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Riding the Rails

07/16/2004 12:00 am EST


Neil George

Editor, Profitable Investing

"Our nation's railways are critical to transport resources that are vital to our core economy," says Neil George, in his weekly By George! e-letter. "At the same time, it's clear that our rail networks have really been neglected." Here, he looks at companies addressing this issue.

"Neglect for our track networks have come at a time when we arguably need more means of hauling stuffand at faster speeds. Indeed, we need rails. The rail network transports coal and other resources vital to our economy. Without more efficient lines, local manufacturing growth has little hope. Don't forget retail, too. We need rail to move products, including toys from China and furniture from Latin America and Europe, from the ports to market. Therefore, we're bound to see more attention focused on rail line infrastructure (i.e. tracks and rolling stock).

"There isn't much room on the nation’s railway tracks for more cargo, let alone the products that are already in the rolling stock of America. Both single and multiple track rail lines leading to and from key Western coastal ports are jammed and backing up week after week. The rail lines are at and (in more and more cases) overcapacity. Thus, everythingfrom mail to coalisn't being hauled as it should, limiting the continued US rail expansion. Even for the rail lines that are still open, there's increased concern over safety. Increasing rural and urban sprawl are encroaching on older rail lines, positioning trains for more deadly accidentsnot to mention the plain old nuisances of noise and visual pollution.

"One of the first companies to consider is giant locomotive maker Siemens (SI NYSE) of Germany. The company is primarily known for its electric generator and other power-related products and it's receiving more and more contracts from China and beyond. However, investors should also consider the success that the firm is seeing in the locomotive business. These two areas are just the beginning for Siemens and investors should take a look at this company.The Greenbrier Companies (GBX NYSE), which supplies hardware, software and other rail industry services, is another consideration. Alongside the dedicated rail industry companies, recall the need for iron and steel for fixing and expanding rail lines, in addition to building more locomotives and rolling stock. Posco (PKX NYSE) is one of my favorite iron and steel companies, which will benefit from this need. In addition, land is needed for both existing and new rail lines. One firm that's a simple owner and leasing officer of land for rails and pays a nice dividend is Pittsburgh and West Virginia Railroad (PW ASE). It's structured as a Real Estate Investment Trust, and its dividends are reasonably reliable, while the underlying share price continues rolling higher. It's yielding a hair under 6% and has been gaining ground, even recently as others in the REIT market have been pummeled. It's a buy or at least a nibble."

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