• CNBC's Jim Cramer on Wednesday suggested that railroad stocks may be starting to climb, explaining how the troubles in the Red Sea help companies.
• Cramer reviewed earnings reports from Union Pacific, Canadian Pacific Kansas City, CSX and Norfolk Southern, saying all except the latter have potential.

CNBC's Jim Cramer on Wednesday suggested railroad stocks may be starting to climb.

As Yemen-backed Houthis continue to attack ships traversing a key freight route in the Red Sea, many major shipping companies are paying extra to reroute their vessels. These expensive diversions have the potential to boost the freight industry, which has been mired in recession over the past few years.

He noted that these overseas freight disruptions — some of which mean goods are sent to the U.S. via the West Coast rather than the East Coast — may give western railroad companies an edge.

"We know that these shipping disruptions in the Red Sea have forced many companies to take their goods to the West Coast, rather than going through the Suez Canal then the Mediterranean then the Atlantic to get to the East Coast," Cramer said. "Boy is that terrific for the West Coast operators, and there you're thinking about Union Pacific and Canadian Pacific Kansas City."

Cramer reviewed earnings reports from Union Pacific, Canadian Pacific Kansas City, CSX and Norfolk Southern, saying all except the latter have potential. CSX's quarter was better than expected, but still showed decreased earnings. However, Cramer was encouraged by the company's volume growth — which he said is especially important for railroad outfits — and management's fairly positive full-year outlook.

Union Pacific's revenue came in higher than expected, and its volume growth is also promising, Cramer said. Canadian Pacific Kansas City saw the largest volume growth of the bunch.

Norfolk Southern's quarter came in worse than expected, and Cramer said the stock has been a "serious laggard" over the past year since one of its trains derailed in Ohio.

"With the freight recession ending and the disruptions in ocean shipping, we've got a situation that's clearly better for the railroads than others — you've got to focus on this group," Cramer said. If investors feel confident about the economy, they have Cramer's "blessing to stick with Union Pacific, Canadian Pacific, or CSX — in that order, by the way — and forget about Norfolk Southern for the moment."

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