CSX Corp (CSX)

This has run up so much that he wouldn’t go near it. If you want to play the rails or the transports, he would look at Kansas City Southern (KSU-N) which has been held back by the fears of a wall for Mexico. You could look at maybe the truck stocks or airlines. Feels there is better value elsewhere.

(A Top Pick Jan 27/17. Up 10%.) If Hunter Harrison is able to continue his magic, this stock will have opportunities to move higher still. He would recommend viewers invest in a rail at this time.

Hunter Harris was with CN, and then went to CP. There is no question that from an operational standpoint, things improved, but he would argue from a pretty severe trough when all the rails were pretty distressed. He is a result oriented individual, but takes a short-term view using quarterly results. Prefers a longer-term individual.

Hunter Harrison did it at Canadian National, and then Canadian Pacific, so he assumes he would do it with this railway also.

CP-T vs. CSX-N. [Caller already had CNR-T] One railroad is enough to own. CSX-Q has already moved since Hunter Harrison moved companies. Just hold on to CNR-T.

This is a pretty good railroad, but it has had a heck of a move, so it is hard to be super excited about adding new money to it. Expects Hunter Harrison will get the compensation package he is asking for.

He likes the US stock market right now and the sectors that are economically sensitive. Transports are very economically sensitive. This one has been a remarkable performer in this market. Part of this is that there is some expectation that Hunter Harrison is going to get his hands on this and try to work his magic. Because of this, the stock has really responded incredibly well over the last 6 weeks, and is a bit extended now.

He likes transports generally. Hunter Harrison is rumoured to be stepping in to this company. Better economic growth is going to be good for rails. You may want to give this a little time to cool off before entering.

It is rumoured that Hunter Harrison is taking over the reins for this rail. Should he do that, even with the 20% upside we have seen in this last week or so, the operating metrics will improve, and the outlook for the stock would be significantly higher. Dividend yield of 1.5%. (Analysts’ price target is $43.41.)

Hunter has moved to this rail. This is not CP - 2. It is not the same situation. Different time, valuation and different railway. Their coal business was 20% of the business and has dropped right off. They tried to replace it with intermodal with some success, but struggling. Their ratio is now below 70 and there is only so much Hunter can do. It is a valuation story and it is in the hands of the economy. He would pass on it.

From a currency standpoint, he would prefer to shop in his own backyard in Canada. However, there are a lot of strange things going on with respect to trade wars, and all kinds of movement of goods between the borders, which is going to be a big issue. If you have US$ and looking at this, he doesn’t see why you wouldn’t go into it with Hunter Harris moving over to that name.

An Eastern based railroad. When Hunter Harrison was still employed by Canadian Pacific (CP-T), overtures were made to do a merger. He used to own this because it was cheap, hoping that the existing management would turn it around. If you own, he would be inclined to take some profits.

Hunter Harrison has left CP-T and is rumoured to be heading to CSX-N. The question is whether he can unleash the metrics he did on CP-T. If this is true then you should hang on despite the 20% increase in CSX-N today. Most of the rail stocks are quite expensively valued. Betting on any boardroom battle is always risky, but he has made two underperforming rails into stars.

The rails have come back somewhat with the thought that the US economy might build a little bit. They have been very reliant on coal. As much as Trump talks about bringing back coal and manufacturing, he does not think coal will come back in a big way to rails so they have to offset it. They increased their intermodal business. Basically they are a proxy for industrial activity in the US. He prefers Union pacific.

Rails have been very strong for the most part, post the election. This one is up 8%-9%, maybe 15% since October. Trump has put his commitment back behind the coal miners, and coal is a big portion of this company’s rail. He prefers Kansas City Southern (KSU-N), which owns the rails going from Mexico up to Canada. The stock sold off about 14% post the election because of Trump’s Mexican wall. There is a tremendous amount of traffic, and Kansas City trades at a discount.