Wall Street had the weekend to digest last week’s tariff announcements, but came into Monday with more questions than answers. The confusion continues to weigh on shares of Union Pacific (UNP -1.60%), with the railroad stock opening down 4% and continuing to be down 1% as of 3 p.m. ET.
Short-term pain
Union Pacific is one of two primary railroads serving the U.S. West Coast. Its route network includes extensive access to major Pacific Ocean ports, making the railroad one of the primary conduits for goods imported from Asia to be distributed nationwide.
Should tariffs slow the flow of imports, as they are designed to do, Union Pacific’s volumes are likely to suffer. Investors have also been selling off transportation companies since the tariff announcement on fears that higher prices will have a negative impact on consumer spending, which in turn will further depress demand for goods and cut into railroad volumes.
Monday’s trading session was full of volatility, as headlines crossed on potential breakthroughs, and setbacks, in the effort to get tariffs repealed. Union Pacific shares followed the general market movement, with investors buying in and selling out as the outlook for tariffs changed.
Is Union Pacific a buy?
Investors have been on a bumpy ride of late, but the long-term outlook for railroads is more positive. Even in a scenario where tariffs turn out to be permanent, there will still be massive demand over time to transport goods from point A to point B, and rail remains one of the most cost-efficient ways to travel.
Investors buying in today face a lot of near-term uncertainty, but they also get a dividend currently yielding more than 2.5% to help boost total return while the tariff drama plays out. For those who can stomach the volatility, now is a good time to consider Union Pacific shares.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Union Pacific. The Motley Fool has a disclosure policy.