(The following story by Eric Rosenbaum appeared at TheStreet.com on November 24, 2009.)
NEW YORK — Union Pacific shares were down 2.6% on Tuesday as a downgrade from UBS pushed down most names in the rail sector.
In a new research report on the rail industry, UBS downgraded Union Pacific from buy to neutral as part of its argument that mini-bubble proportions were being reached in the rail industry thanks to Warren Buffet. Shares of Union Pacific had soared almost $11 since the announcement of Warren Buffet’s acquisition of Burlington Northern at the beginning of the month.
The downgrade and fears of a bubble in rails had a big impact on the rail sector, with most of the major stocks trading down. Canadian National Rail and Canadian Pacific Railway and CSX were down approximately 1.6% and 1.4%, respectively.
Burlington Northern eeked out a 0.4% gain at the end of day. Transportation, as a whole, was off 0.8% on Tuesday.
UBS noted in its research report that the rail industry has outperformed the S&P by 10% since Buffet’s acquisition was announced and, in two previous examples of major Buffet investments in rails, once enthusiasm wore off, stocks in the sector quickly gave back half of their gains.
For example, in April 2007 Buffet made his initial 11% investment in Burlington Northern. Rail stocks proceeded to outperform the S&P by 9%, before giving back 4% just as quickly. In October 2007, Buffet took his Burlington stake up to 15%, sending stocks across the sector up 4%, which was followed just as surely by a 2% drop.
Union Pacific has been tagged by UBS as the most expensive stock in the rail group, precipitating the downgrade.