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Investors who chose to get on board rail stocks in the last recession had a nice ride – from the depths of 2009, every major North American rail company saw its shares at least triple, with a couple rising sixfold.

In the past 12 months, not so much. The shocking fall of the energy industry, coupled with declines in other categories of freight, meant the rails posted declines in shipment volumes and revenue. The shares followed suit, with most of the stocks losing 20 per cent or more over the past year, and their recent premiums to the broader market have disappeared.

The tricky question, of course, is whether we're on the cusp of a recession, which would likely result in further volume, profit and shares declines – or, instead, in an economic soft patch that will turn out to have been a great buying opportunity for rail stocks. There's a case to be made for the latter, and that the risks are favourable in buying any or all of the rail stocks right now.

"Fact is," Topeka Capital markets analyst Rick Paterson says, "the railroads are in a recession, at least in their industry, and they're actually managing through it reasonably well."

Broadly speaking, the view of analysts who cover the industry is that the rail companies either have a demonstrated a track record of operational excellence (Canadian National Railway Co., Union Pacific Corp.), have greatly improved their efficiencies in recent years (Canadian Pacific Railway Ltd. and CSX Corp.) or have plans that put them on track do so (Norfolk Southern Corp.).

Now that the "near-term volume headwinds are well known," as Goldman Sachs' Tom Kim puts it, the rail companies can cut costs to match the current revenue reality. And if so, profits could actually begin growing again in the second half of 2016 even if volumes aren't rebounding.

Of course, each rail stock has its own advocates. CN is actually faced with lukewarm analyst sentiment – according to Bloomberg, just 13 out of 30 analysts have "buy" ratings, versus 17 "holds" – in part because it has fared so well. The company retains its status of having the industry's best efficiency margins, and its shares have declined the least in the recent rail downturn (just under 10 per cent in the past 12 months, versus losses of 23 per cent to 39 per cent at the other four major rails). Goldman's Mr. Kim says he sees "greater upside elsewhere in our coverage [of rail stocks]."

The CN track record is exactly what appeals to its advocates, many of whom have crafted target prices in the low $80s using earnings multiples that are at or near the highs of CN's historic range. (CN closed Friday at $75.95.) "We view CN to be a best-in-class operation with a solid growth pipeline, which we believe warrants a premium valuation," says RBC Dominion Securities's Walter Spracklin, who has an "outperform" rating and $81 target price.

CP garners far more analyst approval thanks to continued fascination by the turnaround work of chief executive officer Hunter Harrison and a solid 2015 fourth quarter. So solid, in fact, that the shares are up to $168.40 Friday, a gain of more than 20 per cent since that earnings report on Jan. 21, cutting into the potential gains forecast by their advocates. (According to Bloomberg, of 28 analysts, 22 rate the shares a "buy," with the remaining six at "hold" and the average target price of just under $197 represents about 16-per-cent upside.)

RBC's Mr. Spracklin, who upgraded the shares to "outperform" Jan. 22 on the earnings news, says he's "mindful of an upgrade in this environment," and notes that his "bear case" of an emerging recession calls for a share price of $119, a 30-per-cent decline. His target price of $179 looked more impressive before the recent runup; his bull case of stronger-than-expected growth and a share price of $239 still does.

CP's attempt to buy Norfolk Southern, Mr. Spracklin says, "has increased the complexity of valuing CP," and he believes that if the company walks away from the bid, the stock could actually benefit from a return to a stock buyback plan that could measure in the billions of dollars.

Among the U.S. rails, the analysts' top pick is Union Pacific, with 22 of 29 analysts rating it a "buy," versus six "holds" and a "sell." Part of this is what Union Pacific is: A rail company that, as Morningstar analyst Keith Schoonmaker points out, responded to the 16-per-cent decline in carloads in 2009 by cutting costs faster than revenues declined, and then posting record operating ratios in 2010, 2012, 2013 and 2014. Mr. Schoonmaker's fair value estimate for Union Pacific shares is $95 (U.S.), versus Friday's close of $72, which means the firm awards the company four stars.

And part of that is what Union Pacific is not, namely, reliant on carrying coal for eastern U.S. miners. CSX and Norfolk Southern are, by contrast.

While CSX's 29 analysts are almost evenly split – there are 16 "buys," per Bloomberg – the bulls say to pay attention to what's happening on the cost side at the company. Morningstar's Mr. Schoonmaker, who has a five-star rating and fair value estimate of $33 a share (versus Friday's close of $23.02), notes "astounding" gains in profit margins over the past decade, and Citigroup Global Markets's Christian Wetherbee, who has a $29 target price, notes that CSX is trading at the lowest earnings multiple in the industry.

Norfolk Southern's status as a CP target has made it less appealing, as the share price reflects at least some sentiment that a merger will go through, despite regulatory obstacles and industry opposition. But just five of 26 analysts have a "buy" rating, per Bloomberg. Citigroup's Mr. Wetherbee recently cut his target price from $96 to $78, versus Friday's close of $70.50, because he decided to remove the "takeout value" from his estimate and return to fundamentals.

Norfolk Southern may be the least-rewarding ride of the five – but there's a good chance that all can roll forward from here.

Rolling with the times

While investors who bought rail stocks in the 2008-09 recession had a nice ride, in the last 12 months, it hasn't been as smooth, as most of the stocks lost 20 per cent or more. There's a case to be made, though, that the risks are favourable in buying any or all of the rail stocks right now.