5 Best Railroad Stocks To Buy Now

In this article, we discuss 5 best railroad stocks to buy now. If you want to skip our detailed analysis of the railroad industry, head directly to 11 Best Railroad Stocks To Buy Now. 

5. Canadian Pacific Kansas City Limited (NYSE:CP)

Number of Hedge Fund Holders: 48

Canadian Pacific Kansas City Limited (NYSE:CP) owns and manages a transcontinental freight railway in Canada and the United States, transporting bulk commodities and merchandise freight. It is one of the best railroad stocks to buy now. On April 26, Canadian Pacific Kansas City Limited (NYSE:CP) declared a C$0.19 per share quarterly dividend, in line with previous. The dividend is distributable on July 31, to shareholders of record as of June 30. 

According to Insider Monkey’s first quarter database, 48 hedge funds were bullish on Canadian Pacific Kansas City Limited (NYSE:CP), compared to 49 funds in the earlier quarter. Chris Hohn’s TCI Fund Management is the biggest stakeholder of the company, with 55.8 million shares worth $4.3 billion. 

Artisan Focus Fund made the following comment about Canadian Pacific Kansas City Limited (NYSE:CP) in its first quarter 2023 investor letter:

“We’ve held a large position in Canadian Pacific Kansas City Limited (NYSE:CP) for more than a year. During the quarter, Canadian Pacific completed the acquisition of the Kansas City Southern Railroad. This outcome, to us, was a best case scenario. Despite considerable fears leading up to the close, the transaction resulted in no divestitures, concessions or track usage/interchange limitations in any key regions. This was exciting, and we see a very compelling setup for the next two years. Canadian Pacific has a best-in-class management team, now running the only truly end-to-end railroad network that can stretch across the high growth west coast Canadian ports down into lower Mexico. We think both areas are key beneficiaries of our De-Globalization theme. While the merits of the deal are slowly becoming apparent, we still think the scope of the upside is underappreciated. We expect accelerating growth from here in the form of new customer acquisition and share gains by existing customers. The deal itself is particularly unique as our analysis points to essentially no cannibalization or overlapping of existing routes.”

4. Norfolk Southern Corporation (NYSE:NSC)

Number of Hedge Fund Holders: 51

Norfolk Southern Corporation (NYSE:NSC) was incorporated in 1980 and is headquartered in Atlanta, Georgia. The company specializes in the rail transportation of raw materials, intermediate goods, and finished products in the United States. It is one of the top railroad stocks to invest in. On April 26, Norfolk Southern Corporation (NYSE:NSC) reported a Q1 non-GAAP EPS of $3.32, beating market consensus by $0.17. While the revenue of $3.1 billion increased 6.9% year-over-year, it fell short of Wall Street estimates by $10 million. 

According to Insider Monkey’s first quarter database, 51 hedge funds were bullish on Norfolk Southern Corporation (NYSE:NSC), compared to 43 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 1.65 million shares worth approximately $352 million. 

The London Company Large Cap Strategy made the following comment about Norfolk Southern Corporation (NYSE:NSC) in its first quarter 2023 investor letter:

“Norfolk Southern Corporation (NYSE:NSC) – NSC was a significant underperformer this quarter reflecting weaker than expected quarterly earnings and news of a train derailment in Ohio. Fortunately, there were no fatalities related to the derailment, but there was environmental damage. Historically, the financial impact from train derailments have been relatively small and NSC’s insurance coverage could help cushion the blow. We believe NSC will emerge from this relatively unscathed, but will have to reinforce some of their network due to changes made from precision scheduled railroading efforts.”

3. Westinghouse Air Brake Technologies Corporation (NYSE:WAB)

Number of Hedge Fund Holders: 52

Westinghouse Air Brake Technologies Corporation (NYSE:WAB) provides railway electronics, positive train control equipment, signal design and engineering services, and heat exchange and cooling systems. Its products and services are used in locomotives, regional and high speed trains, subway cars, light-rail vehicles, and buses. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is one of the best railroad stocks to monitor. 

On June 16, Westinghouse Air Brake Technologies Corporation (NYSE:WAB) announced its decision to purchase L&M Radiator, a manufacturer of heavy-duty equipment radiators and heat exchangers, for $230 million in cash. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) aims to expand its installed base and recurring revenue in the mining, engine cooling, and heat transfer sectors through this acquisition. The company anticipates that L&M Radiator will contribute positively to its earnings per share, excluding transaction costs, and expects to achieve significant synergies within the next three years.

According to Insider Monkey’s first quarter database, 52 hedge funds were bullish on Westinghouse Air Brake Technologies Corporation (NYSE:WAB), compared to 41 funds in the last quarter. Richard S. Pzena’s Pzena Investment Management is the largest stakeholder of the company, with 7.73 million shares worth $781.5 million. 

Here is what TGV Intrinsic Fund has to say about Westinghouse Air Brake Technologies Corporation (NYSE:WAB) in its Q2 2021 investor letter:

“The second change concerns the American railway supplier Westinghouse Air Brake Technologies (Wabtec). Wabtec took over the railway division from General Electric (GE) in 2019. As part of this, Rafael Santana – who had come over from GE – became the new CEO of Wabtec. The previous CEO, Ray Betler, is one of the best corporate leaders I know, and I particularly appreciated the decentralized corporate culture he embodied. The operating figures have developed nicely since 2019 under Rafael Santana. However, from conversations with current and former employees of Wabtec, it is becoming increasingly clear to me that the GE culture, which is designed to achieve short-term corporate goals, is establishing itself within the company. This culture is not necessarily bad – but it is a culture that does not fit the long-term orientation of the TGV Intrinsic.

Accordingly, I recommended the sale of all Wabtec shares despite the decent operational development. Wabtec is a good example of a distinction between “process” and “result”. In the long run, the right process typically leads to a good result and the wrong process to a bad one. In the short term, however, even a wrong process can lead to a good result. Considered by itself, Wabtec’s financial development since 2019 (result) is not sufficient to make an investment recommendation for the future. Changes in the corporate culture (process) often only become noticeable in the financial figures after several years and are therefore a more meaningful indicator of long-term operational development than short-term historical business development. Accordingly, my discussions with current and former Wabtec employees about changes in the corporate culture are the crucial reason for the sell recommendation, as I assume that the GE culture will lead to worse operating results in the long term.”

2. CSX Corporation (NASDAQ:CSX)

Number of Hedge Fund Holders: 61

CSX Corporation (NASDAQ:CSX) provides rail services, transportation of intermodal containers and trailers, rail-to-truck transfers, and bulk commodity operations. On April 20, CSX Corporation (NASDAQ:CSX) announced a Q1 GAAP EPS of $0.48 and a revenue of $3.71 billion, outperforming Wall Street estimates by $0.05 and $130 million, respectively. It is one of the best railroad stocks to watch.

According to Insider Monkey’s first quarter database, 61 hedge funds were bullish on CSX Corporation (NASDAQ:CSX), compared to 66 funds in the earlier quarter. Eric W. Mandelblatt’s Soroban Capital Partners is the largest stakeholder of the company, with 52.6 million shares worth $1.57 billion. 

Here is what ClearBridge Investments Global Infrastructure Value Strategy has to say about CSX Corporation (NYSE:CSX) in its Q4 2021 investor letter:

“On a regional basis, the U.S. and Canada were the top contributors to quarterly performance, of which U.S. rail operator CSX was among the lead performers. CSX is one of five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX is engaged in the transportation of rail freight in the Southeast, East, and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX performed well during the quarter after the company beat market expectations on its third-quarter results. The beats were largely driven by strong pricing, which could be hitting record highs, and healthy commodity/coal volume driven by the current energy crisis.”

1. Union Pacific Corporation (NYSE:UNP)

Number of Hedge Fund Holders: 85

Union Pacific Corporation (NYSE:UNP) is a railroad company in the United States, providing transportation services for grain products, fertilizers, food and refrigerated products, coal, petroleum, construction products, industrial chemicals, plastics, forest products, and automobiles. Union Pacific Corporation (NYSE:UNP) is one of the best railroad stocks to invest in. 

Union Pacific Corporation (NYSE:UNP) achieved better-than-expected financial results in the first quarter of 2023. Despite a minor setback in terms of efficiency, the company reported earnings per share of $2.67, surpassing the Street consensus of $2.57. Additionally, Union Pacific Corporation (NYSE:UNP)’s revenue of $6.06 billion exceeded market expectations and increased 3.4% year-over-year.  

According to Insider Monkey’s first quarter database, 85 hedge funds were long Union Pacific Corporation (NYSE:UNP), compared to 83 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder of the company, with 2.15 million shares worth $433.7 million. 

Matrix Asset Advisors made the following comment about Union Pacific Corporation (NYSE:UNP) in its Q1 2023 investor letter:

“During the quarter we added a new position in Union Pacific Corporation (NYSE:UNP). Union Pacific (UNP) is the 2nd largest railroad network in the United States just behind Burlington Northern Santa Fe. The firm operates in the Western, Midwestern, and Southern portions of the United States. 90% of UNP sales come from the US and 10% from Mexico. Over the past decade, railroads gained market share from the trucking industry because it costs 10-40% less to ship via rails than trucks. The company has a long history of consistent operating growth and profitability. The shares fell from a high of $278 in May of 2022 after the firm experienced operating challenges due to a slower macro environment and higher expenses.”

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