$50 Oil Could Boost Union Pacific Stock

2017 is expected to bring the highest gasoline prices since 2014. According to a recent report from Triple A, the average cost for regular, unleaded gas is expected to rise to $2.49 per gallon this year, up from $2.13 in 2016.

That's bad news for corporate America -- higher energy prices means rising operating expenses for most of the S&P 500. However, there is one company that is actually in position to benefit.

Rising gasoline prices are a profit trigger for this industry leader. That's why I am expecting shares to close to 2017 at a new all-time high.

Union Pacific (NYSE: UNP ) owns and operates the largest rail network in the United States. It operates 8,500 locomotives over 32,100 route-miles in 23 states west of Chicago, Illinois and New Orleans, Louisiana.

Union Pacific stock has been on a roll. Shares are up 23% in the last 12 months, a 54% premium to the S&P 500. Take a look below.

Union Pacific Stock

Looking forward, I am expecting another market-beating performance from Union Pacific in 2017. A powerful profit trigger is on the horizon for the entire US rail shipping industry and Union Pacific in particular.

When gasoline is cheap, companies tend to rely more heavily on trucking for their shipping needs. However, when gasoline prices rise, companies tend to shift more of their shipping demand to rail because it is so much more affordable. In fact, according to the U.S. Department of Transportation, trucking is 10 times more expensive.

Union Pacific Stock

Source: U.S. Department of Transportation, National Transportation Statistics

So with gasoline prices rising in the US and back to their highest level since 2014, I am expecting demand for rail shippers to accelerate in 2017.

As the largest rail shipper in the United States, Union Pacific is perfectly positioned to capitalize. That's why earnings are expected to spike in the next two years. Union Pacific is on pace to grow earnings by 10% in 2017 and another 12% in 2018.

Union Pacific Is A Great Long-Term Investment

Even if gasoline prices stall in 2017, the longer term outlook for Union Pacific still looks great, primarily because the era of falling oil and gasoline prices is over.

Crude and gasoline prices both have a lot more upside than downside in the long run. The World Bank is predicting crude prices will rise for the next 12 years, all the way until 2030.

Union Pacific Stock

That long-term trend of rising crude and gasoline prices would drive demand for rail shippers for years to come.

Union Pacific will once again capitalize because the company benefits from huge barriers to entrance. This is the difference between the rail industry and, say, the tech industry. A freshman programming whiz at Harvard isn't going to write a flashy new program in the dorm room that is going to take big chunks of market share from Union Pacific.

This is the reason that Warren Buffett loves investing in rail shippers. In 2009 he sunk $34 billion into Burlington Northern in what he called a "100-year investment." Having the world's greatest investor making the biggest bets of his life on US rail shippers tells me this is a great place to find reliable, long-term gains.

In the meantime, Union Pacific stock pays one of the fastest growing dividends in the S&P 500. In the last five years, its dividend has more than doubled, climbing 110%. Take a look below.

Union Pacific Stock

That has shares of UNP offering a 2.2% current yield, a 10% premium to the S&P 500's 2.0% yield.

Despite the promising outlook, Union Pacific still offers value. Its forward P/E of 19 is a discount to the S&P 500's 20.

Risks To Consider: Rail shippers are more sensitive to economic growth than other industries. Although the US and global economies are expected to expand in 2017, growth remains stubbornly slow. And with the Fed set to raise interest rates, growth will be challenging.

Action To Take: Rising gasoline prices are a profit trigger for Union Pacific. With gasoline prices expected to hit a new 3-year high in 2017, I am expecting Union Pacific stock to close the year at a new all-time high.

Editor's Note: Whoever said income investments are dead was grossly misinformed. Because right now there are 171 stocks yielding at least 10% . And 116 doling out at least 12%... and 72 stocks paying over 15% dividends. To discover which of these low-risk, high-yield cash-producers will keep the money flowing this year with continually increasing dividends... Next page please ...

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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