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Sector Challenges - Railroads

|Includes: BRK.A, BRK.B, CNI, CP, CSX, KSU, NSC, Union Pacific Corporation (UNP)

Over the course of past few months, I have been featuring the Sector Overviewseries, where I take a sector (or an industry) and provide some basic/background information about the sector. In addition, I present the major companies in the field and profile at a high level comparing the peers. These articles are supposed to be what the title claims - an overview. It is up to each investor to compare and contrast individual companies and decide which one to pick if needed. These articles have garnered a lot of attention from readers (Thank you once again :) ) and the feedback really helps me in making this a better blog for more quality articles. Lately, I have been thinking on the other side of these investment opportunities and decided to highlight the sectors to present the threats and challenges in current environment. I begin this series with a Sector Overview Challenges - Railroads.

The article Sector Overview - Railroads is available here. In that article, I explored the idea of investing in the railroad sector and presented the major railroad operators in N.America - which includes Union Pacific Corp (NYSE:UNP),Canadian National Railway Co (CNI/CNR.TO), CSX Corp (NYSE:CSX), Canadian Pacific Railway Ltd (NYSE:CP), Norfolk Southern Corp (NYSE:NSC), and Kansas City Southern Inc (NYSE:KSU). In addition, there is Burlington Santa Fe (BNSF), but the company was bought by Warren Buffet's Berkshire Hathaway and taken private.

Caveat: Before I get into the details of the challenges faced by the sector, I would like to highlight that this is by no means a recommendation to short the stocks. Remember each investment carries risk, and all I am trying to do with this article is to try and highlight the existing risks in current market conditions and during this part of the economic cycle. These conditions may disappear in due time as the economy goes through its ups and downs.

For a quick recap, the Class 1 railroads of N.American are summarized below.

Company

Ticker Market Cap Rail Network

Burlington Santa Fe Railway

- - 32,500 miles

Union Pacific Corp

UNP $74.35B 31,000 miles

Canadian National

CNR.TO / CNI $47.95B 20,000 miles

CSX Corp

CSX $29.14B 21,000 miles

Norfolk Southern

NSC $29.12B 20,000 miles

Canadian Pacific

CP $22.91B 13,700 miles

Kansas City Southern

KSU $10.12B 6,500 miles

Ferrocarril Mexicano

- - 6,200 miles

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Disclosure: I am/we are long CNI.