Brian Belski of BMO Capital Markets has reassuring words for those losing faith in elected officials: "The government will be turned on again, ladies and gentlemen." When that blessed day comes there is going to be a flood of economic activity taking place as merchants nationwide try to make up for lost time. Despite that ramp in demand, the number of shippers will remain the same as it was before the shutdown. In economics too much demand for a limited service is called scarcity. In the language of investing, scarcity means pricing power and profits.
As Belski sees it, the industry poised to benefit most from scarcity for both the short and long term is the railroads. No matter what happens with the shutdown their aren't enough railway shippers to meet demand. The industry has been consolidating since 1959, most notably with Berkshire Hathaway's (BRK-B) 2009 acquisition of Burlington Northern. That means good things for the remaining players.
To be sure, trucking and air cargo has picked up a lot of rail demand, but not all of it. The economy is cyclical on the margins, but from building supplies, to coal and natural gas, the macro trend of American manufacturing has reversed. The country is growing again almost despite the best efforts of Washington, D.C. The rails benefit from that recovery.
Whatever earnings risk there is in the current quarter will be unwound once the country gets cranked back into action. With QE presumably extended thanks to the appointment of Janet Yellen, Belski is optimistic about the outlook for these companies.
Under QE, so far the economy has been on an extremely slow rate of positive growth. That's a QE friendly (i.e., no taper) environment. Whatever you think of the stimulus program, Belski says it's an "exquisite" set up for industries like the rails.
Belski doesn't offer specific names but the group is pretty well concentrated. Union Pacific (UNP), CSX Corp. (CSX), Canadian National Railway (CNI), and Norfolk Southern (NSC) are the most likely plays.
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