Investing in railroad stocks during a strong economy can deliver serious returns. But because they’re affected by various sectors from agriculture to oil and gas, these securities can be highly volatile and difficult to analyze.
What are railroad stocks?
Railroad stocks are shares of companies that transport people, goods and raw materials across networks of train tracks. There are three main ways railroads operate:
Cars transport freight on tracks that the railroad company is paid to move.
Railroads lease excess cars to other railroads for a fee.
Passenger railway companies move people around.
Railroad companies can be viewed as the lifeline to our industrialized society. In one way or another, the railroad impacts your everyday life. Before your nonperishable food items got to your home, before gas got into your car, before coal got to the plant that produces electricity for your city, these products probably went down a railroad track. You can invest in railroad stocks around the world from small to very large companies.
Why invest in railroad stocks?
Many people invest in railroads because the industry is closely linked to the overall economy. Railroad companies transport packaged goods, electronics, food, gas, oil and more to consumers and other companies. Investing in railroad stocks is a way to invest in the entire industrial sector and the economy as a whole. This is why railroad stocks tend to perform well when economies are strong. Some people also see investing in railroads as an investment in the economic might of the country. Towson University’s Regional Economic Studies Institute noted that in 2017, operations and capital investment of the major freight railroads in the US was responsible for creating nearly 1.1 million jobs and generating $219 billion in economic output. Beyond that, the global rolling stock market is projected to reach $73.8 billion in 2025 from $54.43 billion in 2018.
Risks of investing in railroad stocks
Railroad stocks can be highly volatile during weak economies or when specific sectors are facing strain because railroad tracks connect many sectors of the economy. For example, if there’s a shortage of timber and you invest in a railroad company that specializes in transporting timber, that company and your stock may face some losses. Pay attention to the economic state of commodities like coal, oil, gas and precious metals like gold, silver and cobalt. Another factor that could affect the performance of railroad stocks is political turmoil. Some people are critical of the oil and gas industry, so if countries pass laws that limit their production or exposure, the railroad companies that serve those industries may suffer. You should also look at the railroad’s competition such as the trucking industry. When analyzing railroad stocks, consider the company’s operating ratio. This is the ratio of its operating expenses to revenue. Carefully analyze the company’s management team and what they plan to do to lower this ratio in the future. You can also look into train speed and terminal car dwell. This is the amount of time a vehicle remains idle on the platform. If it’s unusually high or trains are particularly slow for one company, that should be a red flag. You’d want to see fast-moving freights with little downtime.
Railroad stocks
There are several railroad stocks you can invest in around the world. Examples include:
See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.
Company summary
Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. The company offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, ethanol producers, renewable biofuel producers, and other agricultural users; and construction products, industrial chemicals, plastics, forest products, specialized products, metals and ores, petroleum, liquid petroleum gases, soda ash, and sand, as well as finished automobiles, automotive parts, and merchandise in intermodal containers. Union Pacific Corporation was founded in 1862 and is headquartered in Omaha, Nebraska.
Norfolk Southern Corporation, together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States. The company transports agriculture, forest, and consumer products comprising soybeans, wheat, corn, fertilizers, livestock and poultry feed, food products, food oils, flour, sweeteners, ethanol, lumber and wood products, pulp board and paper products, wood fibers, wood pulp, beverages, and canned goods; chemicals consist of sulfur and related chemicals, petroleum products comprising crude oil, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes, sand, and natural gas liquids; metals and construction materials, such as steel, aluminum products, machinery, scrap metals, cement, aggregates, minerals, clay, transportation equipment, and military-related products; and automotive, including finished motor vehicles and automotive parts, as well as coal. It also transports overseas freight through various Atlantic and Gulf Coast ports; and operates an intermodal network. As of December 31, 2023, the company operated approximately 19,100 route miles in 22 states and the District of Columbia. Norfolk Southern Corporation was incorporated in 1980 and is headquartered in Atlanta, Georgia.
CSX Corporation, together with its subsidiaries, provides rail-based freight transportation services. The company offers rail services; and transportation of intermodal containers and trailers, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations. It also transports chemicals, agricultural and food products, minerals, automotive, forest products, fertilizers, and metals and equipment; and coal, coke, and iron ore to electricity-generating power plants, steel manufacturers, and industrial plants, as well as exports coal to deep-water port facilities. In addition, the company provides intermodal services through a network of approximately 30 terminals transporting manufactured consumer goods in containers; and drayage services, including the pickup and delivery of intermodal shipments. It serves the automotive industry with distribution centers and storage locations, as well as connects non-rail served customers through transferring products, such as plastics and ethanol from rail to trucks. The company operates approximately 20,000 route mile rail network, which serves various population centers in 26 states east of the Mississippi River, the District of Columbia, and the Canadian provinces of Ontario and Quebec, as well as owns and leases approximately 3,500 locomotives. It serves production and distribution facilities through track connections. CSX Corporation was incorporated in 1978 and is headquartered in Jacksonville, Florida.
Canadian Pacific Kansas City Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada, the United States, and Mexico. The company transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; merchandise freight, such as forest products, energy, chemicals and plastics, metals, minerals, consumer products, and automotive; and intermodal traffic comprising retail goods in overseas containers. It also provides rail and intermodal transportation services over a network of approximately 20,000 miles serving business centres. The company was formerly known as Canadian Pacific Railway Limited and changed its name to Canadian Pacific Kansas City Limited in April 2023. Canadian Pacific Kansas City Limited was incorporated in 1881 and is headquartered in Calgary, Canada.
Old Dominion Freight Line, Inc. operates as a less-than-truckload motor carrier in the United States and North America. The company offers regional, inter-regional, and national less-than-truckload services, as well as expedited transportation. It also provides various value-added services, including container drayage, truckload brokerage, and supply chain consulting. As of December 31, 2023, it owned and operated 10,791 tractors, 31,233 linehaul trailers, and 15,181 pickup and delivery trailers; 46 fleet maintenance centers; and 257 service centers. Old Dominion Freight Line, Inc. was founded in 1934 and is headquartered in Thomasville, North Carolina.
While there aren’t ETFs that solely invest in railroad stocks, you can invest in ETFs that track the wider transportation industry, such as:
SPDR S&P Smart Mobility ETF (HAIL)
iShares Transportation Average ETF (IYT)
SPDR S&P Transportation ETF (XTN)
Compare trading platforms
Before you begin investing in railroad stocks, you’ll need to open a brokerage account with an investment provider. Some of these brokers allow you to buy and sell railroad stocks online. A robo-advisor or human adviser can also build a diversified portfolio for you based on your risk tolerance and goals.
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Bottom line
Investing in railroad stocks can be a way to boost the country’s economy while potentially receiving handsome gains. But because the railroad industry is interconnected with many other economic sectors, railroad stocks can be particularly volatile and require careful analysis. Your returns can also be affected by the stock-trading platform you use, so always compare your options.
Frequently asked questions
Railroads transport goods like oil, coal, timber, food and more, so the industries involved in producing these commodities can affect the shape of the railroad industry.
Yes. The railroad industry spans worldwide and investors have access to the stocks global companies in the transportation industry sell.
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Javier Simon is a freelance finance writer at Finder and a certified educator in personal finance (CEPF).
He’s featured on NerdWallet, Bankrate, Yahoo Finance and Fox Business, where he’s shared his expertise on personal finance topics, such as investing, retirement planning, taxes, budgeting and savings.
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His passion is turning complex financial concepts into actionable content that can help people improve their financial lives.
Javier holds a bachelor’s degree in multimedia journalism from SUNY Plattsburgh.
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