CSX Corp (CSX)

This is a “go to” name. 30%-35% of their business is shipping coal. Coal demand is weak but the other part of their business is tied to the US economy and that is what has powered the stock higher. Smart capital allocators. Always buying back shares and raising their dividend.

Over the last couple of quarters they have been able to demonstrate that they can overcome the coal headwind in the diversity of their model. They own a network and she thinks that as there is greater and greater congestion and more goods moving, it is a valuable thing to have and it can’t be replicated. The biggest opportunity she seems is on the intermodal side in partnering with the trucking companies to provide long haul service. It seems to be in the very early stages of this trend.

Canadian National (CNR-T) versus CSX Corp (CSX-N)? Likes the rail industry generally because of the economic sensitivity. As the US economy picks up, goods have to be moved. Prefers Canadian national even though it is more expensive.

Exposed to the eastern seaboard in the US. Has moved nicely over the year and reported really good earnings. One-year target of $28-$29.

CSX Corp (CSX-N) or Norfolk Southern (NSC-N)? He doesn’t own either of these, but his preference would be with CSX. It trades at a better multiple. Management is taking the operating ratio down. It is just north of 70 right now and they want to move it into the 65 range. They have found substitutes for their coal business. Have been quite successful, whether it is chemicals or automobiles.

Good strong class 1 east coast railroad. One of the only big rails that you can buy at a decent valuation. Good balance sheet. Rail volumes are starting to improve. If you believe in the US housing recovery, although at a slower pace as he does, and if you believe the economy in the US is going to continue to get better, this will participate very nicely in that. Ships chemicals, housing products, furniture, autos as well as coal and grains. Coal is baked into the stock price and grain shipments are down about 11%. They are doing everything they can to offset these 2 things. The other opportunity for them is crude on rail, which is going to be a multiyear story.

Crude by rail is a theme that is going to be important going forward. However, you need to be in the right geography. This is an east coast hauler. About 60% of their revenue is hauling merchandise to various cities. He would prefer a Union Pacific (UNP-N) if you want exposure to crude by rail. Or even Canadian National (CNR-T) and Canadian Pacific (CP-T).

This is a great investment. Over time they are going to grow their rail network and he thinks they are going to benefit from improving demand for coal and an improving US economy.

Model $27.91, 23% upside. But he sees it going back to $20.20 where it would be a good buy.

Trades at about 14X earnings. Have a great intermodal franchise. Expect there will be good earnings growth on the agricultural side, which was depressed last year. Dividend yield of 2.41% and have grown this in the last 3 years by about 23%.

Coal previously overhung the stock. He likes this stock in the $21-22 range. Thinks crude to rail story has legs. Decent dividend growth. There is only so much you can do in a commodity centered business. Prefers Union Pacific.

Prefers over Canadian railroads. A bit of a laggard because coal industry in US has been in decline. 11 times earnings vs. 18 times for Canadian. They have 3 years of backlogs awaiting them.

Is the old Chessy system railroad in the US. He is positive on railroads. If you thnk the US economy is picking up, then a railroad will also pick up. One difference between CSX and a Canadian railroad is they are tied in to coal shipments and that's been a little depressed. It's yield is 2.3% and has grown it's dividend 24% over the last 5 years.

Their only rail holding at the moment because it was the cheapest. About 1/2 the price of CP, so twice as likely to go up in his view.

Much cheaper than CNR in Canada, or CP. Great turn around but it has run ahead of itself.