The 10 Worst Road and Rail Stocks of 2011

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What a crazy year it's been for investors. The S&P 500 jumped over 8% by May, only to turn around and find itself down over 10% in August, mainly as a result of the European debt crisis and Washington's inability to agree on a solution to our debt dilemma. Now, at the end of December, the S&P has fought back and is poised to end the year essentially flat.

But while the markets as a whole didn't change much over the past 52 weeks, there were certainly companies that had a year to forget in 2011.

Here's a list of 2011's 10 worst performers in the road and rail sectors.

Company

% Return in 2011

CSX (NYS: CSX) (3.1)
AMERCO(8.5)
Guangshen Railway (NYS: GSH) (11.1)
Heartland Express(11.1)
Knight Transportation(19.5)
Con-way (NYS: CNW) (20.8)
Hertz Global Holdings (NYS: HTZ) (21.2)
Avis Budget Group (NAS: CAR) (31.3)
Arkansas Best (NAS: ABFS) (31.3)
Swift Transportation (NYS: SWFT) (35.6)

Source: S&P Capital IQ. Only includes companies listed on U.S. exchanges that contain a market capitalization greater than $500 million. Returns as of Dec. 29.

While the top-10 road and rail list was dominated by railroads, this worst-10 list is comprised primarily of trucking and rental-car companies. That's mainly because of the shaky macroeconomy and the price of oil. With crude oil hovering around $100 a barrel, moving cargo via rail looks much more enticing to many companies, as rail is at least three times more fuel-efficient per ton shipped than trucking.

Despite remarkable margin gains during the past several years, the share price of CSX is lagging behind its railroad peers Union Pacific, Kansas City Southern, and Norfolk Southern this year. CSX delivered solid earnings performances this year. The company's second-quarter earnings were excellent, increasing sales 13% and operating income 21%. CSX essentially matched analyst earnings for earnings per share in its first and third quarters, while slightly beating expectations in its second quarter.

This could be a solid opportunity to take a look at CSX while it's priced at a discount compared to peers. This is a much improved company that serves the highly populated eastern United States.

Looking elsewhere, Arkansas Best also struggled on the year, down 31% year to date. Although the company passes rising fuel costs along to customers through fuel surcharges, that could make it less likely that its customers accept its rate increases. In its second quarter, Arkansas Best took a huge step in its recovery when it finally returned to profitability after losing money for the previous 10 consecutive quarters.  

Hertz had an interesting year, and is currently down over 21%. After months of courting Dollar Thrifty as a possible acquisition, Hertz announced in late October that it had pulled its offer for the company. However, Hertz said that it "continues to believe that a merger with Dollar Thrifty is in the best interests of both companies." Keep an eye on this one in 2012, as most analysts expect that Hertz will ultimately be successful in acquiring Dollar Thrifty.

These road and rail companies had a lackluster 2011, but if you're looking for a strong outperformer in the year ahead, you're in luck. The Motley Fool has created a brand-new free report called "The Motley Fool's Top Stock for 2012." It highlights one company that we've picked out for explosive growth ahead. You can get instant access to the name of this company by clicking here -- it's free.

At the time this article was published Brendan Byrnes owns no shares of any company mentioned above. The Motley Fool owns shares of Hertz Global Holdings and Heartland Express. Motley Fool newsletter services have recommended buying shares of Guangshen Railway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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