From the sound of selected analysts' research, you'd think that the U.S. economy would never recover. To be sure, there's much work ahead, particularly on the toxic asset removal and credit market fronts, but if you think the U.S. stock market's steady rise in March is a sign that financial institutions are starting to position themselves ahead of the typical investor, you're correct. And with the aforementioned in mind, Union Pacific (NYSE: UNP) is worth an evaluation.Union Pacific is the leading rail freight carrier in the United States, transporting coal, chemicals, industrial products and freight over an enormous track network: 32,000 miles of route track in 23 states in the western U.S.
UNP really benefited from the container shipping boom (intermodal business) during the surge in international trade earlier in the decade propelled by emerging market growth, then was hurt when trade volume dropped at the start of the U.S./global recession and the financial crisis. Shares were punished from a high above $85 to a low around $33 -- yet another, classic oversold stock.
Revenue is expected to decline 6-8% in FY 2009, offset somewhat by widening margins, improved productivity, and newer, more-efficient locomotives that use less fuel. The First Call FY 2009/FY 2010 EPS estimates for UNP are $4.08 to $4.69.
There is substantial downside risk with UNP, given the company's dependence on auto, ethanol, and chemical traffic. That said, the view from here argues that the auto sector is about as bad as it's going to get in the states, with any upside in that segment boosting revenue above the negative, year-over-year FY 2009 estimate. Further, any inkling of a U.S. economic recovery should help chemical traffic, which makes the company's overall risk/return favorable.
Stock Analysis: Union Pacific is a moderate-risk stock. Consider buying a 25% position in UNP now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your UNP position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $27.
- -
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Black Friday expected to be strong, no promises for Christmas
Will JPMorgan chief Jamie Dimon be our next Treasury Secretary?
Gold surges to another new high of $1167 per ounce
