What's going on?

It was a good day for US railway stocks on Thursday: investors celebrated the earnings of America�s largest railroad, Union Pacific, and a smaller rival might be getting a well-respected new CEO�

What does this mean?

First of all, Union Pacific made more profit in its most recent quarter than Wall Street was expecting and, perhaps more importantly, it said it expects its freight volumes to grow in 2017 after two years of declines � which should power its profits higher.


Separately, an �activist hedge fund� (a type of investor that proactively fights for changes at a company in which it invests) has teamed up with a well-regarded industry veteran with the aim of installing him as CEO of another railway, CSX Corp. Investors propelled CSX�s stock 23% higher on the possibility of him taking the helm.

Why should I care?

The bigger picture: �Activist investors� are sometimes criticized � but they can play a positive role.

In a world where �passive� investment management is becoming more common (e.g. investors that buy stocks simply to track the overall performance of the stock market), the catalyst for change that comes from activist investors is, arguably, even more important than it used to be. One counter-argument, however, is that activist funds sometimes create short-term gains for their own benefit at the expense of a better, long-term strategy for the company. Time will tell for CSX.


For markets: Union Pacific is a prime example of how better economic growth should feed through to company�s profits � and boost their stock prices.

Since lots of commodities and goods are still shipped via railways, railroad companies like Union Pacific are expected to benefit if US economic activity picks up in 2017. However, it�s worth noting that Union Pacific�s stock price (and many others) have already moved up on expectations of better growth in 2017 � which, of course, still needs to actually happen.