GO
Loading...

Cramer: Snap Up This Pullback

Thursday, 23 May 2013 | 6:14 PM ET
Union Pacific CEO: Keystone Would Be Good For Us
Thursday, 23 May 2013 | 6:15 PM ET
Union Pacific CEO Jack Koraleski discusses its Q1 earnings, the Keystone Pipeline and the decline in its coal business.

(Having trouble with the video? Click here!)

Cramer is always scouring the market looking for values. And he thinks a stock that sold off recently probably shouldn't have.

"Thanks to a recent pullback, Union Pacific is now about four points off its highs. I think it could be worth snapping up some at these levels," said the Mad Money host.

Cramer thinks the decline was largely triggered by broad market weakness on Thursday. Worse than expected economic data from China combined with worries that the Fed may soon scale back its stimulus spooked some investors.

And because the Street sees Union Pacific as a derivative play on 'softs' as well as coal, the stock took a hit. Both are economically sensitive commodities and neither has performed particularly well.

However, Cramer believes in global growth as a long-term theme. Therefore he expects demand for these and other commodities to steadily increase over time, and that he says, doesn't appear to be priced into Union Pacific stock.

"What's much more important, is that Union Pacific is at the forefront of two of the most important trends in American business," said Cramer. The are:

1) The oil renaissance - "Union Pacific rail cars bring oil from these amazing new shale finds to where it can be processed and refined."
2) The emergence of Mexico. "It's a rapidly growing market for a wide range of goods, that Union Pacific serves."

-----------------------------------------------
Read More from Mad Money with Jim Cramer
Cramer: Bull Without Bernanke?
Youthful Trend Behind Whole Foods
IPO Watch: Favorite New Stocks?
-----------------------------------------------

In addition, Cramer is bullish on railroads because they have little competition. "Railroads are slap happy oligopolies," Cramer exclaimed. "That allows railroads to put through price increases with relative ease." (Read More: The Oligopoly Game: Cramer's Railroad Plays)

Mad Money
Adam Jeffery | CNBC
Mad Money

On top of that, there may be a more immediate catalyst on the horizon. Cramer thinks the Street doesn't quite realize that Union Pacific is also a derivative play on housing. "And housing is coming back with a vengeance," he said.

If you like the thesis, Cramer sees another reason to consider a position. "While you wait for a global comeback, Union Pacific pays you a 1.77% yield," he said.

Now that's not to say the stock isn't without headwinds. After a recent commuter train derailed in Connecticut the aging infrastructure used by the entire industry has come under scrutiny.

Nonetheless, Cramer thinks the tailwinds are greater than the headwinds and therefore he believes the stock is attractive at current levels. "At 14.3 times next year's earnings estimates with a 14% growth rate, I'm a buyer," he said.




Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

  Price   Change %Change
UNP
---

Featured

Contact Mad Money

  • Showtimes

    Monday - Friday 6p ET
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.