All Aboard These Rail Stocks

Updated from 7:05 a.m. EDT

If global growth was really dead, then why would Union Pacific(UNP Quote) and CSX(CSX Quote) both raise forward guidance amidst a slowing economy, unclear political climate and weakening demand?

It's simple: Because the railroad business is booming, and these stocks are undervalued.

Last week, CSX lifted its annual earnings guidance to $3.65 to $3.75 a share from $3.40 to $3.60 a share. CSX also lifted its capital spending in the year to $1.75 billion and free cash flow before the dividend to $1 billion. CSX trades with a forward P/E of 12.90, PEG ratio of 0.87 and EV/EBITDA of 8.697

On Monday, Union Pacific raised its third-quarter earnings estimates, saying lower diesel-fuel costs and strong operating efficiency will offset lower volumes and the impact of recent hurricanes. Union Pacific said it expects earnings of $1.28 to $1.33 a share, up from $1.10 to $1.20 a share. Union Pacific trades with a forward P/E of 14.29, PEG ratio of 0.89 and EV/EBITDA of 9.703

Both CSX and Union Pacific cited additional demand for railroad cars in the near future.

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