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In this piece, we will take a look at the ten best railroad stocks to invest in. If you want to skip ahead to the top five stocks in this list, then take a look at 5 Best Railroad Stocks to Invest In.
The railroad industry is one of the oldest industries in the world, and it is one of those that have proven to be integral to global economic development. For businesses and economies to thrive, companies must be able to ship their goods over large distances, and the train has been used for this purpose before trucks came into play.
Modern day supply chain logistics are bifurcated across two transportation categories. Out of these, inland transportation refers to the methods that are used to ship goods either within facilities located in a geographical area, or from ports to various locations. Typically, either truckload or railroads are used for these purposes, and both have their respective sets of advantages and disadvantages.
Railroads have several advantages over truckloads, as they can often carry more containers through double stacking, have shorter and consistent lead times, are environmentally friendly, and can carry more loads. Their importance to the economy is evident by the fact that in the early history of the United States, one of the first developments which took place was the connection of the Eastern and Western coasts of the country through rail. This led to businesses being able to access larger markets and increase their revenue and customers.
The railroad industry also resulted in one of the richest men in American history earning his fortune from the sector. Cornelius Vanderbilt, also known as ‘the Commodore,’ was an American businessman who thrived in the steam shipping business and is known for having set up the Grand Central train station in New York City. Estimates that use Mr. Vanderbilt’s net worth as a proportion of the U.S. gross domestic product (GDP) at the time of his death, and apply this proportion to the current size of the American economy, peg his net worth equivalent to $143 billion in 2007.
The railroad sector is projected to grow strongly over the coming years. For instance, according to a research report from Technavio, the railroad market is expected to grow by $337 billion between 2020 and 2025, reflecting a comp0unded annual growth rate (CAGR) of 10.14%.
Reflecting the continued importance of railroad transportation, another report which covers the railway connector subsegment also sheds more light on what’s to come for the industry. According to The Insight Partners, the market for these connectors might stand at $1.15 billion in 2028, growing from $803 million in 2021 at a CAGR of 5.3%.
Some of the hot stocks in the railroad market that need to be on anyone’s radar are Union Pacific Corporation (NYSE:UNP), CSX Corporation (NASDAQ:CSX), and Westinghouse Air Brake Technologies Corporation (NYSE:WAB).
Photo by Acton Crawford on Unsplash
In order to pick out some of the top railroad stocks that might be worthy of taking a look at, we took a holistic view of the industry and which players might benefit from growth. Once the firms were identified, they were then studied through their analyst reports, earnings coverage, large shareholders, industry developments, and hedge fund sentiment courtesy of Insider Monkey’s survey of 912 hedge funds for the first quarter of this year.
Best Railroad Stocks to Invest In
10. Central Japan Railway Company (OTCMKTS:CJPRY)
Number of Hedge Fund Holders: N/A
Central Japan Railway Company (OTCMKTS:CJPRY) is a Japanese railroad and transportation business that is headquartered in the Nagoya city of the Aichi prefecture. The company’s primary facility is strategically located in a city that serves as a connecting junction for the three main Japanese metropolitan areas. Additionally, it also operates busses, conducts track maintenance, provides consultancy services, and manufacturers railway machinery.
Central Japan Railway Company (OTCMKTS:CJPRY) raked in 935 billion Japanese Yen during its fiscal year 2022 which ended in May 2022. This marked a 13.6% annual growth and was a turnaround for a company that saw its revenues drop by a massive 55% during its previous fiscal year.
Central Japan Railway Company (OTCMKTS:CJPRY) is one of the top railroad stocks out there because it operates the main high speed railway between Tokyo and Osaka. These two cities have a combined GDP of $3 trillion, which represents 65% of Japan’s overall GDP. So naturally, the company is the primary go to for firms and consumers looking to ship goods and commute in the highly valuable region.
Central Japan Railway Company (OTCMKTS:CJPRY) joins CSX Corporation (NASDAQ:CSX), Union Pacific Corporation (NYSE:UNP), and Westinghouse Air Brake Technologies Corporation (NYSE:WAB) in some of the top railroad stocks.
9. USD Partners LP (NYSE:USDP)
Number of Hedge Fund Holders: 1
USD Partners LP (NYSE:USDP) is an American railcar logistics service provider that exclusively targets the highly lucrative oil and gas industry. The company provides terminals to oil companies that allow them to load their products onto railcars, ship oil to pipelines, and more. Additionally, it also leases railcars to the companies for making their shipments in the United States and Canada. USD Partners LP (NYSE:USDP) is headquartered in Houston, Texas.
The railcar company announced in March 2022 that it had entered into an agreement to acquire assets for a railcar terminal in Canada. In a volatile stock market, USD Partners LP (NYSE:USDP) increased its dividend by 2.1% for shareholders of record in May 2022. The Canadian terminal is set to boost the company’s free cash flows, and its recent distribution of record in January brought the distribution yield to 8.6%. Additionally, and more importantly, at its latest earnings call, its CEO remained confident in his firm’s ability to maintain this track record. As a result, USD Partners LP (NYSE:USDP) provides investors and unitholders with a nice incentive to keep investing in the company.
USD Partners LP (NYSE:USDP)’s sole investor in Insider Monkey’s hedge fund portfolio is the renowned Ken Griffin’s Citadel Investment Group which owns 12,139 shares that are worth $73,000.
8. GATX Corporation (NYSE:GATX)
Number of Hedge Fund Holders: 14
GATX Corporation (NYSE:GATX) is a railcar leasing company that is one of the oldest of its kind in the world. The firm was founded just before the infamous Gilded Era in U.S. history, after being set up in 1898. The firm primarily leases tank and freight railcars, alongside locomotives for large industries such as energy and agriculture. Additionally, not only does it conduct railcar maintenance, but it also owns ships and leases out aircraft engines. GATX Corporation (NYSE:GATX) is based in Chicago, Illinois.
Investment bank Wells Fargo was keen to mention GATX Corporation (NYSE:GATX) in a June 2022 investor note which covered the railroad industry. Wells Fargo outlined that the market for rail equipment has strong demand which is sufficient to address any impact of price increases, which it believes are only seasonal in nature. Consequently, GATX Corporation (NYSE:GATX) was assigned a Buy rating by the firm.
Insider Monkey’s research of 912 hedge funds for the first quarter of this year revealed that 14 had invested in the railcar lessor.
Mario Gabelli’s GAMCO Investors is GATX Corporation (NYSE:GATX)’s largest investor. It owns a $ 203 million stake that comes through the fund holding 1.6 million shares.
7. The Greenbrier Companies, Inc. (NYSE:GBX)
Number of Hedge Fund Holders: 16
The Greenbrier Companies, Inc. (NYSE:GBX) is an American company with operations covering several segments of the railcar industry. The company manufactures, leases, and repairs railcars. It builds several kinds of railcars such as tanks, flat bulkhead, conventional, and double stack cars. It also leases a fleet of thousands of railcars to a variety of businesses. The Greenbrier Companies, Inc. (NYSE:GBX) is headquartered in Lake Oswego, Oregon.
Susquehanna kept a $58 price target for The Greenbrier Companies, Inc. (NYSE:GBX) in April 2022 as it outlined that while there is some concern regarding the company’s margins, positive order flow for railcars leaves it optimistic for the company’s future. 16 out of the hedge funds part of Insider Monkey’s research for this year’s March quarter had held a stake in the company.
One big reason that The Greenbrier Companies, Inc. (NYSE:GBX) is one of the best railroad stocks out there is because of the fact that its products are more energy efficient when compared with others. This is important considering the high oil prices that will persist throughout this year and since the company manufactures rail cars that use less fuel, the demand for these transport means will also go up. Naturally, this has also led to a Buy rating for The Greenbrier Companies, Inc. (NYSE:GBX) by Wells Fargo.
The Greenbrier Companies, Inc. (NYSE:GBX)’s largest investor is Richard Driehaus’s Driehaus Capital which owns 720,360 shares that are worth $37 million.
6. Trinity Industries, Inc. (NYSE:TRN)
Number of Hedge Fund Holders: 16
Trinity Industries, Inc. (NYSE:TRN) is a rail transportation products and services provider. The company manufactures and leases railcars. It has more than 100,000 railcars in its portfolio and serves a wide variety of industries such as agriculture, chemicals, energy, construction, and metals. The firm’s manufacturing capabilities allow it to build all kinds of railcars as well. Trinity Industries, Inc. (NYSE:TRN) is headquartered in Dallas, Texas, United States.
Trinity Industries, Inc. (NYSE:TRN) earned $472 million in revenue and $0.13 in non-GAAP EPS for its first fiscal quarter. These missed analyst estimates and as a result, the company’s share price dropped in the stock market. The company acquired a rail logistics software firm in May 2022, diversifying its operations in the process.
While these details are not visible on the surface, Trinity Industries, Inc. (NYSE:TRN) has one of the strongest portfolios of railcars and leases in the industry. The company was responsible for shipping 35% of all of the railcars in the U.S. in 2020, and it has a little less than 110,000 railcars in its portfolio through its leasing division. This division places Trinity Industries, Inc. (NYSE:TRN) at the cusp of an ongoing shift in America, where railcar ownership is shifting from railroads to lessors. The company is the second largest railroad lessor in the U.S., coming in second only to Wells Fargo. To boost this, Trinity Industries, Inc. (NYSE:TRN) is also entering the S&P SmallCapp 600 index.
Insider Monkey’s Q1 2022 912 hedge fund survey listed 16 funds as having bought Trinity Industries, Inc. (NYSE:TRN)’s shares.
Out of these, Trinity Industries, Inc. (NYSE:TRN)’s largest investor is Mario Gabelli’s GAMCO Investors which owns one million shares worth $37 million.
Along with Union Pacific Corporation (NYSE:UNP), CSX Corporation (NASDAQ:CSX), and Westinghouse Air Brake Technologies Corporation (NYSE:WAB), Trinity Industries, Inc. (NYSE:TRN) is an attractive railroad stock.
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Disclosure: None. 10 Best Railroad Stocks to Invest In is originally published on Insider Monkey.