#3 Kansas City Southern (NYSE:KSU)
– Investors with Long Positions (as of December 31): 34
– Aggregate Value of Investors’ Holdings (as of December 31): $986.38 million
Amid a 17.8% decline in its stock during the fourth quarter, the number of investors in our system with long positions in Kansas City Southern (NYSE:KSU) decreased by six and the aggregate value of their holdings in it declined by $462 million. Jonathon Jacobson‘s Highfields Capital Management was one of the hedge funds that initiated a stake in the company during that period, purchasing 1.68 million shares. Though shares of Kansas City Southern (NYSE:KSU) have appreciated by almost 18% so far this year, some analysts believe that they are still undervalued, considering that the stock has been an outperformer for many decades. According to Agora Financial, Kansas City Southern has been the best-performing stock in the last 42 years, delivering an annualized return of 26% during that period. Furthermore, despite the slowdown in the railroad industry, Kansas City Southern has been performing relatively well compared to its peer group. On March 2, analysts at Cowen and Company reiterated their ‘Market Perform’ rating on the stock, but upped their price target on it to $88 from $76.
#2 CSX Corporation (NASDAQ:CSX)
– Investors with Long Positions (as of December 31): 45
– Aggregate Value of Investors’ Holdings (as of December 31): $1.05 billion
Moving on, ownership of CSX Corporation (NASDAQ:CSX) among the hedge funds that we follow inched down by two and the aggregate value of their holdings in it declined by $343 million during the fourth quarter. A notable fund which reduced its stake in the company during that period was James Dinan‘s York Capital Management, which cut its holding by 37% to 32.87 million shares. Shares of CSX Corporation (NASDAQ:CSX) have rallied significantly this month after it came to light on March 1 that Canadian Pacific Railway held takeover talks with the company in January. Owing largely to this rally, shares are currently trading up by 3.9% year-to-date. Citigroup analyst Christian Wetherbee, who previously estimated that CSX Corporation could be valued in the low-$40 per share range in a takeover bid, recently revealed in a note to clients that the company will possibly be acquired if a bid valuing it in the ‘upper $30s’ per share range is made. Shares currently trade at $26.66, which suggests a potential deal could reward shareholders with about 40% gains. Mr. Wetherbee also feels that CSX Corporation is “a somewhat better strategic fit” for Canadian Pacific Railway than Norfolk Southern Corp.
#1 Union Pacific Corporation (NYSE:UNP)
– Investors with Long Positions (as of December 31): 56
– Aggregate Value of Investors’ Holdings (as of December 31): $1.98 billion
Union Pacific Corporation (NYSE:UNP) was not only the most popular railroad stock among hedge funds covered by us as of the end of the fourth quarter but was also the only stock in this list which saw a rise in its popularity during that period. The number of investors tracked by Insider Monkey with long positions in Union Pacific Corporation (NYSE:UNP) inched up by one and the aggregate value of their holdings in it jumped by $471 million during the October-to-December period. Most analysts share the same sentiment on the company as hedge funds. They believe that Union Pacific Corporation is one of the most stable stocks in the railroad sector and that given the kind of cashflow the company generates, its annual dividend yield of 2.62%, and its relatively low forward P/E of 14.04, its stock is poised to move higher in the coming quarters. D.E. Shaw, founded by billionaire David E. Shaw, increased its stake in the company by 668% during the December quarter.