2 Transportation Catalysts that Could Hand You Double-digit Gain

This post 2 Transportation Catalysts that Could Hand You Double-digit Gain appeared first on Daily Reckoning.

In a sea of red, one group of stocks is flashing green again.

And now takeover rumors in this sector are attracting a lot of investor attention. If you act now, you could quickly nab double-digit gains—no matter how the market acts over the next couple of weeks…

What stocks am I talking about? Railroads.

While the major averages drooped more than 1% yesterday, the U.S. Railroad Index chugged nearly 3% higher.

The catalyst? Rumors that Canadian Pacific Railway is in the early stages of taking over Norfolk Southern Corp. And let me tell you something—these railroad stocks desperately needed it. Investors have squashed the major railroad stocks to a pulp this year. Before the takeover rumors started flying, Norfolk Southern stock was down nearly 25% year-to-date.

The oil crash has been a double-edged sword for transportation stocks. While fuel costs are down, decreased activity in America’s shale basins means trains are shipping less crude across the country. But thanks to Monday’s pop and recent news, we could be seeing the beginnings of some tradeable bottoms in the rails…

Norfolk Southern Corp. rallied double digits to close out the trading day. CSX Corp even spiked 3% in sympathy of the takeover news.

But aside from takeover chatter, even the news cycle is turning back in favor of the ailing rail stocks. You probably heard that the Obama administration finally deep-sixed the Keystone XL Pipeline after seven years of nonsensical review. But hey, screw pipelines! We toss our crude onto trains that may or may not occasionally derail in a fiery disaster.

Either way, the focus is back on the trains. Before all this nonsense was set in motion over the weekend, Forbes reminds us that the “big 4” U.S. railroad stocks– CSX, Kansas City Southern, Union Pacific, and Norfolk Southern – were all down at least 25% on the year.

“But there’s a reason Warren Buffett and Berkshire Hathaway bought Burlington Northern a few years back. Railroads are durable businesses,” Paul Karos, senior portfolio manager at Minneapolis’ $4 billion Whitebox Advisors, told Forbes. “Barriers to entry are high, margins are expanding and the group should benefit if the U.S. stays out of recession.”

During the first half of the year, transportation stocks couldn’t catch a bid. While the Dow Jones Industrial Average chopped along near breakeven, its cousins over at the Dow Jones Transportation Average piled up double-digit losses by early July. Now’s your chance to play a snapback rally in the transports as all of this train news comes to a head…

So be sure to hop on this gravy train today.


Greg Guenthner
for The Daily Reckoning

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The post 2 Transportation Catalysts that Could Hand You Double-digit Gain appeared first on Daily Reckoning.