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Should I Buy Union Pacific Corporation (UNP)?

Abigail Fisher
·5 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Union Pacific Corporation (NYSE:UNP) and determine whether the smart money was really smart about this stock.

Union Pacific Corporation (NYSE:UNP) investors should pay attention to an increase in support from the world's most elite money managers recently. Our calculations also showed that UNP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are several gauges market participants use to assess stocks. Two of the best gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best investment managers can outperform the market by a solid margin (see the details here).

Aaron Cowen Suvretta Capital
Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to take a gander at the key hedge fund action encompassing Union Pacific Corporation (NYSE:UNP).

Hedge fund activity in Union Pacific Corporation (NYSE:UNP)

At the end of the second quarter, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. By comparison, 64 hedge funds held shares or bullish call options in UNP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Union Pacific Corporation (NYSE:UNP), which was worth $681.2 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $590 million worth of shares. Soroban Capital Partners, D E Shaw, and Suvretta Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 8.87% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, setting aside 7.24 percent of its 13F equity portfolio to UNP.

As industrywide interest jumped, specific money managers have jumped into Union Pacific Corporation (NYSE:UNP) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, created the most outsized position in Union Pacific Corporation (NYSE:UNP). Senator Investment Group had $76.1 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also initiated a $66.8 million position during the quarter. The following funds were also among the new UNP investors: Dmitry Balyasny's Balyasny Asset Management, Anand Parekh's Alyeska Investment Group, and Todd J. Kantor's Encompass Capital Advisors.

Let's check out hedge fund activity in other stocks similar to Union Pacific Corporation (NYSE:UNP). These stocks are American Tower Corporation (REIT) (NYSE:AMT), Shopify Inc (NYSE:SHOP), Linde plc (NYSE:LIN), Philip Morris International Inc. (NYSE:PM), International Business Machines Corp. (NYSE:IBM), Citigroup Inc. (NYSE:C), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks' market valuations match UNP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMT,61,4407292,4 SHOP,57,5916379,14 LIN,52,3643095,-1 PM,53,2574980,5 IBM,46,918051,5 C,96,6229205,10 CHTR,96,11227561,-8 Average,65.9,4988080,4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 65.9 hedge funds with bullish positions and the average amount invested in these stocks was $4988 million. That figure was $3686 million in UNP's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand International Business Machines Corp. (NYSE:IBM) is the least popular one with only 46 bullish hedge fund positions. Union Pacific Corporation (NYSE:UNP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNP is 61.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on UNP, though not to the same extent, as the stock returned 13.9% since the end of June and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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