Union Pacific is Thursday's IBD Stock Of The Day. Fuel-efficient railroads are getting an edge vs. truck transportation with the Russia-Ukraine conflict sending oil prices to an 11-year high. UNP stock broke out to a record high, leading a charge among railroad stocks. But shares faded to close below the buy point.
Norfolk Southern and CSX were also solid gainers, with the latter clearing its 50-day average. Warren Buffett's Berkshire Hathaway, which owns BNSF railroad, hit an all-time high, clearing a four-weeks-tight pattern.
IBD's elite Leaderboard portfolio added a position in UNP stock on Thursday.
Union Pacific's Momentum
A study about the 2008 oil price spike found that 75% of shippers using intermodal deliveries — requiring both truck and rail — increased their reliance on intermodal during that period. However, the benefits for railroad operators amid high oil prices depend on a range of factors, including flexibility, efficiency and service.
That plays to Union Pacific's strong suit. The company is a big believer in precision scheduled railroading, which minimizes dwell time — the time customer carloads wait for an available to train to get moving — while extending train length. Union Pacific's average train length increased 2% to 9,300 feet in 2021.
Amid Covid supply-chain issues that bottlenecked ports and halted some auto production, Union Pacific saw 1% less volume in 2021 vs. 2019. Meanwhile, operating-efficiency gains helped fuel a 16% increase in operating income.
Deutsche Bank analyst Amit Mehrotra wrote in a Tuesday note that Q1 rail volumes through February were down 3.8% from a year ago among public Class 1 railroads. UNP volume, up 4.4%, "is the only rail outperforming expectations."
As supply-chain constraints ease through 2022, Union Pacific stands to benefit from a recovery. The company's auto volume was down 10% from a year ago in Q4. That recovery should add to gains from client wins. Trucking firm Knight-Swift Transportation Holdings shifted its intermodal business to Union Pacific at the start of the year.
Coal should provide another tailwind, with two recent client wins and elevated demand amid higher natural gas prices.
UNP Stock
UNP stock rose 1.2% to 255.46 in Thursday's stock market action. Shares hit 263.59 intraday, above a 256.21 buy point for most of the day. UNP stock has been in an eight-week flat base that's only 8% deep, according to a MarketSmith analysis.
UNP stock's relative strength line, the blue line in the chart provided that tracks its progress vs. the S&P 500, is hitting a multiyear high. That's an encouraging sign of market leadership, especially since it was hitting new highs before the stock broke out.
UNP has a strong 91 IBD Composite Rating out of a possible 99, a rating that combines fundamental and technical factors. That's tops in the Transportation-Rail industry group.
Through the stock market correction, UNP has hewed close to its 50-day line. The shallow 8% depth from UNP stock's recent peak to trough suggests institutional investors were buyers on weakness.
CSX stock popped 2% to 35.29, closing at its 50-day line after clearing that level and some short-term resistance, briefly flashing an early entry. Moving above Thursday's high would trigger a fresh aggressive buy signal. Shares have an official buy point of 38.11. CSX stock was added to the Leaderboard watchlist on Thursday.
Northern Southern stock rose 1% to 272, back above its 200-day line but hitting resistance near its 50-day line. NSC stock has a 299.29 buy point.
BRKB climbed 1.3% to 327.74, above a 325.73 four-weeks-tight entry. Investors also could view Berkshire stock as clearing a messy flat base going back to mid-January.
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