CSX Corp (CSX)

The railway sector has done very, very well over the last 10 years. They are getting more market share from trucks, and the shipment of coal and oil has greatly benefited them. Right now they are in a bit of a tough spot given the stock has run up quite a bit and that coal is under threat from oversupply and oil shipments are down. Doesn’t expect there will be much growth this year. He would like to see it trading down more before he got interested.

A US railroad. Management would probably like some consolidation in the sector, but she doesn’t know if it is going to happen. She likes the rail industry in general. Prefers and owns CN (CNR-T), which she thinks is the best rail operator in the industry.

He thinks the US railroads need some shaking up with the model used with CNR-T and CP-T. It is still small enough for an activist to come in. Then you would have the potential for a triple. In the meantime it is generating lots of free cash flow.

CSX (CSX-N) or Union Pacific (UNP-N)? Using this as a constructive way of playing the strength of the US economy is proving not to work out. The US economy is not as strong as some had thought. They have a headwind in coal where about 20% of the revenue comes from that source. Oil only represents about 2%. Union Pacific is probably a little better run in terms of operating ratios, but a little more expensive. He would probably pass on both of these.

Close to its all time high. He is not a big fan of it in May. Be patient and look for a buying opportunity later in the year, close to $30.

CSX (CSX-N) or Union Pacific (UNP-N)? Both names are great. You are certainly getting exposure to the recovering US economy. In terms of valuation, he thinks Union Pacific is slightly better, and it is a much bigger company. He doesn’t think you will see a tremendous performance difference between the 2 names. 100% of revenues come from within the US, so they don’t have the risk of revenues coming from overseas with the US$ headwinds against them.

Good things going on with Intermodal growth. They have been getting tightness in the trucking market because they can’t find drivers and now with layoffs in the energy space it is spilling onto the rail side. These are temporary issues. She feels there is just a temporary blip in this story. She would buy on weakness.

CSX Corp (CSX-N) or Union Pacific (UNP-N)? These are both good companies. Railways are a way to play North American growth. There is a little bit of headwind in the 1^st quarter here because of some port closures and strikes going on in the West Coast. This will interrupt flows from the intermodal business for both players. He sees Union growing a little bit better. Not a buyer at these levels and has been trimming his position in Union a little.

A well-run railroad. What worries him a little is that it is trading at about a 15% premium to their average multiple over the last 5 years. As much as their exposure to oil is lower, they also have a fairly good exposure to coal. That is a definite drag and has been for quite some time. On the plus side, the automotive business is doing very well, their intermodal business is doing very well. Chemicals and the housing market are beginning to show some signs of picking up. On balance, he likes the railroad, but the multiple continues to worry him.

Doesn’t own any rails right now. He thinks this will have a bit of a slowdown now because oil for rail is a big margin business for a lot of these rails. He would let this ride for a bit to see what happens.

This is in an uptrend. When a stock is in an uptrend, it often tests the trend line. If this gets down to around the low $30, that may be time to buy it. Wait for a test of the trend line and for the stock to bounce off it. Until that happens, he wouldn’t buy it.

This has the least exposure to oil. There was a rocket ship tied to the rails’ backs as oil prices went higher. They were richly priced and priced to perfection. Believes the US and Canadian economy are going to improve, and these are very fuel-efficient type businesses. Also, very generous in returning capital to shareholders.

He prefers Union Pacific (UNP-N), which had a better growth profile. One of the things you are always looking at in US rails, is their exposure to coal, which has seen a weakening demand picture in terms of utilities, and more importantly, China. This is a decent company and you will do fine with it.

Cheap compared to Canadian National (CNR-T) and Canadian Pacific (CP-T). This is really a valuation play. Compared to Canadian operators, it is as good an operator with room to grow. With the volumes and price increases we have seen, he doesn't know if it can continue. Buying this is a better option than being in the Canadian rails.

Likes the way this rail is priced. It trades at a big discount to the 2 Canadian rails. Well run. The exposure here is with their coal business, but he thinks that is more than offset by the industrial expansion that is going on in the US.