“Don’t let the rollercoaster action distract you. It is a stock picker’s market, so when it comes a very simple comparison straight up of the railroads, you need to stick … with the best-of-breed” Union Pacific, said the “Mad Money” host, whose charitable trust owns the stock.
Union Pacific and CSX both reported earnings late last week, and their respective stocks saw different receptions from Wall Street. Union Pacific was received warmly, gaining on Thursday and Friday, while CSX sold off Friday. For the year, Union Pacific is down 3.1%. CSX has fallen 10.3% year to date.
Despite CSX’s weakness potentially offering investors an entry point, Cramer said he believes Union Pacific is the better stock to own in the current market landscape.
One reason is because Union Pacific’s management issued “unbelievable” forward guidance, Cramer said, while acknowledging its fourth-quarter results were “not perfect,” including a 12% decline in freight car velocity.
“They’re forecasting strong volume growth, pricing gains that should outpace inflation, and better efficiency,” Cramer said. “Put it all together and Union Pacific should be able to throw off a ton of cash. Management promises to spend a lot of that money paying dividends and buying back stock, which is exactly what Wall Street likes to hear in an environment like this one.”
CSX, by contrast, didn’t give investors as much concrete information to hang their hat on, Cramer contended. He said that’s likely due to the geographies in which they primarily operate, with Union Pacific being a West Coast-focused operation and CSX on the East Coast.
Plus, Cramer said CSX is more dependent on coal than Union Pacific, explaining that traditional volatility around coal pricing probably contributes to CSX having less visibility.
“We’re learning something this earnings season,” Cramer said. “We’re learning that this remains a stock picker’s market. … The kind of market where your ability to pick between winners and multiple losers in the same industry has a major impact on your portfolio’s performance.”
Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.