Stocks in the railroad space have performed impressively so far this year buoyed by the improvement in the coal-related scenario. Since coal is a key revenue generating commodity for stocks in this space, any positive coal-related update is bound to lift their spirits.
In fact, improvement on the coal front is highly significant for railroads as stocks in the space had struggled over the last few years due to dwindling coal shipments. The bullishness surrounding the railroad operators is evident from a 11.3% increase witnessed in the Dow Jones U.S. Railroads Index, year to date.
Coal Revival – The Primary Catalyst Behind the Surge
The revival of coal can be made out from the impressive performances of most sector participants with respect to the commodity in the second quarter of 2017. For example, at Union Pacific Corporation (UNP – Free Report) coal revenues (freight) increased 25% while the same at CSX Corporation (CSX – Free Report) and Norfolk Southern Corporation (NSC – Free Report) improved 27% and 32%, respectively.
Currently, all these three stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In fact, the election of President Trump last year has been a boon for this industry. Notably, Trump’s pro-coal stance is a huge positive for the commodity which lost much of its relevance during President Obama’s tenure as a source of fuel.
Trump has been advocating the case for fossil fuels instead of renewable energy, and has raised questions regarding climate change and its expected widespread impact. Already, he has started to act on his pre-election promises and has also taken measures to repeal the Clean Power Plan. He walked out of the Paris Climate Agreement as well.
A thriving and improving economy also supports the bullish case for railroads as it implies that more goods are being transported across the United States on the rails. This improvement under the new regime is evident from the fact that the Zacks Rail industry outperformed the broader market so far this year. While the S&P 500 Index gained 11%, the industry added 12.8%.
