Investors are growing nervous over railroad stocks as a strike looms. Specifically, union workers could walk off the job as early as Friday, when a mandatory “cooling off period” expires. A strike would snarl supply chains and raise inflation. It would impact all railroads as well — as the lines are interconnected — and cut Amtrak service. About 40% of U.S. long-distance freight moves by rail.
Economy aside, any strike would also be something of a political embarrassment for President Joe Biden’s administration a month before midterm elections. Currently, Labor Secretary Marty Walsh and Transportation Secretary Pete Buttigieg are both trying to broker a settlement.
Here’s what investors in railroad stocks should know.
Railroad Stocks: What’s at Stake?
The Sept. 16 strike deadline is important to more than Union Pacific (NYSE:UNP) or rivals CSX (NASDAQ:CSX), Norfolk Southern (NYSE:NSC) and Canadian Pacific (NYSE:CP). It could impact what’s available at retailers around the country, as the Consumer Brands Association stressed in a letter last week.
While most railroad stocks are down for the year, they have been outperforming the S&P 500 over the last five years. Bank of America recently raised its ratings on three railroad stocks, calling a brief strike a buying opportunity.
As of this writing, CSX stock is down 3% while NSC stock and UNP stock are down by about 2%. Meanwhile, CP stock is down 1.2%. However, failure to reach a deal could take the whole market down further, especially after a bad inflation report for August.
Unions representing engineers, trainmen and conductors all authorized a strike in July. The dispute is mainly over working conditions — things like vacations, sick days and mandatory attendance policies. Most rail unions have settled on new contracts, but two holdouts represent half of the total workforce.
What Happens Now?
Looking forward, most investors in railroad stocks are likely discounting the chance of a strike. After all, the unions are allied with the Biden Administration, which has listed union power and supply chains among its top priorities.
Still, the possibility of a stoppage can’t be completely ignored. It’s one more worry that the market — already in thrall due to inflation and a potential recession — doesn’t need.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack.
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