Buffett's Union Pacific Rides Hydrofracking To Record High Stock Price

Omaha, Neb.-based Union Pacific, which closed up 2.25 percent to $126.91 on Friday, has taken advantage of the boom in natural gas by shipping materials for companies that use hydraulic fracturing to extract gas, which has offset declines in coal. business. The company's fracking shipments increase 12 percent in the second quarter compared to the prior year, according to Bloomberg. The company estimated that shale shipments will grow to 400,000 carloads in 2012, according to a July earnings call, or around twice the amount shipped in the northern U.S. in 2011, said Bloomberg.

"The railroads have surprisingly benefited from the very industry responsible for the steep decline in coal shipments. The recent boom in hydraulic fracturing has resulted in railroads transporting more equipment, and petroleum products to and from shale formations for energy companies," stated Five Star Equities, a New York research firm, on Monday.

Union Pacific, which is owned by Buffet's Berkshire Hathawy Inc. (NYSE:BRK.A), has also invested over $31 billion between 2000 and 2011 to improve its network and operations, said Five Star Equities. In July, the company won the 2011 Provider of the Year award from Wallenius Wilhelmsen Logistics Vehicle Services Americas Inc.

Union Pacific has outpaced rivals CSX Corp. (NYSE: CSX) and Norfolk Southern Corp. (NYSE: NSC) this year, gaining over 16.6 percent year-to-date. The Standard and Poor's 500 Railroads Index (S5RAIL) has gained around 10 percent during the year, slightly outperforming the S&P 500's gain of around 9 percent.

Railroads have a "positive outlook due to strong intermodal traffic, elevated automotive and lumber shipments, bottoming of coal and rise of grain traffic," wrote Jeff Kauffman, an analyst of Stern Agee, in a Monday research note.

Union Pacific shares fell 72 cents to $123.82 in afternoon trading.