Should investors catch a train?

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It's the rally no one expected. Train traffic is up 5% this year, and the Dow Transportation average is up 11%. An old theory holds that transports are a leading indicator for the economy and the stock market. Those interested in the theory should watch the discussion which was on CNBC on Tuesday morning. 

After the recent rise, the fundamentals and valuations in airlines and trucking companies don't look particularly enticing, but there still appears to be room for growth in railroads , particularly Union Pacific ( UNP ), which has a lukewarm P/E Ratio of 20, but which also now boasts quarterly earnings growth of 13.7%. Norfolk Southern ( NSC ) and CSX ( CSX ) have slightly more favorable P/E Ratios, but both have declining earnings, which sours the picture somewhat.

Finally, recent upticks in the price of natural gas have pushed a number of power plants back to coal. That, along with an increase in U.S. exports of grain to China and Mexico should continue to raise revenue for the entire industry for some time-possibly until next spring.

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC .

This article was originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
Referenced Symbols: UNP , NSC , CSX

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