CSX Corp (CSX)

Last earnings report was kind of disappointing. Operating ratio sort of stalled out and in fact moved up a little bit. Had a program to bring it down from the mid-$70 to the mid-$60. Currently around $71-$72. Coal is still going to be a drag on their returns. The intermodal and industrial side of their business is doing well.

Comparing other railroads, it looks very attractive. Along with its competitor Norfolk Southern (NSC-N), it still has a lot of coal headwinds, which is a big part of their business. Did a very good job of offsetting this with growth in other parts. Automotive and intermodal have been strong. Thinks there is decent upside here but is coming to the higher end of its valuations.

Likes this. This is sort of the core of the industrial expansion that we are seeing in the US. They ship everything from automobiles to chemicals, intermodal, groceries, etc. Want to bring their operating ratio down to 65%, which he believes is currently below 70%. Increasing their margins and offsetting the hit they took on coal. Well priced.

(Top Pick Jan 14/13, Up 40.05%) They had too much exposure to coal but the other stuff has more than made up for it. Widening of Panama Canal will be very beneficial and should boost their earnings over the next few years. That will be a growth driver in 2015/16.

Railways are a really good sector to invest in. Have unique assets that are very tough to replicate. His favourite in the sector is Norfolk Southern (NSC-N). Most of them are trading at 52-week highs.

This railway had the biggest exposure to coal. There has really been a slowdown in coal production and shipments, so the company had some fairly significant damage. Recently the whole sector has tended to trade off a little bit. He prefers Union Pacific (UNP-N) whose volumes are more diversified. As a category, these railways are not cheap but they tend to reward shareholders every year with a dividend increase.

(Market Call Minute.) Suffered a little bit because of coal shipments, but have more than made up with intermodal, chemicals and the auto business. Bringing their operating ratio down.

Likes the rail business as it has consolidated over the last 5-6 years. Have taken out a lot of costs and made a lot of acquisitions, which has really helped. It had a great run, so if you own, he would consider taking some off the table.

(A Top Pick July 12/13. Up 8.54%.) Believes the US recovery is going to continue and is going to be slow and grinding. This is one of the best managed rail companies. Moves everything from fertilizer to furniture to cars, so it is leveraged to the recovery theme. It will do crude by rail, so benefits from the shale plays. Probably the cheapest in the rail group. Still a Buy.

(Market call Minute) Likes the rails. You could own this whole group. There is a secular tail wind.

Infrastructure is hard to replicate. Worked through some issues with coal. They are diversified in what they carry. There were autos, fertilizer, housing supplies and Intermodal. The multiple does not represent a huge discount but thinks there will be earnings growth behind it and that there will be a little multiple expansion to come.

This is his preferred name in the rail space. The best performing class 1 in the US, year to date. Good execution story and good management. Likes the leverage to all things that are recovering in the US. They transport everything from fertilizer to furniture to autos to chemicals, etc. Coal became a problem for them, but management made adjustments for that. He can see this going to the $29 level.

This is still trading at a fairly low multiple compared to its peers. 11X PE versus Canadian National (CNR-T) at 16 or 18 times. Likes their exposure to the coal industry. Last quarter they reported that revenues domestically for coal are up 6% year-over-year. They plan to grow by about 10%-11% going forward to 2015.

Doesn’t own US rails but if he did this would be top of list. Valuation is compelling. Have an objective to move operating ration down over next few years. Struggle they have is that they were a coal mover (20% of business) but were quite successful at replacing that. Probably a good option. Avoid the idea of averaging up.

Don`t add to your position, sell or hold. Harvest it and sell. There are 6 players across North America and this is a better name. Doesn`t see much growth. Valuation is looking a little stretched in all these names.