3 Stocks to Sell Before a December Rail Strike Sends Them Off Track
Tensions are rising across the country as the U.S. faces a potential railroad workers strike. President Joe Biden has called for Congress to block the strike and, although railroad unions aren’t happy about the decision, business groups have praised it. According to House Speaker Nancy Pelosi, lawmakers will meet today to vote on imposing a “tentative contract deal” on 12 unions representing roughly 115,000 railroad workers.
Both Pelosi and Biden have noted the importance of avoiding a rail strike. Now, the country faces two potential start dates if no resolution can be reached in time. A nationwide rail strike would make it harder for many companies to function efficiently. So, with dangerous economic conditions looming, investors should be considering the most important stocks to sell before a strike begins.
Since September 2022, the U.S. has been wondering what a rail strike would mean. But now things are about to reach a boiling point. A strike stands to affect virtually every industry that relies on railway transportation. The list is long and spans many different sectors, putting both industries and consumers at risk of further supply-chain disruptions. The Washington Post reports:
“Our nation’s venerable freight rail network is an efficient, reliable and cost-effective way to move goods on a massive scale. The beneficiaries of this network are America’s industries, the consumers served by them and the U.S. economy as a whole.”
Indeed, the U.S. freight rail network is both expansive and dynamic. It reaches every state except for Hawaii and brings important supplies to many. According to CNBC, “one-third of all U.S. exports and roughly 40% of long distance freight volume” are transported by rail. Many companies rely on this network to either get the supplies they need or ship their finished products to consumers. But which companies have the most to lose if a rail strike happens? Let’s take a look at the top stocks to sell before the trains stop running.
When purchasing a new car, most consumers likely don’t think about trains. But as it turns out, the auto industry is highly dependent on the rail system. Automakers throughout the Midwest rely on trains to get the cars they produce to dealers. According to The Washington Post, “nearly three-quarters of the vehicles purchased in the United States are shipped by rail.” That includes legacy automaker Ford (NYSE:F), which has been fighting an uphill battle since before threats of a rail strike. Now the company, which relies heavily on rail to ship its finished vehicles, is facing a daunting prospect. Per Ford Authority, the company has been worried about a rail strike for months:
“This could have a major effect on the automotive industry, as many critical parts for new vehicles are transported via railroads. If these parts are not delivered, new Ford vehicles can’t be built, potentially raising the price of new cars to new heights and creating additional low-supply scenarios at the dealer level.”
Ford isn’t the only company that would be negatively impacted by a strike. But as a prominent automaker that ships a significant portion of its vehicles by rail, any further disruptions for the industry could prove dangerous. The supply-chain crisis isn’t over and has already caused enough problems for the company and F stock. A rail strike is the last thing Ford needs.
United Parcel Services (UPS)
It’s easy to associate United Parcel Services (NYSE:UPS) with vans, not trains. After all, consumers typically have their packages delivered by someone in the company’s signature brown van. However, plenty of the goods that Americans purchase every year ride a train before a UPS van brings them to their final destination.
PBS reports that UPS uses entire freight cars to transport as many as 2,000 packages at a time, as does their chief competitor FedEx (NYSE:FDX). Railway Age described UPS as one of Union Pacific’s (NYSE:UNP) biggest customers in 2021, reporting that UPS moves “an estimated 6.5% of the nation’s gross domestic product (GDP) each day.”
If the company moves that many packages every day, a rail strike could have dire consequences. This would be especially problematic as the strike would coincide with the holiday season. The underlying reality is that many Americans could face significant shipping delays on their holiday purchases this year if a strike proceeds. UPS stock typically pops as Americans buy up gifts, but this year, both retailers and shipping companies are facing a highly daunting prospect that may not be resolved in time. If it isn’t, UPS certainly won’t be a winner this season. That makes it one of the top stocks to sell.
Peabody Energy (BTU)
While most industries depend on freight rail to a degree, some are more dependent than others. For coal companies, rail remains the primary mode of transportation. The industry has been worried about a rail strike for months as a result, but experts expect it to be hit particularly hard by any freight rail disruptions.
At the top of this sector is Peabody Energy (NYSE:BTU). The industry leader has had an impressive year, but that could come to a screeching halt if a strike proceeds. This would be in line with projections made by InvestorPlace’s Thomas Yeung, who flagged Peabody as a company quickly “running out of lives.” The looming rail strike threatens to send BTU stock down even faster.
Problems with freight rail companies have been plaguing the coal sector for months. In May 2022, S&P Global reported that “coal is piling up at the mine as expected freight trains simply do not show up.” Investors can expect these problems to become much worse if the threats of strike aren’t resolved. Politico estimates that, for companies like Peabody to make up for the lack of trains, they would need to deploy an additional 467,000 long-haul trucks per day. Given the high cost of fuel, that’s not an appealing option. So, the future looks particularly bleak for coal companies if a strike proceeds. This makes BTU a clear choice for stocks to sell to avoid strike-induced losses.
On the date of publication, Samuel O’Brient 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.
Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.
More from InvestorPlace