Hedge Funds’ Favorite Railroad Stocks Led by Union Pacific (UNP)

#3 Canadian Pacific Railway Limited (USA) (NYSE:CP)

– Number of Hedge Funds Long the Stock (as of March 31): 36
– Total Value of Hedge Funds’ Holdings (as of March 31): $3.03 billion

Bill Ackman‘s Pershing Square may have experienced a high-profile setback with a certain pharmaceutical company, but the savvy fund was far more fortunate with its major position in Canadian Pacific Railway Limited (USA) (NYSE:CP), which it started in the third quarter of 2011. Shares of the transcontinental railway operator have appreciated by 212% since the end of that third quarter, and have gained over 15% this year. However, they dipped on August 4 when it was reported that Pershing Square had sold off its position in the stock, likely in response to some of its heavy losses in Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Mr. Ackman also informed the company that he will step down from his position on its Board when his term ends as of the company’s 2017 annual shareholders’ meeting. On the other hand, billionaire Ken Griffin’s Citadel Investment hiked its stake in CP by 115% to 505,017 shares during the second quarter.

#2 CSX Corporation (NASDAQ:CSX)

– Number of Hedge Funds Long the Stock (as of March 31): 40
– Total Value of Hedge Funds’ Holdings (as of March 31): $1.13 billion

CSX Corporation (NASDAQ:CSX) is perhaps the most dividend-friendly railroad stock that hedge funds love. Not only does the company pay an annual dividend of $0.72 per share, good for a 2.57% dividend yield, but it also has a low payout ratio of 37.4%. Shares also trade at just 14.6-times forward earnings estimates, substantially lower than the S&P 500’s forward multiple of 18-times. 40 funds that we track were long CSX Corporation (NASDAQ:CSX) at the end of the first quarter, down by five funds quarter-over-quarter.

#1 Union Pacific Corporation (NYSE:UNP)

– Number of Hedge Funds Long the Stock (as of March 31): 54
– Total Value of Hedge Funds’ Holdings (as of March 31): $1.4 billion

With 54 funds tracked by Insider Monkey owning shares of Union Pacific Corporation (NYSE:UNP) at the end of March, the company ranked as the smart money’s favorite railroad stock. Union Pacific shares are up by 19% year-to-date and the stock has an annual dividend yield of 2.39%. Shares were barely impacted by the company’s 19% slide in profit during the second quarter, as freight volume fell by 11% year-over-year, being most heavily impacted by a 21% decline in coal shipments. Revenue also fell by 12% from a year earlier, to $4.8 billion. The company expects the challenging environment to persist throughout the second-half of the year. Billionaire Dan Loeb opened a 1.35 million-share stake in Union Pacific during the second quarter.

Disclosure: None