Union Pacific is the best rail company in this market
CNBC’s Jim Cramer said Tuesday he prefers Union Pacific to industry peer CSX, suggesting that investors who want to own railroad stock should choose a Nebraska-based operator.
“Don’t let the rollercoaster distract you. It’s a stock picking market, so when it comes to a very simple comparison straight to the railroads, you need to stick with the … best-in-class Union Pacific, said the Mad Money host, whose charitable foundation owns the stock.
Union Pacific and CSX reported earnings late last week, and their stocks were received differently on Wall Street. Union Pacific was welcomed warmly, rising on Thursday and Friday, while CSX stock sold off on Friday. For the year, Union Pacific shares fell 3.1%. CSX is down 10.3% year to date.
Despite CSX’s weakness, which could potentially offer investors an entry point, Cramer said he sees Union Pacific as the best stock to own in the current market environment.
One reason is that Union Pacific’s management has issued “unbelievable” forecasts for the future, Cramer said, while acknowledging that his fourth-quarter results were “not perfect,” including a 12% decline in freight car speeds.
“They are forecasting strong volume growth, price increases that should exceed inflation, and efficiency gains,” Cramer said. “Put it all together and Union Pacific could be throwing a lot of money away. Management is promising to spend a lot of that money on dividends and share repurchases, which is exactly what Wall Street likes to hear in such an environment. .”
CSX, by contrast, didn’t give investors as much concrete information they could rely on, Cramer argued. He said it was likely due to the geography they mostly operate in: Union Pacific is west coast oriented while CSX is east coast oriented.
In addition, Cramer said that CSX is more dependent on coal than Union Pacific, explaining that traditional coal price volatility likely contributes to CSX being less visible.
“We’re learning a few things this reporting season,” Cramer said. “We learn that this remains a stock choice market… A market where your ability to choose between winners and multiple losers in the same industry has a big impact on your portfolio performance.”
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