Railroad Selloff Good For These Two Stocks

In a report published Tuesday, Cowen And Company analyst Jason Seidl commented on the Rail sector, noting that his second quarter survey results indicate a "mild positive" for the industry. According to Seidl's survey, business trends "improved slightly" over the past three months and shippers expect their businesses to expand at an average rate of 4.8 percent over the next year. The expansion rate compares favorably to the 4.4 percent result in the analyst's first quarter survey. Finally, 38 percent of shippers plan on increasing their headcount (in-line with the prior survey), but only 13 percent of shippers are planning on reducing their headcount, an improvement from the 16 percent recorded last survey. On the other hand, railroad shippers are anticipating an average base rate increase of 4.0 percent over the next six to 12 months, marking a 70 basis point sequential decline, but still 20 basis points higher than a year ago. The analyst noted that the deterioration is likely attributable to "continued traffic weakness." "Given the current uncertainty about the rail sector and the economy, the 2Q15 survey results are a mild positive, in our opinion, and should help alleviate concerns that serious fundamental problems underlie the recent market jitters," Siedl wrote. "While some more volatility in rail stocks cannot be ruled out in the near term as the Street continues to adjust its expectations to reflect traffic results ahead of earnings, the sharp YTD pullbacks present longer-term investors with unique buying opportunities." Seidl singled out Union Pacific Corporation UNP (Outperform rated, $111 price target) along with Canadian Pacific Railway Limited CP (Outperform rated, $184 price target) as two names that provide a "unique buying opportunities" for longer-term investors.