There is another good reason to think about owning General Electric (GE) right now that many people haven't considered: the huge spurt in rail transportation since the beginning of the year.
Even Caterpillar (CAT) has a factory as big as a dozen football fields; workers are testing new robots that will help weld together 200-ton train locomotives. It is being called the most efficient locomotive-manufacturing plant in the world. General Electric is the big boy on the block making locomotives, and Caterpillar is trying to grab a larger piece of the pie from the surge in demand as rising profits allow railroads to upgrade their fleets.
Progressive Railroad Services is the name General Electric gives to its division. It is a supplier of railroad and transit system products and services, and is one of the largest integrated and diversified suppliers of railroad and transit system products and services in North America.
The rebounding economy is showing signs the rail industry is surging; this is especially true in intermodal and container volume increases. In the past, about one-third of transportation by railway has been coal shipments, but the warm weather has put a damper on the use of coal so shipments have also slowed. Investors reacting to this have caused most of the railway companies to slide since early February.
But with the economy picking up, so are other shipments. Strong auto sales means parts are now being shipped more. Petroleum and chemical tanker growth is also taking place. For example, when President Obama rejected the Keystone Pipeline, the volume of oils and chemicals shipped by rail offset the depletion of coal shipments. Union Pacific (UNP) stands to gain a lot from this.
Also, Kansas City Southern (KSU) is benefiting from the increase in truck transportation by rail. Considering the increased cost of fuel and the fact that a railway can move a ton of freight 484 miles on a single gallon of diesel makes this a very popular form of transporting trucks.
Look at these statistics:
- U.S. intermodal rail shipments in the week ending March 24 rose 4.2% year over year
- Petroleum product traffic is up 32% year over year
- Shipments of motor vehicles and equipment rose 15.5% in the same period
- Canadian intermodal volume rose 10.7% year over year
- Mexican intermodal volume in the last week rose 32% year over year
- For the first 12 weeks of the year, intermodal traffic grew 23.3% on a year-over-year basis
As the economy continues to improve and fuel prices remain high, rail transportation will continue to increase. The rail companies will continue to look to upgrade their locomotives with the increasing profits, and companies like General Electric will increase its revenue as a result.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
