Is Union Pacific Corporation (UNP) a Good Investment After This Insider Sale?

We track insider transactions because we believe that no one knows a company better than the people who work there. It has been proven that insiders tend to outperform the market by as much as 7% annually (read more about how this strategy can boost your returns).

In a recent Form 4 filing with the SEC, one of Union Pacific Corporation (NYSE:UNP)’s officers decided to sell off almost 20% of their shares. Barbara Schaefer, a Union Pacific Senior Vice President since 1997 and Union Pacific employee since 1981, sold 20,000 shares for an average price of $122.96 each. The sale comes after the company’s shares have seen appreciation of nearly 15% year to date. Although this insider has decided to cut their stake, we believe that Union Pacific is one of the better-positioned railway companies out there, and here’s why this move was likely just profit-taking at its finest.

The rail industry is expected to see rail rates rise 4% through 2012, despite the downward pressure of rail transport volumes due to reduced coal and agricultural shipments. Many energy companies traded out coal for natural gas as natural gas prices fell, and drought conditions negatively impacted crop yields. Both of these headwinds are expected to subside in the coming year, allowing Union Pacific to grow revenues over 6% in 2013 on the back of 4% volume growth.

Union Pacific also recently increased its dividend by 15% and now pays a dividend that yields 2.2%. Positives for Union Pacific investors, when compared to the other top rail companies, is that this rail operator has the lowest in-industry debt-to-equity ratio at 0.47, and one of the top returns on equity at 18%. Billionaire D.E. Shaw was the top fund owner for Union Pacific of those we track in 3Q with over 2.2 million shares (check out Shaw’s newest picks here).

Top Union Pacific competitor Kansas City Southern (NYSE:KSU) expects to see the majority of its growth come from long hauls originating from Mexico-based manufacturers—namely in the auto parts industry. Kansas City is expected to grow 2013 revenues by 12% and improve margins as its focuses on improving its equipment productivity with longer hauls. Billionaire investor Ken Fisher – founder of Fisher Asset Management – was the top fund owner of those we track with over 1.1 million shares at the end of 3Q (check out Fisher’s newest stock picks here).