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Stock Ideas Investors Daily Edge Riding the Railroads Makes Sense
Stock Ideas Investors Daily Edge Riding the Railroads Makes Sense 
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| Riding the Railroads Makes Sense |
| Friday, 07 March 2008 | ||||||||
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Dear Reader, Ray C. writes in with his thoughts about the railroad sector. He thinks I’m crazy to have hinted on Tuesday that it’s an attractive sector. Well, those are my words, not Ray’s. Ray is a little more subtle than that. This is what he says: RE: How Railroads Track the Economy, Paragraph 34: “And the beauty of railroad data is that it gives you a peek of what lies ahead because these products are hauled well in advance of the time they are consumed. If consumer spending is trending down, then the “peek of what lies ahead “ should be that inventories of those advanced shipments should rise as consumer spending continues to fall. Would this not suggest that the ‘railroads’ will be shipping less because of slower consumption, lower consumer spending and rising inventories? Please tell me what else might lie ahead from this ‘peek’, other than a declining railroad sector! Don’t you just love capitalism! I’m a big fan of unfettered capitalism, Ray. Unfortunately, it’s a fast disappearing breed in this country, where the government thinks it has to rush in to save big banks (guilty of dumb lending and financial engineering) and individual mortgage borrowers (guilty of equally dumb borrowing) from their own greed and foolishness. Ah, but I’m venting off topic. To address your point, here’s the lead sentence from the press release of the Association of American Railroads on February 28: “Sharp gains in loadings of grain, coal and metallic ores helped lead to a gain in overall rail freight traffic on U.S. railroads during the week ended February 23 in comparison with the corresponding week last year.” Granted, intermodal volume (fed mostly by imports) fell three percent. It’s not included in the above carload data. But spikes like the 59.4-percent increase in metallic ore shipments can more than offset slippages in intermodal volume. As a sector, Ray, I don’t love railroads. They’ve leveled off a bit but they’re still one of the more robust sectors. Of course there are better and worse railroad companies. The best ones are those that rely on bulk products like grains, ore, and fertilizers for most of their revenue. They don’t go up and down with consumer spending. These days, they’re mostly just going up.
So, yes, the very latest published weekly data on intermodal shipments indicate that future consumer spending will weaken. But railroads aren’t shipping less. They’re shipping more. That’s capitalism for you, Ray! Good Investing, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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