Can You Ride the Rails Higher? - Investment Ideas

As we blast into 2011, the global economy continues to show signs of strength. That may fly in the face of the never ending stream of negativity from the media, but a closer look reveals a clear trend higher.

At the very top, GDP in both developed and emerging markets has been on the upswing for the last 6 quarters, muting fears that a recovery was unsustainable. Consumers are regaining confidence, on display this holiday season with better than expected retail sales. Companies are also beginning to spend and invest, with big names like Ford Motor Co (F) and Dollar General (DG) recently announcing waves of new jobs.

Railroads are an Indicator

So if the economy is showing signs of a sustained recovery, certain segments of the market should benefit, with rail shippers sitting at the top of the list.

Rail shippers are viewed as a leading economic indicator, with higher volumes and more shipments usually coming in tandem with increased business activity. We have definitely seen that play out over the last 6 quarters, with a number of North American rail shippers posting big gains as growing demand drove sales and earnings.

Let's go ahead and take a closer look at a few that are leading the pack.

Top 4 Rail Shippers

CSX Corp. (CSX) is a large North American rail shipper, with a network of more than 21,000 miles and market cap of $26 billion. CSX has seen big gains over the last three months on a steady stream of improving economic data. The company has an average earnings surprise of 7% over the last four quarters and a bullish 17% growth projection. With a forward PE of 15X, shares trade at a discount to the industry average of 21X. Take a look below.

Genesee & Wyoming, Inc. (GWR) is a smaller player in the rail space, with a market cap of $2.25 billion and rail network of 6,000 miles. This Zacks #2 rank stock has an average earnings surprise of 10% over the last four quarters and a very bullish 42% growth projection. But with a PEG ratio (PE/Growth) of .47%, shares trade well below the value benchmark of 1. Take a look below.

Kansas City Southern (KSU) is a mid-sized player in the rail space, with a market cap of $5.3 billion and rail network of more than 25,000 miles. KSU has been on a roll for the last 18 months, recently accelerating into 2011 for a new multi-year high. The company has an average earnings surprise of 22% over the last four quarters and bullish 30% growth projection. And with a PEG ratio of .66%, KSU also has value. Take a look at the chart below.

Canadian National Railway Co. (CNI) is the biggest of the lot, with a 21,000 rail network and market cap of $31 billion. But that hasn't stopped shares from blasting higher, recently hitting a new multi-year high after rallying with the market in late 2010. The company has an average earnings surprise of 9% over the last three quarters and solid next-year growth projection of 13%. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
CDN NATL RY CO (CNI): Free Stock Analysis Report
 
CSX CORP (CSX): Free Stock Analysis Report
 
DOLLAR GENERAL (DG): Free Stock Analysis Report
 
FORD MOTOR CO (F): Free Stock Analysis Report
 
GENESEE & WYO (GWR): Free Stock Analysis Report
 
KANSAS CITY SOU (KSU): Free Stock Analysis Report
 
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