In his 2016 letter to Berkshire Hathaway shareholders, Warren Buffett argues that the resilience of the railroad business makes it an attractive investment, writes Validea CEO John Reese in a recent article for TheStreet.
Buffett summarizes his faith in the industry, writes Reese, as “justified both by our past experience and by the knowledge that society will forever need huge investment in both transportation and energy.”
Using the stock screening models he developed based on the philosophies of some of the most successful investors, Reese identifies the following high-scoring railroad operators and suppliers:
- Canadian Pacific Railway (CP) owns and operates a transcontinental freight railway in Canada and the U.S. The stock shows a favorable ratio of price-earnings to growth in earnings-per-share (PEG ratio), a measure of fairness in price.
- Canadian National Railway (CNI) is engaged in the rail and related transportation business, and earns high marks for its quarter-over-quarter EPS growth, modest leverage and favorable return-on-equity.
- Greenbrier Companies (GBX) is as designer, manufacturer and marketer of railroad freight car equipment, and scores well due to a favorable price-sales ratio as well as its long-term growth in earnings- per-share.
- American Railcar Industries (ARII) is a designer and manufacturer of hopper and tank railcars. The company shows favorable liquidity and PE ratios.