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It's Time to Move Out of Rail Stocks, Analyst Says

April 24, 2001|Bloomberg News

All not aboard--railroad stocks, that is.

Investors who have enjoyed the rally in rail stocks since the Federal Reserve began cutting interest rates in January should sell some of their shares now, Salomon Smith Barney analyst Scott Flower told clients Monday.

Rail stocks in the last 20 years have outperformed the Standard & Poor's 500 index in the three to fourth months following an initial rate cut, Flower said, and almost four months have passed since the Fed's first rate cut Jan. 3.

The four-stock S&P railroad index was up 18% this year through Friday, making the group the eighth-best performing industry in the S&P 500. But that's as good as it's likely to get, Flower said.

"I've seen times where people try to ride these rises too long," Flower said. "They've got to get off the train, and instead they go past their stop."

He lowered his ratings on Union Pacific, Burlington Northern Santa Fe, Canadian Pacific and Canadian National Railway.

Union Pacific (ticker symbol: UNP) fell $3.85 to $55 on Monday, Burlington (BNI) dropped $1.93 to $28.40, Canadian Pacific (CP) eased 77 cents to $39.34 and Canadian National (CNI) lost $1.42 to $37.19.

Among other rail stocks, CSX (CSX) slid $2.11 to $33.16, and Norfolk Southern (NSC) lost 81 cents to $16.18.

The industry's earnings may be disappointing this year because diesel fuel prices probably will rise and rail shipments drop further in the weak economy, Flower said.

Total rail shipments are down 1.8% so far in 2001. But the decline would have been larger if not for a 7.7% rise in coal shipments to electric utilities, Flower said. Unless this summer is extremely hot, coal shipments probably won't maintain the recent pace, he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Too Much Steam?

Railroad stocks slumped Monday after a Salomon Smith Barney analyst said share prices have run up too quickly this year, given an iffy outlook for the industry's near-term earnings.

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Standard & Poor's index of four major railroad stocks, monthly closes and latest

Monday: 555.60

Source: Bloomberg News

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