning America” program, said yesterday after she interviewed the billionaire investor. Its drop worries him, she reported.

Let's take a look at last weeks data:

  • The Association American Railroads today reported that freight traffic on U.S. railroads continues to parallel the nation’s overall economic condition, as traffic remained down year over year for the week ended July 4, 2009. U.S railroads reported originating 241,240 cars, down 15.6 percent compared with the same week in 2008. Total volume on U.S. railroads for the week ending July 4 was estimated at 25.7 billion ton-miles, off 14.3 percent from the same week last year.
  • Regionally, carloadings were down 11.1 percent in the West and 23.0 percent in the East. Intermodal volume of 169,290 trailers or containers was down 12.8 percent from the same week last year. Container volume fell 6.4 percent and trailer volume dropped 34.9 percent.
  • Eighteen of 19 carload freight commodity groups were down from last year, with declines ranging from 3.3 percent for coal to 72.4 percent for metallic ores. The lone group showing an increase was grain-mill products, which was up 4.3 percent.
  • For the first 26 weeks of 2009, U.S. railroads reported cumulative volume of 6,806,892 carloads, down 19.2 percent from 2008; 4,816,358 trailers or containers, down 16.8 percent, and total volume of an estimated 723.7 billion ton-miles, down 18.3 percent.
Specifically, here are a few things from this report that jump out at me:

-The declines is the West (11.1%) are less than half than that of the East (23%), which plays into the thesis I was looking for in investing in Western Railroads (Specifically BNI).

-Coal only declined 3.3 percent, and grain-mill products actually gained 4.3 percent, while metallic ores dropped 72.4% (gulp!)

Anyways, I'm looking out a little ways here, but its time to look hard at rail stocks. If you wait for an economic recovery, these stocks will already have appreciated closer to full value.

I'm specifically looking to buy Burlington Northern (BNI), and would like to start my position in the lower 60's if I can.

I also picked up some shares of American Railcar (ARII) today as well. This is a little different story, and more of a deep value play (click on the American Railcar tag to see my analysis on this). The bulls have seem to protected 7.00, so I bought some at 7.05. I will add if it drops below 7.00.

There you have it. I really think the market wanted to turn higher today, but the data has been weighing it down. I wouldn't be surprised to see a move higher into the weekend. 875 continues to be a number to watch on the S&P, and as long as that holds, you should be okay on the long side.

Disclosure: Long ARII.

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