|
|
Enron Mail |
SIVY ON STOCKS from CNNmoney.com
October 29, 2001 ******************[ A D V E R T I S E M E N T ]**************** QUICK! If you won $25,000 CASH what would be on your "Best Of" list? Keep thinking because here's a chance to try to win the $25,000 Grand Prize. BONUS: See what else has been selected "Best Of" at money.com and try an issue of MONEY Magazine FREE! Click Here: http://www.money.com/bestof **************************************************************** Iron horse The lousy economy is masking steady improvement at the nation's largest railroad Union Pacific. By Michael Sivy NEW YORK (CNNmoney) - As October draws to a close, the stock market is being forced to digest some nasty news. On the economic front, there were negative earnings forecasts and fears of a massive debt default in Argentina. Reports of new anthrax cases and the growing belief that the U.S. has lost the initiative in Afghanistan further undermined investor confidence. In addition, many mutual funds that close out their fiscal year on Oct. 31 were "window-dressing" -- dumping losing stocks that they don't want to have in their portfolios when they next report to shareholders. The overall result was that the stock market opened lower on Monday and fell throughout the day. At the close, the Dow was down 275 points, or nearly 3 percent, while the Nasdaq was almost 4 percent lower. Still, nothing has really changed. Eventually, the economy will turn, and many top-quality growth stocks with great franchises and strong financials are clearly cheap. Among them: tech leaders, such as Applied Materials and Microsoft; health-care giants, such as Pfizer and Johnson & Johnson; depressed entertainment stocks, such as Disney; and top financial services, such as Citigroup, MBNA and Fannie Mae. STOCKS TO CONSIDER Applied Materials Citigroup Fannie Mae Johnson & Johnson Microsoft Pfizer There are less-glamorous stocks, however, that are advancing under the radar, particularly cyclical businesses that have been reducing their costs and are now poised for big earnings gains when the economy finally rebounds. A good case in point is the railroad industry -- and particularly the nation's largest railroad, Union Pacific. The current company was created in 1996 when the old Union Pacific acquired Southern Pacific. The merger was a strategic masterstroke on paper -- and a practical disaster. Difficulties integrating the two railroads went far beyond the usual post-merger stumbles. Rail traffic jams in Texas became a mess that took years to sort out. As a result, Union Pacific's share price has yet to surpass its 1996 high -- in fact, it is currently 30 percent below that level. Nonetheless, the company has slowly been getting its act together. Traffic problems have been resolved, and much of the excess overhead resulting from the merger has been eliminated. Because business remains weak, however, very little of this progress is evident. Today Union Pacific (UNP: down $1.18 to $50.25, Research, Estimates) is the largest U.S. railroad, both in track miles and in freight revenue. The company's rail network covers the western two-thirds of the country with major links both to the East Coast and to Mexico. Union Pacific's customer mix is highly diverse, including low-sulfur coal and agricultural products. Revenues have basically been flat this year. Lower costs and cheaper energy prices have offset this top-line weakness, allowing Union Pacific to post a 4 percent earnings gain in third-quarter results, which were announced a couple of weeks ago. And analysts expect these trends to continue through the first quarter of 2002. As the economy improves next year, however, earnings could shoot ahead at better than a 20 percent annual rate and continue to grow in the low teens over the next five years. At a current price of $50 a share, Union Pacific trades at only 12 times next year's projected earnings. Moreover, cash flow is more than double net income. That means plenty of cash will be pouring in to improve the company's balance sheet from a B+ to an A. Relative to cash flow, Union Pacific's stock is about as cheap as you can get -- and the upside leverage in a recovery is considerable. ### Read all of Michael's columns at: http://money.cnn.com/markets/sivy/ To subscribe or unsubscribe to Sivy on Stocks, go to: http://money.cnn.com/email/ -------------------------------------------------- SPECIAL OFFER - MONEY MAGAZINE PERSONAL FINANCE COACHING SYSTEM Tap the expertise of MONEY for your specific personal finance needs with the help of a one-to-one coach... To learn more and speak to a coaching consultant, call 1-800-748-4056 x5705, or visit our website at: http://money.cnn.com/services/coach/index.html ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/sitelets/datastore/index.html?mn01 ----------------------------------------------------------- * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a FREE trial issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. If you would prefer us not use your e-mail address in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletter, please let us know by e-mailing us at <no_transfer@money.com<.
|