Because the rich energy finds in new regions made accessible by fracking, such as the Appalachian Basin and the Northwest, aren't yet served by pipelines, producers have turned to railroads to bring the fuel to market. Over time, pipelines will be built and railroads will give up a good portion of this business.
But AllianceBernstein analyst David Vernon believes Union Pacific (UNP) will continue to benefit from the energy boom because the shale basins will continue to need rocks and sand for fracking, drilling chemicals and steel to build wells. The economic vitality that drilling brings is also likely to create demand for appliances, lumber for homes, and a wide array of other industrial materials that can't be squeezed into pipelines.
"We see good growth from the energy renaissance and think you are going to see Union Pacific compounding shareholder values," says Vernon. "As a core transportation holding, it's a great stock."
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