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$47.39 -0.68 (-1.41%)
12/4/2008 4:01 PM

Union Pacific Corp (UNP)

CAPS Rating:
****

The Company own transportation companies. The Railroad, along with its subsidiaries and rail affiliates, is its reportable operating segment.

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Avatar Chiefsarebest (84.20) Submitted: 11/07/06 9:45 AM : Outperform Start Price: $44.19 UNP Score: 44.84

This stock is 100% US Rev's. You must believe that the US economy will not weaken materially. Railroads have very high operating leverage and when they are at high utilization rates then they "print" earnings, but the opposite is true and for CAPS you need to jump off the "Rails" when you feel the US economy is decelerating for the commodities they haul. Grain, coal, intermodal ....

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Avatar justahistorian (78.12) Submitted: 2/25/07 12:15 PM

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Clearly, in general, you are correct about the relationship between the macro economy and railroads. However, since railroads do not "focus" upon the same commodities or run with equal efficiency, any economic downturn would effect different railroads differently.

For instance, UP is likely to weather an economic downturn better than BNSF because they focus on coal more than intermodal. Coal shipments will decrease less in a bad economy than intermodal. Additionally, UP has not spent large sums improving their system to handle higher capacity more efficiently so when rail traffic decreases in a slump UP did not "waste" that money. I suspect these two observations explain, to a large degree, why investors are higher on UP than BNSF.

Of course, in a very hot economy BNSF should do better than UP.

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