Rail play

July 24, 2017 12:15 PM

In early June 2017, the 10-company strong Transportation – Railroad industry steadily chugged to the front of the Zacks industry pack. U.S. Class I (a.k.a. major trunk line) railroads show up in the top 11% (#27 out of 265) of industries we rank. This week, Zacks counted seven positive earnings estimate revisions and zero negative estimate revisions from covering analysts of that sector.

Further, across the entire U.S.-based transportation industry landscape, we see the story of “big freight” unfold in a fuller set of bullish Zacks industry rankings. Air freight and cargo sits in the top 17%; shipping sits in the top 41% and transportation-services sits in the top 42%.

Strong air freight and shipping ranks are supportive of a stronger GDP going forward. The U.S. economy — after a lackluster start to 2017 — appears to be looking up, thanks to a pick-up in demand for goods as demonstrated by transportation strength. Confident consumers step up to the plate. They close more deals to buy big-ticket items that require long-term financing.

During prior years in this cycle, railroad stocks took a beating. As a result, a key railroad industry valuation metric, the Price to Earnings Growth (PEG) ratio, is 1.69 versus a 1.97 for the overall S&P 500.

Here are three of the top sector picks based on current Zacks Ranking (see “Best in rail”).

• CSX Corporation (CSX): This is the sole Zacks #1 Rank (STRONG BUY).
• Norfolk Southern (NSC): It’s a Zacks #2 Rank (BUY).
• Union Pacific (UNP): It’s a Zacks #2 Rank (BUY).


About the Author

John Blank, Zacks Research