Five Key Railroad Stocks for Investors in 2021

A centuries-old industry, railroad companies have maintained their relevance. Travel isn't the only thing that makes railroads lucrative, either—28 percent of U.S. freight moves via the rail network.

Not all railroad companies are publicly traded, but there are options on the stock market for those seeking to inject capital into this sector. This is especially true since a recent merger put one local rail company on the corporate map. 

On March 21, news came that Canadian Pacific is acquiring Kansas City Southern. The two transportation companies are rail-specific, so it's a natural fit.

Kansas City Southern (NYSE:KSU) was already publicly traded prior to the $29 billion deal. As of March 22, their shares are priced at $253.96 each. The stock has seen a 13.31 percent boost since news of the acquisition broke. Year-to-date, Kansas City Southern stock has seen a 26.38 percent return, and that's on top of consistent growth amounting to about 134 percent over the last year.

KSU stock won't stay independent for long. Once the stock and cash deal finalizes after a shareholder vote, Kansas City Southern shareholders will get 0.489 shares of Canadian Pacific plus $90 in cash for every one share they hold. That's an interesting calculation and one that Kansas City Southern investors might feel fickle about. 

Because of the mixed transition from Kansas City Southern stock to Canadian Pacific Railway Ltd. (NYSE:CP), it might behoove new investors to the railroad scene to wait until the deal finalizes. Then, they can invest in CP without their brokerage accounts having to pivot. Unlike Kansas City Southern stock, CP stock has gone down about 2.87 percent since the news broke. YTD, the shares are 6.43 percent in the green.

Over the long term, growth is abundant—as evidenced by the 102.7 percent one-year return. This current dip could easily be seen as a stock sale for a solid buy-in period. 

Union Pacific Corporation (NYSE:UNP) holds solid long-term potential, although its short-term volatility might mean investors should watch the stock for a good time to buy in. The shares have fluctuated numerous times YTD, with the current return sitting at 1.81 percent. Meanwhile, the 12-month trailing return is an impressive 81.24 percent.

UNP is second in line for the largest North American railroad network, trailing only behind BNSF Railway.

Burlington Northern Santa Fe, or BNSF Railway, is entirely owned by a subsidiary of Berkshire Hathaway (which Warren Buffett ultimately controls). BNSF just so happens to be the largest railroad system in North America, so it isn't small potatoes. 

In the past, BNSF traded under its original parent company's name with the ticker symbol of "BNI." However, the Berkshire Hathaway merger changed this. Now, investors can find class B shares under Berkshire Hathaway's ticker (NYSE: BRK.B). 

CSX Corp. (NASDAQ:CSX) isn't a railway company itself, but rather a holding company that focuses on rail transportation and real estate. Because of CSX's dual focus, it could offer slightly more diversification for investors. YTD, the shares are up 6.98 percent, with the return increasing to 97.44 percent at the one-year rate.