The shares of Union Pacific (UNP), which I first discussed here on March 27, 2009, at a price of $43, have failed three times this winter to break through major, psychological resistance at $100. Needless to add, if you haven't already, now may be a good time to consider taking some profits if you're in near $43.
However, those investors who can tolerate the risk can maintain their full position in UNP, but keep in mind that the journey to $120 probably will not be completed in 2011.
Many macro-factors are running in Union Pacific's favor. Union's revenue increased an impressive 20% in 2010, with a better than 8% volume jump on rising intermodal, industrial and chemical transportation demand; 2011 revenue should advance 10% to 12%.
What's more, the calculation here remains that the railroad rebound has only just begun, due to U.S. and global economic recoveries. The more economically sensitive, cyclical freight business continues to gain steam, and the increased demand should support Union Pacific's pricing power, in addition to rising volumes. A modest $1.52 annual dividend complements the growth story.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for UNP are $6.53 to $7.62.
Technically, as noted UNP is battling major, psychological resistance at $100. Normally, a third failure to break though resistance would be a bearish sign, and a time to sell, but the view from here argues the uptrend is stronger and should prevail. In this case, Union Pacific's railroad sector status gets the benefit of the doubt.
2011 Outlook: I view Union Pacific as a long-term play, but if you're looking to sell UNP within the year, it's probably best to take your profits after it rises to $107 to $109, if it fails to rise above $110.
Stock Analysis: I consider Union Pacific to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in UNP now; I'd put a sell/stop loss at $76.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.