There are very few natural monopolies in the world of business. With their irreplaceable assets, dominant position and wide moats, the railroads are as close as you can get to finding one of those monopolies in this day and age. That fact has caused investors to hold the railroads in high esteem, literally since their birth in the 1800s.
And today, it seems that investors are holding the major railroads very high. Better economic activity readings and the recent win by President-elect Donald Trump is helping to boost the railroad stocks’ share prices to new highs. The recently out-of-favor sector is once again a hot commodity for portfolios.
However, the railroads are a cyclical sector and, right now, there are some lingering concerns with the group. Concerns that could potentially derail their rally and their potential values. The question for investors is whether they can keep chugging along with the market.
Plenty of Steam In Their Boilers
What a difference a year makes. Last year at this time, the sector was suffering under the hand of lower crude-by-rail and overall shipment volumes. Today, looking at the share prices for the major railroads like Union Pacific (UNP ) or Norfolk Southern (NSC ), you would never know it. Year-to-date, the railroads are up by more than 20%. From their absolute low achieved at the end of January, the sector is up by more than 40%.
So what changed?