Union Pacific Corp

Union Pacific is the largest and most profitable Class I railroad in the U.S. We see freight rail as an attractive industry, underpinned by irreplaceable infrastructure, strong pricing power, and minimal risk of technological disruption. The company is led by an exceptional CEO, Jim Vena, who has driven significant cultural and operational improvements. Despite these improvements, the stock has significantly underperformed the market in recent years as macro headwinds and uncertainty related to the proposed merger with Norfolk Southern have distracted investors from an improving long-term outlook. This provided us with the opportunity to purchase UNP at a meaningful discount to our estimate of intrinsic value. We believe the stock is undervalued on a standalone basis, with further potential upside should the merger be approved, as we find the strategic and financial logic of the deal compelling.

The railroad stock Union Pacific was another new addition. We owned the stock in the past and sold it from the portfolio when positive price action caused its yield to fall to an unattractive level, but its recent weakness provided the opportunity to reestablish a position. We think these factors indicate that undervalued dividend stocks continue to offer a wide range of opportunities for individual security selection.

We increased our position in Union Pacific, as we are constructive on its proposed merger with Norfolk Southern. This merger is expected to enhance operational efficiencies and create a more competitive entity in the transportation sector. The strategic alignment with Norfolk Southern could lead to improved service offerings and cost synergies, positioning Union Pacific favorably in the market.