< Return to Bears pageNot much room for growth in the stock price
Although the outlook for the North American railroad industry has improved significantly since the 1980s, much of this is priced in. For nearly the entire decade of the 80s, the large railroads had 6x-9x P/E multiples. These P/Es have roughly doubled over the last 20 years to 13x-17x. Further multiple expansion for the sector is unlikely. Nimble investors could well get a much better entry point in rail stocks, as recent signs point to a railroad industry feeling the effects of a slowing U.S. economy (year-to-date rail volumes are down 2.7%). Here is something else to think about: during the California gold rush, the ones who made the most money were those who sold the picks and shovels. Instead of buying BNI at 90% of X, a number of smaller companies that supply the resurgent railroad industry’s cap ex needs may prove to be the best bargains if you share the increasingly rosy outlook on the major rails with investors like Warren Buffett.
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