Rail Stocks to Lag Behind Earnings as U.S. GDP Help Fades: EcoPulse – Bloomberg 02-25-14

Salient to Investors:

John Larkin at Stifel Nicolaus said:

  • Railroad stocks are overvalued at 10.9 times enterprise value to EBITD on a trailing 12-month basis versus an average of 9.4 since 1993. The biggest gains are behind them.
  • Their cyclical earnings power will diminish, especially in a mediocre economic environment, and has no buy recommendations on companies in the index.
  • The margin boost rail operators enjoyed from re-pricing their legacy contracts has run its course, making it more difficult to surprise investors, while coal volumes have been weak – hurting profitability in a permanent way.
  • In-line performance relative to the market since 2012 coincides with the decline in coal volumes.

The S&P Supercomposite Railroads Index has beaten the S&P 500 Index by 2.9 percent over the last 12 months after being ahead by almost 500 percent since 2000.

Robbert Van Batenburg at Newedge said:

  • The strength of rail stocks earlier in the economic recovery that began in mid-2009 relative to the broader market showed investors were betting on accelerating GDP, but with the Fed tapering being overweight the group is no longer as viable.
  • Rail stocks need better-than-forecast economic growth to resume their outperformance of  the market on a longer-term basis.
  • The economy won’t expand at a rate that causes the volume of cyclical shipments to rise much beyond the current level.
  • The decline in car purchases means slower earnings growth for railroads, which transport large volumes of them.
  • Any boost to stock performance from a pick-up in weather-related coal volumes will be temporary.
  • The slowing Chinese economy is a potentially serious problem because many commodity exports are transported by rail.
  • Approval of the Keystone XL pipeline would further diminish the volume of rail-shipped commodities and hurt rail companies’ performance.

Andrew Burkly at Oppenheimer said railroad stocks offer a domestic play on the US economy, though are not universally attractive.

Jeffrey Kleintop at LPL Financial is still positive on the group, particularly in the midst of this unusually harsh winter, as railroads could see a reversal of years of declining coal shipments as stockpiles are depleted and the price of natural gas rises amid colder-than-normal weather.

The median economist expects Q1 GDP to rise at an annual pace of 2.2 percent versus an annualized gain of 3.2 percent Q4 2013 and 4.1 percent in Q3 2013.

Read the full article at http://www.bloomberg.com/news/2014-02-25/rail-stocks-to-lag-behind-earnings-as-u-s-gdp-help-fades.html

Click here to receive free and immediate email alerts of the latest forecasts.

Jim Rogers: Biggest Event of Next 10-20 Years Just Happened in China – Moneybeat 11-18-13

Salient to Investors:

Jim Rogers said:

  • The most important economic event of the next 10 to 20 years is what happened in Beijing, though largely ignored, particularly by the Western media.
  • Current efforts to reform, if followed through, could take a generation to really bear fruit but Chinese agriculture, railroads, medical care and defense are attractive investments, even if the country’s stock market collapses
  • Buying Chinese stocks, including financials, for the first time since 2008.
  • The overriding concept from the plenum is “when in doubt, the market will decide.” Policy makers seem to have the wind at their back and leaders have put a lot of prestige on the line.
  • Talk about China’s economy being a bubble or that its ascendance will end is reminiscent of what Europeans said about the US after the Civil War. And within a generation after WWI, the undisputed No. 1, the United Kingdom, was no longer that.

Read the full article at http://blogs.wsj.com/moneybeat/2013/11/18/jim-rogers-biggest-event-of-next-10-20-years-just-happened-in-china/

Click here to receive free and immediate email alerts of the latest forecasts.

Oil Riding Rails Creates Jobs as Buffett Puffs Chest: Freight – Bloomberg 03-12-13

Salient to Investors:

Charles Clowdis at IHS Global Insight said hauling oil in tank cars is creating jobs and wealth and investment opportunities – there is much crude that can’t be piped.

The US expanded oil production in 2012 by the biggest amount since Titusville in 1859.

The S&P Supercomposite Railroads Index has advanced 24 percent in the past year versus a 13 percent gain in the S&P 500: 2012 earnings rose 16 percent versus 5.2 percent for the S&P 500.

Ben Hartford at Robert W Baird said rails provide the flexibility of being able to deliver the crude extracted from the shale to different locations and recommends the stocks.

North Dakota is now America’s second-largest crude producer after Texas and ahead of Alaska.

Read the full article at http://www.bloomberg.com/news/2013-03-13/oil-riding-rails-creates-jobs-as-buffett-puffs-chest-freight.html

Free email alerts of articles as soon as they are posted.