Apart from its own strengths, a stock needs the right climate
to make big gains.
For starters, the market must be in an uptrend. Without that,
there's no point in buying stocks.
Next, a stock's industry group should be strong. Research
shows that 37% of a stock's move is tied to its industry
group.
The stock's sector also should be strong. About 12% of a
stock's action is linked to its sector.
Finally, a stock should be a leader within its group or
sector.
Union Pacific (
UNP
) has a Composite Rating of 92; a Sales + Profit Margins + ROE of
A; a steady, five-year earnings Stability Factor of 11; strong
cash flow; and a declining debt-to-equity ratio.
Yet, the investing climate isn't providing significant tail
winds.
The current market condition is confirmed uptrend, but the
action hasn't been great. It has been choppy. The market can't
seem to hold a direction for long.
The railroad industry group was No. 76 of 197 industry groups
as of Thursday's IBD. Three weeks ago rail was No. 118, so it has
improved. Yet, the bulls would like to see a stronger rating --
ideally top 20.
Transportation was No. 14 of 33 sectors as of Thursday's IBD.
Again, the middling rating could stand some improvement.
Within its 10-stock group, Union Pacific is No. 1 in EPS
Rating and third in Composite Rating.
Earnings growth stepped up from 14% to 19%, 28%, 39% and 32%
in recent quarters. After-tax margin rose on a year-ago basis in
each of the past four quarters. In Q2, after-tax margin was 19%
-- the best in at least 18 quarters.
Revenue growth, however, dropped to 7% in Q2, the slowest in
10 quarters. The freight revenue breakdown shows that automotive
was strong (up 25%) but agricultural (up 1%) and coal (down 9%)
either didn't help or hurt.
Union Pacific's annualized dividend yield is 2%. The quarterly
payout has more than doubled since August 2008 and has been
increased for six years in a row.
In Q2, overall fund holdings in Union Pacific didn't change
much from Q1. Fidelity Contrafund, though, upped its position by
about a third.