I know I have a tendency to continually write about two obvious trends – sovereign debt and peak oil – and if it seems like I'm repeating myself, it's only because these trends are so deadly important to understand for investors.
Commodity investors especially need to pay attention to sovereign debt and peak oil, because these two trends fuel the booms in precious metals and energy investments.
Historically, these sectors are among the most profitable – if you can catch the right stock at the right time.
But today I'm going to write about a slightly different investment sector that should benefit from both trends.
And unlike a high-flying gold stock, or a micro-cap junior oil exploration company, the companies in this sector are big, kind of boring and only have a long, slow history of rewarding investors with fantastic returns.
I'm talking about railroads.
And if you stop reading now, I don't blame you – but before you do, take a quick look at the chart below, which tracks the gains for the 9 biggest railroad stocks over the past 12 years.
Meanwhile the broad stock market is only up 20% over the past 12 years – with significantly more volatility:
Admittedly, 1999 was not a good time for the railroads, and presented a once-in-a-decade type of buying opportunity.
If you believe that higher priced oil is going to increasingly force businesses and passengers to choose rail over trucks, ships or planes, then you should be looking to add railroad stocks to your portfolio.
And while I'm never thrilled to buy stocks when they're at or near all-time highs, there are still a couple of railroad stocks that I think deserve some attention.
Most notably: Guangshen Railway Co. (GSH).
And yes, it's a Chinese company. And as with many Chinese companies, it's fallen out of favor.
Investors are increasingly fearful that every Chinese company CEO is cooking the books or worse.
But Guangshen isn't some tiny, mysterious, fly-by-night Chinese widget manufacturer.
They're the largest publicly traded railroad in China. Last year they transported nearly 85 million passengers and 68 million tons of cargo.
Those statistics aren't the kind that some CEO or accountant can obfuscate or inflate.
This company has been traded on the NYSE since 1996. And regardless of what happens to the Chinese growth or America's sovereign debt, it will likely continue to transport people and freight. In fact, if either one of those two trends breaks down, and China's growth stalls or America's debt hits the fan, it's likely that rail will be the only realistic choice for Chinese passengers and businesses.
Amazingly, you can buy Guangshen, today, for little more than its IPO price in 1996.
The railroad also sells for less than 11 times trailing earnings – whereas the industry average is close to 18.
My best recommendation would be to average in to Guangshen shares – and to wait for inevitable anti-China sentiment to pounce on those dips.