Are Railroad Stocks Overpriced?
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Some investors have plunged into railroad stocks, believing they will benefit from a stronger North American economy in 2013. But are they overly optimistic?
Transportation stocks, as measured by the Dow Jones Transportation Average, gained 13% in the first two months of 2013, double the gain made in all of 2012.
Railroads reflect the health of their economies. For 2012, the US economy grew 2.2%, up from the 1.8% growth of 2011. And the Canadian economy in 2012 expanded 1.8%, down from the 2.6% growth in 2011. Both economies had sluggish fourth quarters, but this has been a slow recovery with choppy ups and downs.