An ambitious multi-track, railway project linking China to the world is potentially in the works, prompting investors to take a serious look at one Canadian train builder…
Over the past year, we’ve been hearing a lot about the growth of railway companies thanks to the spike in natural gas and oil transport.
With our nation’s pipeline network at capacity, and environmental concerns slamming the breaks on new pipeline projects, trains have been called upon to keep bringing gas supplies to market.
So far, they’ve done a pretty good job at shouldering the excess loads.
Railways stocks have hit their stride, with companies like Canadian Pacific Railway (NYSE:CP) and Union Pacific Corp. (NYSE:UNP) continually hitting record highs every quarter.
But at some point, the same growth story will eventually start to lose steam. As planned pipelines come online and rail traffic slows, the industry could take a hit.
However, one potential way to help prolong the momentum is with innovative developments with potential to reinvigorate investor interest in the industry.
Take China for example.
State-run Beijing Times newspaper reported in early May that the country is planning to build a high-speed railway line from China to the US.
The proposed line dubbed simply the “China-Russia-Canada-America” line, would begin in northeast China, run up through Siberia, pass through a tunnel underneath the Pacific Ocean, and then cut through Alaska and Canada to reach the continental US.
As far-fetched (and expensive) as that may sound, the Chinese believe that the project is absolutely doable.
Crossing the Bering Strait between Russia and Alaska would require about 200km of undersea tunnel while the entire line would run for 13,000km — about 3,000km longer than the Trans-Siberian Railway.
A final destination in the US was not identified, but the entire trip from beginning to end is expected to take two days with the train traveling at an average speed of 350km/h (220mph).
Beijing Times also stated that the China-Russia-Canada-America line is actually one of four major high-speed rail projects currently in the works.
The second is a line running from London via Paris, Berlin, Warsaw, Kiev and Moscow, where it would split into two routes, one of which would reach China through Kazakhstan and the other through eastern Siberia.
A third line would begin in the far-western Chinese city of Urumqi and then run through Kazakhstan, Uzbekistan, Turkmenistan, Iran and Turkey to Germany.
The last line would begin in the southwestern city of Kunming and end in Singapore.
The newspaper says that all the routes are under various stages of planning and development, and no timelines have been confirmed for any of them.
Furthermore, no train companies have yet to publicly announce their involvement with the projects.
But in terms of potential candidates, one Canadian transportation company with deep Chinese ties could be shortlisted to take them on.
Top Stock To Buy Today:
Montreal-based Bombardier Inc. (TSE:BBD.B) has had a longstanding relationship with China for more than half a century.
Its subsidiary, Bombardier China, provides a wide range of rail transportation and aerospace products and services to the Chinese market.
When it comes to high-speed trains in China, Bombardier has been tasked with building numerous ones for the country’s rapidly expanding rail network.
An 80-train contract worth US$4 billion with the Chinese Ministry of Railways was signed back in 2009, and the final trains are being delivered this year. They include 20 eight-car units and 60 sixteen-car units.
In 2012, Bombardier struck a 10-year agreement to license out various rail technology and equipment for its Flexity 2 line of trams.
Last year, it secured a contract to supply multiple trams to the city of Suzhou, with a population of over 10 million people.
Other deals include subway cars to Shanghai and other major Chinese cities, a high-altitude rail car system for Tibet, and a number of aircraft and jet building contracts.
And business is only getting busier for Bombardier.
Globally, the company’s currently facing record-level order backlog of $76.9 billion, compared to $69.7 billion at the end of December 2013.
As management explains, this backlog sets the stage for strong revenue growth over the next five years.
In Q1 2014 alone, its Transportation division received $8.0 billion in new orders.
Asia-Pacific still makes up just 8% of Bombardier’s revenues compared with 67% in Europe and 19% in North America, which means that there is plenty of growth in the region.
Bombardier expects China to be a major driver for its high-speed train segment over the coming years.
For investors, this may be a good time to get onboard the Bombardier train.
The Company’s Aerospace division suffered a setback from recent engine failure on its CSeries test plane, which is expected to compete directly with Airbus’ A320 and Boeing’s 737.
This has pulled Bombardier’s stock down to near 52-week lows.
But should China’s new high-speed rail project come to fruition, and Bombardier gets tapped for the job, its Transportation division should have plenty of legs to drive up investor confidence.
Even with over 50 years of doing business in China, it feels like Bombardier is just getting its feet wet there.
It’s time you should too.