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Sector Overview - Railroads

|Includes: CNI, CP, CSX, KSU, NSC, Union Pacific Corporation (UNP)

Fewer investments garner as much as attention to the pulse of the economy as the railroad sector. The railroads are considered a leading indicator for the overall health of the economy as transportation of goods is critical and gives investors a sense of how companies and consumers are spending their money. If we observe legendary investors such as Warren Buffett and Bill Gates - it is clear that they are fans of the railroad companies and believe in the long term prospects with Buffett's Berkshire Hathaway buying out Burlington Santa Fe (BNSF), taking it private and Gates' Cascade Investments holding a sizeable position in Canadian National Railway. Railroads are what we call a wide-moat industry sector - where it is extremely hard for new entrants to get established and challenge the incumbents. This makes the railroads very attractive for long term investors.

Whether transporting crude, lumber, merchandise, agricultural or industrial products, railroads are what keeps the economy moving. While the transportation for entities such as coal (which used to be the largest users of railroad services a few years ago) has fallen due to the fall in crude prices and rise of green energy alternatives, the transportation need for crude saw significant rise in the recent past. However, the recent turn of events with falling energy prices, has put a damper on crude transportation via railroads.

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Disclosure: I am/we are long CNI.