In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
I estimate the Union Pacific (UNP) eliminated 11,711 jobs in the past two years. To explain, The Omaha World-Herald estimates the UP’s workforce shrank from 44,531 employees in September 2018 to 32,820 in July 2020.
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America’s oldest transcontinental railroad is still making money. UP reports an operating income of $1.96 billion and a net income of $1.391 billion for the 1st Quarter of 2019. Yet, those numbers are down from $2.016 billion and $1.554 billion in December 2018.
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However, there are far cheaper railroads out there. For example, the CSX Corp had a market cap of $59.79 billion, the Norfolk Southern had a market cap of $49.02, and the Kansas City Southern had a market cap of $11.24 billion on 22 February 2019.
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The financials for railroads like UP and the CSX; which operates historic rail lines on the East Coast, show us why Hyperloop will need your tax dollars. Privately-owned surface transportation companies simply do not generate enough cash to pay for expensive infrastructure like the Hyperloop.
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The Union Pacific has a pretty bright future because it owns four rail lines that connect the Great Plains to the West Coast.
They include the original transcontinental rail line from Omaha, Nebraska to Oakland, California and the Southern Pacific line from Los Angeles to Houston. Shorter routes include the line from Salt Lake City to Los Angeles, and the Oregon shortcut from Pocatello, Idaho, to Portland, Oregon, and Seattle. Other key routes include a line from El Paso to Chicago, the line from Houston to Chicago, and the line from Denver to Salt Lake City.
These tracks put the Union Pacific in a great position to cash in on all the raw materials shipped from the West and Midwest to Pacific and Gulf Coast Ports. It is also in a good position to haul all the consumer goods shipped from China to U.S. ports.
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This exposes the Canadian Pacific’s greatest problem: its resources are simply too limited. The railway barely seems to make enough money to cover the cost of operations, let alone expand or modernize.
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Even with its lower price Canadian National is a very good stock. It is scheduled to reward investors with a dividend of 30.4¢ on June 7, 2017. That’s down slightly from 30.7¢ on March 8, but up from 28.2¢ on December 7, 2016. So Bill Gates is also a pretty good dividend picker as well as a value investor.
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An interesting investment would be to buy buildings, land or old houses in older cities that might be connected to population centers like New York via Hyperloop. A great example of such a city is Pueblo, Colorado, a decaying steel town full of old houses that is just 114 miles south of one of the nation’s most expensive markets; Denver.
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I would classify Union Pacific as a stock to watch. Don’t buy it because it will get cheaper, but hold it if you have it because this railroad will not lose money in the near future.
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The situation at Kansas City Southern should make investors reconsider the notion that railroads are a value investment. Changing economic conditions are calling that value theory into question. Political conditions and the potential of major technological disruption; in the form of innovations like Hyperloop, make railroads a far riskier investment than they once were.
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