A Rough Spot Ahead for Railroad Stocks
I've covered earnings results for three of the major rail carriers over the past few days, and rarely have I seen such a clear set of indicators impacting an entire group in such a regular way. Three different earnings releases, but they all said essentially the same thing to me... the railroad stocks are headed for a very rough patch for at least the next couple of quarters.
Bound for Glory, But This Train May Stop
Get a Better Deal Than Buffett
Less Gravy on the Train
All three companies indicated that 7-10% volume declines were offset largely by strong pricing and a lag between fuel prices and fuel surcharges. Both of those conditions will be gone by next quarter, and meanwhile the rate of freight volume decline has moved to over 20% in recent weeks. Some degree of earnings weakness has obviously been priced into these stocks already, but I think the degree of economic contraction in recent weeks will take every analyst by surprise. We'll see analysts revising their expectations and rail companies guiding lower over the coming months, and that could set the stage for Fools to find attractive entry points into strong players like CSX and BNI. Buffett was way early getting aboard the BNI train, IMO. His cash would have been better off parked in gold while he awaits an entry point substantially below present levels.
If you're in rail stocks, be prepared for a pit-stop. I believe longer-term the fundamentals do remain fairly positive once the massive stimulus plan kicks into gear. Until then, the sector might require some patience.
For those not in rail stocks, I recommend placing one or two of them on your watchlists. I'm not a bottom-caller, but anywhere beneath Buffett's recent entry price on BNI will likely pay off in the long run.