A Great Way To Get Your Portfolio Back On Track
When I was studying law at George Washington University in Washington, D.C, I spent most of my time in class or at the library. But every so often I would take a well-deserved break.
My favorite excursion was shooting up to New York City for a weekend.
Instead of taking a flight though, I would head over to Union Station and climb aboard an Amtrak train. The train would take me directly to Penn Station in under three hours. And it was a lot easier on the wallet.
I loved “riding the rails”.
The rhythmic clickety-clack of the wheels was somehow reassuring. The gentle swaying of the car was soothing and relaxing. And I truly enjoyed watching the colorful countryside speed by.
It was a slice of Americana I’ll never forget.
So what got me reminiscing about the railroads?
I recently read a report from the Association of American Railroads. The report said, “U.S. railroads saw the highest weekly intermodal volume for 2010 and highest container count on record for the second consecutive week.” That was for the week ending September 25th.
You may not know it, but this is fantastic news.
Rising rail freight volume is a strong indicator the U.S. economy is recovering. And record numbers mean it’s happening faster than many thought just a few weeks ago.
In fact, freight loads are now approaching the 2008 highs. If the trend continues, we should see volumes surpass those pre-recession peaks soon. That would be a strong sign the economic recovery is firmly “on track”.
Of course, improving rail freight volumes aren’t just good news for the economy. They also bode well for the freight railroad operators. It won’t be long before revenues and earnings are growing even faster.
And let’s not forget about the railroads’ “secret weapon” for increasing profits.
I’m talking about the Staggers Rail Act.
This important piece of legislation was signed into law by President Carter in 1980. It literally saved our nation’s railroads from certain obliteration.
You see, back in the 1970s, America’s railroads were on the verge of ruin.
Suffocating government regulation, intense competition from trucks and barges, and changing shipping patterns had taken a heavy toll. A good number of American railroads were bankrupt or nearly so.
The Staggers Rail Act gave the railroads new life…
The most important part of Staggers is the secret weapon I alluded to earlier. I’m talking about a provision giving railroads the discretion to base their rates on market demand.
In other words, the railroads (not the government) get to decide what rates to charge shippers. They also have the ability to raise rates.
Thanks to Staggers, railroads are raising rates 5% (above inflation) every year. And it’s helping railroads maintain double-digit profit margins.
What’s more, Staggers has made railroads the transporter of choice for shippers. From the shipper’s perspective, rail transport is cheaper and more fuel-efficient than truck and ship transport. If you have to ship something mid-to-long distance, rail is a no brainer.
With the economy gaining speed and rail freight volumes increasing, railroad stocks are looking good. There are a few railroads with strong growth outlooks and reasonable stock prices, including: Kansas City Southern (KSU), Union Pacific (UNP), Norfolk Southern (NSC), and CSX (CSX).
Take a closer look at a few of these stocks now. They’re a good way to play the ongoing economic recovery in the U.S.
Category: Stocks
