The transportation sector of the United States economy is composed of nine industrial groups. One particular group moves more volume of tonnage based on ton miles than any other form of transportation – Railroads. In accordance with the Federal Department of Transportation, railroads move 39.5% of all freight in the US (based on ton miles which is the length freight travels). It’s a $60 Billion industry with over 140,000 miles of track. It is dominated by seven major carriers (referred to as Class I Railways).
Railroad companies are an excellent group of investments for several reasons. First, this is a highly stable and regulated industry. Secondly, there are a limited number of railroads, in effect, the threshold of entry for any new railways is impractical and financially capital intensive. Third, each company limits its revenue stream to transportation (there are some alternative sources of revenue but they are less than 5% of their entire total revenue). Every single member in this pool has a long history of positive earnings and superior cash flow.