The 3 Best Railroad Stocks to Buy Now: June 2024

by | Jun 24, 2024 | Markets

The railroad industry is responsible for transporting large quantities of goods across state and country lines. It is the preferred mode of transportation not only due to its efficiency, but its cost compared to other transportation modes. This has made the sector relatively stable, with notable investors including Bill Gates and Bill Ackman having heavy stakes in the industry. With the month of June coming to an end, discerning investors can benefit from the stability and growth potential of railroad stocks. 

Now, let’s discover the 3 best railroad stocks to buy in June 2024!

Canadian National Railway (CNI)

A photo of a Canadian National (CNI) train coming down the tracks toward the photographer.

Source: Eric Buermeyer / Shutterstock.com

Canadian National Railway (NYSE:CNI) stands out as a premiere choice for investors seeking to capitalize on the long term upside of the railroad sector. CN operates an extensive network spanning Canada and the United States, covering approximately 20,000 route miles.

Canadian National Railway strategic positioning in the railroad industry makes it a force to be reckoned with. Its expansive reach allows it to transport a wide range of goods, including agricultural products, automotive parts, consumer goods, and industrial products. The company has consistently demonstrated strong financial performance, driven by its efficient operations. Moreover, its profit margins have remained extremely healthy while generating robust free cash flow from operations.

In FY23, revenue decreased 2% year over year to $16.82 billion. While top line growth was flat, the company grew its earnings per share by 15% to $8.53 per share. CEO Tracy Robinson remains extremely optimistic about the next few years. She guided earnings per share growth of 10% to 15% through 2026. This makes CNI stock one of the best railroad stocks to buy in June.

Canadian Pacific Kansas City (CP)

A photo of a large red train with a CP logo at a train station with mountains in the background.

Source: Shutterstock

Canadian Pacific Kansas City (NYSE:CP) has emerged as a major player in the North American railroad industry following the merger of Canadian Pacific and Kansas City Southern in 2023. This synergy has created the first ever railway connecting the United States, Canada and Mexico.

Canadian Pacific Kansas City (CPKC) created a transcontinental railway that connects 3 extremely important global trade countries. The integrated network facilitates cross-border trade and positions the company to benefit from the United States-Mexico-Canada Agreement (USMCA). It unlocks substantial synergies, enabling CPKC to optimize operations and reduce costs. Furthermore, this unrivaled port access connecting the Atlantic Canada, the Gulf of Mexico, and Mexico’s Pacific coast will drive higher freight volumes. This is already showcased in the first quarter of 2024, with continued strong performance in Mexico.

Revenue swelled 55% year over year to $3.52 billion, with car miles per car day up 23% year over year in Mexico. The company also has a strong commitment to sustainability, with strategic investments in fuel-efficiency hydrogen-powered locomotives. CP stock is certainly a top contender among the best railroad stocks to snap up for the long term.

iShares US Transportation ETF (IYT)

Plenty of shipping containers stacked at the Port of Hamburg and blue sky

Source: Hieronymus Ukkel / Shutterstock.com

iShares US Transportation ETF (BATS:IYT) is a great option for investors seeking diversified exposure to the transportation sector. While not considered a stock, this ETF seeks to track the performance of the Dow Jones Transportation Average Index.

The iShares US Transportation ETF includes a mix of railroad, trucking, airline, and logistics companies. By investing in IYT, investors can gain exposure to a broad range of transportation stocks. This can help reduce the risks associated with investing in a single company. The ETF has held up relatively well, outperforming many of the railroad stocks over the last five years.

Furthermore, the fund has averaged an 8.83% total return over the last decade, and has an expense ratio of .40%. Its top five holdings include Uber, Union Pacific Corp, United Parcel Service, Fedex, and CSX. Additionally, more than a quarter of the fund is allocated to railroad stocks, giving investors a healthy amount of exposure to the sector. With Uber (NYSE:UBER) being the ETF’s largest holding, it could boost the funds performance given the company’s robust long term growth prospects.

On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Terel Miles is a contributing writer at InvestorPlace.com, with more than seven years of experience investing in the financial markets.

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