CSX Corp (CSX)

(A Top Pick Jan 27/17. Up 20.1%.) There was a big upside when Hunter Harrison joined the firm. The secular story is really one of taking costs out of the company and making it more efficient. He expects the story to continue, and for the stock to continue to grind higher.

Hunter Harrison was the CEO at the time of his passing. His approach was a very rigid, cost cutting, precision railroad, and to drive the Operating Ratio down as far as he possibly could. This was at the cost of good business. The OR right now is at about 65%, pretty low. It's not an easy railroad to run. It’s highly reliant on coal. Trading at about 21 or 22 times earnings. He would pass on this.

Likes it very much. Had been under some pressure. CEO Hunter Harrison passed away a few weeks ago. Bought in and agreed with the transformation Hunter brought to CSX. The remaining executive team led by James Foote now are going to carry on the transformational plan.

(Market Call Minute.) A very expensive railway. Hunter Harrison has taken over and they’ve built in a huge premium, which he doesn’t think is deserved. He would prefer Union Pacific which is better run and has a better valuation.

(Market Call Minute). For Hunter Harrison, 2 out of 3 isn't bad, and doesn't think he can do the same thing for this rail. The markets are already paying up for what he can do with this company. He would own Canadian Pacific (CP-T) instead, which is cheaper and still has a growth story.

(A Top Pick Jan 27/17. Up 12%.) This is a Hunter Harrison story. He is turning the company around. The unions and clients were getting unhappy, and if he works his magic as he has done in the past, we should see continued upside from here. Still a Buy.

Hunter Harrison is certainly trying to bring his magic to the table, and this company has been moving up nicely. The stock is pretty much fully priced at the present time.

Hunter Harrison is controversial because he comes in with very strong ideas on how to create efficiencies and get operating ratios down. The multiple on the stock, in anticipation of Hunter Harrison coming in, grew to the point where it was probably trading at a 70%-80% premium to the normal multiple. They did a reasonable job in bringing the operating ratio down. He likes areas that are a little less controversial, where people work in a conciliatory way. The company has some inherent difficulties, such as a fairly large coal portfolio. He would look at Union Pacific (UNP-N) instead.

There has been new management bought in to bring down operating ratios. He likes it and would let it pull back a little more before buying it. $45-$46 would be a better entry point. He likes the steady US economy.

Hunter Harrison came in and there has been a lot propping it up. Fundamentals have not fallen flat and the chart has come back a little, so it is not looking so bad. Going forward, the expectation is for a pretty reasonable 20X PE on top of a 15%-20% earnings growth. If transports continue to roll, this is going to be hit.

(Market Call Minute.) All the rails have gotten way too cheap. You could probably be buying them all, but his favourite is Canadian National (CNR-T) followed by Canadian Pacific (CP-T).

He loves this rail, just because it has done so well this year. “Operating ratios” is the buzzword in railways and this one had the most room to move to the average. Just in one quarter, Hunter Harrison has moved it more than they have been moved for a while. Expects the stock is going to go a bit higher.

Hunter Harrison is the mastermind, the God of railroads, and he would never bet against him. CSX has to do a lot right to justify the current stock price, but the hedge fund that is involved thinks that if he gets it right, this is a $100 stock.

He likes the transports, which is one of the sectors that has lagged. There is a cloud on the group and that is an opportunity. You have to love those companies that already have the right-of-way that is so valuable. Hunter Harris has a wonderful track record, and you have to give him the benefit of the doubt.

He likes rails. It is going to be a very cyclical sector. In transportation he prefers airlines as being a better value. He also likes companies shipping all these boxes from AMZN-Q.