Full Speed Ahead For Norfolk Southern (NSC)

Investors may want to take a look at owning shares of Norfolk Southern NSC, as rail traffic continues to show strength, and defy odds of a slowing economy. A report from the Journal of Commerce says, "In June nominal intermodal growth was not enough to match normal seasonal trends and box hauls declined an adjusted 1.1 percent. The Association of American Railroads said July shipments of containers and trailers by major U.S.-owned railroads increased a seasonally adjusted 2.4 percent. That took the adjusted box volume to its highest level since August 2008, the AAR said." It goes on to say later in the report, "The shift follows two months in which rail traffic confirmed a pause in economic momentum and raised concerns because freight activity should be strengthening during a period of recovery from recession." The full report can be found here. The last week of July had the highest volume for railroads for any week in 2010 so far. Carloads were over 300,000, the highest total they've been since November of 2008. Intermodal volume was over 230,000 trailers and containers, the highest reading since July 2008. Lastly, combined carload and intermodal volumes during the last week of July were the highest they've been since November 2008 also. More on the data can be seen here. Sensing a pattern here?? The point I'm making here is that traffic is steadily climbing and this will benefit the railroads, specifically Norfolk Southern. The economy is not slowing, rather it is strengthening, as evidenced by the volume on the rail lines. Norfolk Southern is estimated to grow at over 26% for the next two years, surpassing it's competitors and also yields 2.6%, equivalent to a 10 year Treasury bond. In a key measure of profitability for the rail sector, Norfolk Southern's operating margin for its most recent quarter was 27.15%, higher than either Union Pacific UNP or CSX CSX. Norfolk Southern is also reasonably priced here, trading at 16.3 trailing earnings and just 12 times forward earnings. That seems absurdly cheap for a company projected to grow at 26% over the next couple of years. Investors may want to look at adding Norfolk Southern to their portfolios. It'll be a smooth journey taking Norfolk Southern for a trip. Disclosure: long CSX