Railways Pool

Sold 49.060606 Shares of Norfolk Southern Railroad for a 14.97% Annual Gain

Norfolk Southern Railroad

On 09/14/2020, Norfolk Southern Railroad’s price hit $220.13 at opening. I set my sell point via an automatic sell at $219.88 and thus the shares automatically sold at $220.13. After paying a $1 per share fee, the railroad fund that I write about on this site generated $10,750.65. My cost basis in them was exactly $10,000 from two different transactions back on 02/23/2020. On that day, the market crashed due to the COVID scare and the lack of action by our Federal Government. This means, I held the shares for 205 days. During this time, the share had dividend payments of $92.34. Thus, my total earnings over 205 days equaled $842.99.

The daily earnings equals $4.11 or if annualized equals $1,496.82. This means my annual return was 14.97% after fees.

Can Union Pacific Railroad Sustain its Recovery?

Union Pacific Railroad

  A few months ago, many might have predicted that 2020 would be a difficult year for railroad stocks. The shutdown of the U.S. economy in March caused transportation and shipping activity to slow to a crawl, and to be sure, most related stocks crashed. Furthermore, the oil crash specifically painted a grim long-term picture …

Can Union Pacific Railroad Sustain its Recovery? Read More »

Railroad Fund Balance 06/30/2020

Railways Pool

49.060606 Shares of Norfolk Southern Corporation – Closes at $175.82/Share  FMV =  $8,625.84 (Avg Buy Price/Share = $203.83 for Basis of $10,000.00)
Cash Position including recent dividend payment from NSC                                        =  $1,555.16
Total Fund Balance                                                                                                         = $10,181.00
FMV Gain as a % Since Inception:                                                                                 =       1.81%

56.67% Return on Investment: Union Pacific Railroad

PUTs

Value investing is a principle of investing whereby the investor uses ratios and comparative analysis of similar investments over an extended period of time. In this case, I compared the six publicly traded Class I railways in the United States. Then based on the results, I exercise buy and sell points for each stock within the fund. In this case, Union Pacific Railroad’s prior peak (high selling price) was $188.96.

Key Performance Indicators in the Railroad Industry

Key Performance Indicator

There are six Class 1 Railways traded in the US market. If you look at each railway’s respective annual and quarterly filings, all of them report certain key performance indicators (KPIs).

There are four key performance indicators. The first three are incrementally more valuable. Of the four, revenue ton miles is the most important as it identifies the actual volume moved during that period of time. Only three of the six publicly traded railroad stocks report this information weekly. The remaining three only report the total annual amount in the yearly financial report. Since sales are an instrumental value with evaluating a railroad company (costs of operations, variable costs, are easy to determine and fixed costs are stable), it is a simple algorithm to determine profitability from those sales. Thus, revenue ton miles is the highest weighted value of all four key performance indicators. I believe revenue ton miles should be weighted more than 70% of all four key performance indicators.

Next, the number of carloads moved that week validates revenue ton miles due to the high correlation of the two metrics. Two of the six railroads (CSX and Norfolk Southern) do not report carloads; they use a variant called ‘Cars Online’ which includes all cars whether they are sitting at a terminal, or not being used at all. It isn’t the same as carloads. A third and important metric is velocity. Velocity is important, but only if the velocity trends poorly over a long period of time (more than 4 weeks). Other than that, velocity doesn’t impact the ability to forecast profitability due to the many variables involved.

The last metric is called dwell time. This one doesn’t really assist in forecasting profitability either. It is an efficiency measurement and I would only be concerned if it trends higher over very long periods of time (more than eight or nine weeks).

Overall, give a lot of credence to revenue ton miles, then carloads. The remaining two key performance indicators do not have a good correlation to profitability unless their results are poor over an extended period of time. 

Railroad Fund – Update 02/27/2020 Purchased Union Pacific

PUTs

In yesterday’s post, I indicated that if Union Pacific’s share price drops to $156.79 that the fund would use its excess cash to purchase shares. Well, today at 10:35 AM it did drop to $156.39. Therefore, I used all remaining cash to purchase 8.268268 shares (includes $1 per share cost to make the purchase). If you read my article: Union Pacific – Buy/Sell Model you would understand that I use a 17% price change requirement to buy. With Union Pacific, this occurs about once every three years and it just did, driven by the market scare with coronavirus.

Railroad Fund – Update 02/26/2020 Coronavirus Impact

Railroad Fund

I noticed that Union Pacific (I consider Union Pacific the highest quality stock within the six Class I railways of the railroad fund) is now at $165.00 even. A 17% drop is the requirement for me to buy; see my article: Union Pacific – Buy/Sell Model. The prior high was on 01/24/2020 at 9:55 AM at $188.90. A 17% drop means the price would need to dip to $156.79 before I can purchase any stock. If this happens, I will use the excess cash of $1,304.65 to make a purchase. I will go one step further, if my Norfolk Southern increases in value back to my buy point of about $202 per share, I’ll sell half to buy Union Pacific at this extremely low price. As stated in several of my articles, the key is purchase quality stock at a good price. Union Pacific as of this month is the best quality stock of the existing six railroads to choose from. I am simply reducing my risk at no cost to the fund. It is unlikely Union will drop while Norfolk Southern increases; but at least I conveyed my thinking related to economic substitution and its value with reducing risk.

Railroad Fund – Update on 02/24/2020

Railroad Fund

Volatility is necessary to create market fluctuations. Market fluctuations create price disparity for either intrinsic value (buy side of the buy low/sell high tenet of value investing) or price recovery, i.e. unsubstantiated high market prices for stock. The COVID scare is causing the stock market to suddenly drop across the board for all stocks. This provides opportunities to buy low and simply wait for market recovery to sell.

Railroad Stocks – Analysis 02/15/2020

Every one of the six railroad stocks are at or above their all-time highs. As of today, February 15, 2020, the various stock prices are as follows: Union Pacific 184.65; Norfolk Southern $206.85; Canadian National $93.93;
Kansas City Southern $173.64; Canadian Pacific $270.86; CSX $79.59.

In addition, the price to book ratios are also higher than last quarter. The key question: is there any value in any of the stocks? To do this, a table of various preferred ratios must be prepared and explained in a write-up. 

Two critical points of information are evaluated, both the gross profit margin and operational cash flow per share are explained in this article.