Tuesday, June 30, 2015

Recent Buy, June 2015

Investor Gremlin here to talk about my recent buy.  This has been a long time coming.  I put most of my free cash into Loyal3 right now, but I also put some cash in with my current dividends in my traditional brokerage to make sure I can still take advantage of other deals out there in the broader market.  I want to keep my traditional account humming, even though eventually my Loyal3 positions will be merged into my traditional brokerage.

Today I seized the initiative and acquired some Union Pacific Corp. (UNP).  I had a free automatic investment from my birthday (sweet), so for $1070 I received 11.2035 shares at $95.50 / share.  The current P/E ratio is approximately 16.28 and yield is 2.27% on cost.  I could throw out a lot more statistics, but instead I would prefer you check out My Dividend Growth and Dividend Mantra, who have done excellent research and who do a much better numbers analysis than I do myself.

I chose UNP over other stocks, namely TROW, BEN, and NSC.  I like UNP's long term outlook more so than its Eastern counterparts in CSX and NSC for railroads.  The West is much more vast, and the profitability margins for shipping are much better for UNP.  Also UNP has a much wider array of goods it ships, and is not as dependent upon coal as the Eastern companies.  I like UNP over TROW and BEN simply because I believe they will remain fairly valued for a while and UNP likely won't.  UNP is clearly a fan favorite, and once the drama in the world shifts even slightly back to the positive we will see that.

Another topic I'd like to touch on here is one of moat and valuation.  UNP has an awesome moat that is undervalued.  Yes, we know that tracks, locomotives, employees, and land all contribute to the underlying value.  However, what we neglect specifically on that land is where it is.  A lot of it runs through dense cities, where large yards exist to deal with switching and maintenance.  That is nearly impossible to replicate quickly.  In addition, UNP in the west has a lot of remote and rugged areas where its track runs.  Those lands are difficult to build on, so that history is its own value.  The simple environmental impact statement (EIS) involved in a new track such as that is insane - I know this from experience.  On top of that they have to content with a growing amount of Federal land and parks, which need to be avoided or have land grandfathered into any deals.  This is a nightmare.  Sure not the same level of problem that NSC and CSX have to deal with in the sprawling East, but one that can lead to long drawn out battles with Federal and State governments.

As far as competition, the main rival is BNSF.  I believe strongly there is more than enough business to go around in the Western USA and on rail in general to keep all the large US and Canadian railroads looking good for a long time. 

I would love to add more, but its a busy day.  However, it is hard to contain my excitement with this play.

Currently my portfolio page is up to date with this and all other June purchases.  Have a great July everyone!
- Gremlin
- Long UNP!

6 comments:

  1. Nice work, Gremlin. Really solid thoughts here and I'm glad to have you as a fellow shareholder. Looking forward to your monthly update and thanks for the mention!

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    1. MDG,

      Thanks for the comment. I think UNP will reward us nicely in the long run.

      - Gremlin

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  2. Thanks for sharing your recent buy No rails for me in my portfolios yet but I do like TROW that you mention. I think the financials (banks, asset managers, insurance) still present good value and relatively high safe yield as well.

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    1. DH,

      I agree, financials in general are excellent opportunities right now. Between them, energy, and certain industrials good buys are all around us right now.

      - Gremlin

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  3. Nice work Gremlin. I'm looking to buy some AT&T. Decent dividends (4%+ per year) and the stock price has been flat for the past 3 years, so there's definitely room for some capital gains here.

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    1. Tony,

      T has certainly been flat for a while now. I have them in my Roth and love the 4-5% dividend, however the growth is slow. If you're looking for income its a great play right away, and might be for total growth in the long run. Thanks for the comment.

      - Gremlin

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