Union Pacific Corporation (NYSE:UNP) is a company that’s getting upgraded by the Street and earnings estimates are ticking higher. It’s great news for this benchmark stock and top wealth creator.
The business cycle in old economy industrial businesses still has legs, and while Union Pacific’s share price is up some 25 points over the last 12 months, I think this stock can keep ticking higher into 2015.
The railroad business has proven to be a good one over the last several years. Most railroad companies have been able to increase their prices for freight without affecting demand, and that’s a very important metric and telling indicator.
Union Pacific’s share price was around $26 a share this time in 2009. Now it’s just over $100 -- the company recently effected a two-for-one stock split -- and the has increased its dividends paid seven times since 2009. It's in is a good business and it continues to pay as a stock-market investment.
Growth
The company’s volume growth is coming from both agricultural and industrial products. And even its coal transportation business is showing improvement.
Union Pacific is moving a lot of freight cars related to the domestic oil business. While many might see this as carloads of crude, the company actually ships more carloads of fracturing sand than oil. It’s a growth area for the business, and it has been for several years.
The company’s one-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
This is a stock that has proven to be a worthy buy when it’s down. It hasn’t been down for long, and it remains a favorite among institutional investors, especially those wanting exposure to the transportation industry.
Multiple Themes
Not all transportation stocks or railroads are doing as well as the indices. But Union Pacific remains a top performer and while the company may not garner a lot of enthusiasm among young individual investors pining for technology, this is a great play representing multiple investment themes.
Some of these themes include a way to play the revival (albeit modest) in the industrial economy and some specific areas of manufacturing, like automakers. The company is a play on agriculture, construction materials, resources (like coal, oil, and metals), and trucking freight through intermodal.
Another Play
I believe that one railroad stock has a very useful role to play in any equity market portfolio and Union Pacific may just be my choice. Canadian National Railway Company (NYSE:CNI) is another railroad company to consider with multinational exposure.
There will come a time when railroad stocks will be less favored by institutional investors, but it’s not now.
Union Pacific has done an outstanding job creating wealth for shareholders through its capital appreciation on the stock market, increasing dividends, and strong share repurchase program.
It’s a good time to be in the railroad business, and this company should continue to grow its business as the next cycle develops over the next few years.
While favoring this company specifically compared to its peer group, I still like this stock on any major price retrenchments.