In the past, railroad company shares were considered cyclical, almost boring stocks when compared with growth stocks. About 8 years ago, oil prices climbed significantly, pushing transportation costs to an all-time high. As a result, the price of transporting goods and people also peaked.
“In a world of high oil prices and potentially scarce energy resources, betting on railroads and on the infrastructure to improve them makes a lot of sense,” said Stephen Leeb, Leeb Asset Management president and editor of the Complete Investor. He argues that this is because industries involved in conserving energy-and thus, money- will undoubtedly thrive.
Leeb believes all investors should have a stake in railroads today, because rail transportation posts dramatically higher energy efficiency rates. According to the Rocky Road Mountain Institute, the average train has an efficiency of 400 ton-miles per gallon of fuel. Trucks, on the other hand, have an efficiency of 200-300 tons.
Leeb says: “The increased use of rails and the building of rail infrastructure is arguably the closest you can come to a win-win situation in the debate over energy policy.”
He also points out three stocks that he thinks will come out on top in the railroad industry: Berkshire Hathaway, Union Pacific and Wabtech.
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