Have you looked at the rails lately? Some investors may be starting to do just that.
The big three U.S. operators registered “double beats” last quarter. In other words, Union Pacific (UNP), CSX (CSX) and Norfolk Southern (NSC) all reported earnings and revenue both greater than analysts had been expecting.
Data from the American Association of Railroads trade group has also been steadily improving all year, and is now running at its quickest pace in more than a decade. It hasn’t gotten much attention yet, but how long can the market ignore consistent weekly traffic growth of more than 5 percent?
And suddenly this month, there’s been a surge of buying in railroad suppliers like Wabtec (WAB), Trinity Industries (TRN) and Greenbrier (GBX). These tend to be pretty illiquid and idiosyncratic names, but their price action in May suggests new buyers are flocking to the space. TRN, for instance, has risen 11 straight days, something that last happened before the stock rallied about 50 percent in 2014.
In conclusion: The economy is strong and fundamental news has been positive for railroads. It might be something to think about as the index pauses within striking distance of a new all-time high. (See chart below.)