You don’t often hear the robber baron-like term “rail monopoly” anymore, but that’s life on Wall Street these days, notes Real Money contributor Stephen Guilfoyle.
On the rail/transport issue, Guilfoyle targets a White House executive order that slows railroad stock growth and perhaps turns rail bulls into rail bears.
He writes: "Say it ain't so, Joe. You likely noticed [July 8] that the four worst performers among S&P 500 constituents were Kansas City Southern (KSU) (down 7.95%), Norfolk Southern (NSC) (down 7.12%), CSX Corp. (CSX) (down 6.19%) and Union Pacific (UNP) (down 4.43%). The Dow Jones US Railroad Index, which despite its name does include the two major Canadian railroads, backpedaled 5.67% for the day.
News broke on that week that the Biden administration said it will, in an executive order, will ask the Federal Maritime Commission and the Surface Transportation Board to take on what is termed as, according to a Wall Street Journal report, "a pattern of consolidation and aggressive pricing that has made it ominously expensive for American companies to transport goods to market."
That’s not good news for rail and transport stocks, Guilfoyle said, as investors aren’t exactly sure the end game on rail transport policy coming out of the White House.
"So the rails have a monopoly? I guess they do regionally. That's why I'm long UNP. That's why I am often long Berkshire Hathaway undefined, operator of the BNSF Railway, which is the old Burlington Northern Santa Fe. Perhaps the administration wants to break up the now even more complicated planned acquisition of Kansas City Southern by Canadian National (CNI) that would have created the only rail business servicing all three North American nations. Should that deal fail to complete, there are breakup fees and reverse breakup fees to the tune of $1.7 billion plus expenses that also include Canadian Pacific Railway (CP) , who KSU left at the altar before going with CNI."
Have the rails been quick to take advantage of rising commodity prices and a scarcity of cargo space during a V-shaped economic recovery? Some might say, 'That's business.' Some (including the administration) might have a bone to pick.
Guilfoyle stated that he – and other investors – tend to adapt to government policies. But the rail transport issue is a real head scratcher that may lead to investors exiting rail stocks at the next stop, without further transparency from Team Biden.