2010 - The Year On The Rails

There has been a long-held theory in the stock market that the performance of transport stocks has a great deal to say about the health of the economy and the direction of the stock market. If that concept still has legs, then the performance of the railroad sector has to be encouraging for the health of the U.S. economy. On the whole, the railroad sector (which often includes companies that supply the operators as well as the operators themselves) rose about 30% for the year - making it one of the leading sectors in the market.  


All About The Traffic
It seems beyond question that the ongoing strength in rail companies and their stocks has been a product of ongoing strength in rail traffic. Around February of this year, average weekly carload numbers finally climbed above the very depressed levels of 2009. Since then, every month has seen year-on-year carload growth. That has given rail operators a two-fold boost - the companies can not only make more money on the volume (as well as stronger pricing), but can better leverage their very high fixed operating costs. (For more, see Top Performing Railroad Stocks.)

Class 1's Were Not Held Back
With widespread traffic growth and no major strikes or labor disputes, Class 1 railroads in the U.S. and Canada all performed well in 2010. As is so often the case, improving conditions had the greatest benefit to what had been the notable lagging operator. For years, Union Pacific (NYSE:UNP) suffered with under-priced long-term contracts, ineffective surcharges and weak operating performance. Although Union Pacific is still not a top operator, the company has made some significant improvements and the stock led the sub-sector with roughly 40% gains.


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