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Union Pacific: I'm Preparing To Buy Lower

Jun. 12, 2020 8:40 PM ETUnion Pacific Corporation (UNP)11 Comments


  • Union Pacific is almost flat for the year after dropping like a brick in the first quarter.
  • The company is seeing significant fundamental weakness, which could turn into a headwind as expectations imply a strong second-half recovery.
  • Regardless, I am aiming to buy the stock on weakness as this gives investors an attractive long-term risk/reward.

It's time to take another look at Union Pacific (NYSE:UNP). America's largest stock listed railroad company is almost positive for the year while I am writing this. Unfortunately, fundamentals are deteriorating, putting the stock under tremendous pressure. In this article, I will show you some of the company's fundamentals, earnings expectations, and tell you why I believe that this stock is a good buy at lower prices. So, bear with me!

Source: Union Pacific

2020 Is Insane

Let's start with the graph I normally show at the end of my articles. Union Pacific has been on one hell of a ride, falling from more than $180 in February to almost $100 during the peak of the COVID-19 fears. Since then, the stock has gained roughly 60% to $165, which is roughly 3% down since the start of the year.

I have never been known to be a bear, and I am not about to change that. However, it is important to acknowledge what it means when this stock is down less than 5% while it seems that the economy is imploding. To show you the market's expectations and stock price developments, I made the graph below. Before I go into details, let me make a few things clear. First of all, the largest pain inflicted on the economy was caused by the shelter in place orders that started in March. Nobody on earth doubts that the economy will implode once planes stop flying, stores are forced to close, and you aren't allowed to meet your family anymore. Now, also nobody is surprised that things quickly recover once the economy fully reopens. The third quarter will be substantially stronger than the second - simply because of government measures.

What we are facing now is the million-dollar question: how fast will economic growth

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Comments (11)

I have owned $UNP since 1998. I have been very satisfied with $UNP growth and the dividends. It has become my largest position in my dividend portfolio. IMO if you are a long term invester, I believe you can't go wrong owning some $UNP.

The big question is at what price do you want to buy some $UNP in this market? 188 was the 12 month high for $UNP. 120 to 130 would be a great entry point if $UNP pulls back. At that entry point you give yourself plenty of upside.
Angelo_A profile picture
Waiting patiently to put my hands on UNP, Ball and WM.
danllll profile picture
I have owned and continued adding UNP to my dividend growing portfolio for years. UNP has increased dividends for only 10 years, only because they have froze it a few times. Maybe they have cut dividends sometime, but I don't remember that. I have done very well owning UNP.
Leo Nelissen profile picture
Awesome, good to hear!
"Preparing To Buy Lower"

BM Cashflow Detective profile picture
I Agree. Between $ 140 (discount) and $ 150 (fair value) would be an acceptable price to top up.
Old Professor profile picture
Right. There's not a lot of long-term risk here, especially if you get in on a bear-market price.
I like UNP. During the period between February 18th and April 30th, I bought UNP three times at these prices: $112.95, $166.40, and $158.27. I did not want to wait.

Incidentally, in your article you state "Some say not investing is riskier than not investing." Is this a typo?
Leo Nelissen profile picture
Yes, it is. Thank you very much for pointing that out.
I will add at 140 after starting a position at 131.
Peter Angus profile picture
My view is take the 2019 earnings and make a big guess as to what the earnings per share will be in 2022. With those earnings, figure out what the dividend and stock price is likely to be. Does the current price look attractive? In other words, throw 2020 quarterly results out the window, and possibly 2021. These figures are going to be a huge aberration that will be water under the bridge in 2022.
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