Warren Buffet and Bill Gates are among large investors who like the growth potential of the railroad industry. While there are no railroad-specific exchange traded funds available, ETF investors can still track the sub-sector through the broader transportation theme.
For instance, the iShares Transportation Average ETF (NYSEArca: IYT) includes a 22.3% tilt toward railroad operators and the SPDR S&P Transportation ETF (NYSEArca: XTN) includes 10.9% railroads.
Year-to-date, IYT dipped 9.3% and XTN fell 11.5%. Both IYT and XTN have rebounded off the August 24 lows, and the two ETFs are now testing their short-term, 50-day simple moving average.
Railroad stocks have been falling off this year, but the decent dividends, low valuations and continued economic growth may provide a cheap entry point for investors looking into the industry, reports Jeff Reeves for MarketWatch.
Investors would also join major players with a positive long-term outlook in the space, like Warren Buffett, whose Berkshire Hathaway (NYSE: BRK.A) holds Burlington Northern Santa Fe, and Microsoft (NasdaqGS: MSFT) founder Bill Gates, who is a large shareholder of Canadian National Railway (NYSE: CNI).
So far this year, the railway industry has been weakening on lower rail traffic after the drop in energy prices, notably from oil and coal companies. Over the first 35 weeks of the year, U.S. railroads experienced cumulative volume that was down more than 4% year-over-year. However, the pressures may have already been priced in, and the industry has a number of factors that will help support further growth.
For instance, intermodal traffic, or transportation through marine shipping containers or truck trailers on railroad flatbeds, is up year-over-year for over 10 weeks now.