NEW YORK (TheStreet) -- Investing in railroads has played a major role in the creation of many of the greatest fortunes in history. Charles Crocker, Henry Morrison, Jay Gould and Mark Hopkins, Jr., were some of the "robber barons" from 19th-century America that accumulated significant wealth from investing in railroads. For those now looking to profit from the railroads, Dinaker Singh, founder of the hedge fund TPG-Axon, recommends Daqin Railway (6016006 CH), a Chinese railway.
Speaking at the "Invest for Kids" conference in Chicago in late October, Singh stated that, overall, stocks in Asia are selling at a discount. Economic growth has slowed in China. Japan is still struggling to pull out of "The Lost Decade."
Situations like those create opportunities for investors, which Singh now sees in Daqin Railway, which is one of the 50th largest firms listed on the Shanghai Exchange, based on market capitalization.
Operating several railways in China, Daqin Railway went public in 2006. According to Singh, Daqin is undervalued; its price-to-earnings multiple of around 8 is about half that of Union Pacific (UNP), Kansas City Southern (KSU), CSX (CSX) and Norfolk Southern (NSC). Guangshen Railway (GSH), another Chinese railway firm listed on The Big Board, trades for a price-to-earnings ratio of around 18, too.
Singh is also impressed by the management and balance sheet of Daqin Railway.
He noted the sustained growth in profits. There is also a 7% dividend yield, which is protected by the charter of the company and the high level of government ownership. By contrast, Guangshen Railway pays a dividend of 2.16%. The yield for Norfolk Southern is just more than 2.40%; just under 2.25% for CSX; around 2.00% for Union Pacific; and for Kansas City Southern, it is about 0.70%.