CSX Corp (CSX)

He owns CNR-T over CP-T and CSX-Q in the US. CP-T is more grain and resource orientated -- East to West. CNR-T has more exposure to the US markets. He would hold if you own and wait for a pullback to buy more.

The CEO passed away. The railroad industry is bullish at the moment. Truckers are not allowed to drive 40 hours now. Trucking is becoming more expensive. Railroads are getting more market share and they continue to get more efficient. (Analysts’ price target is $81.09)

The rails have been on a spectacular run in this cycle. This one started down at its book value and now is close to 5 times book value. The best days are behind it. If the economy ever has a setback this stock could go down substantially.

Rails in general are benefiting from strong economy in North America, especially the US. All these companies have become more efficient, infrastructure plays. Trade wars are a risk. Generally, the rails are a good way to play North American economy.

They are continuing the plan that Hunter Harrison put in place to improve efficiency, drive down the operating ratio, and sell assets. Velocity is up 20% this year: trains are moving faster, which provides better service and increases capacity. CSX is improving its capital profile, with higher cash flow margins. He expects every dollar of revenue to convert to about 30 cents in the future from a historical level of 8 cents. There have been complaints from the customer (shipper) base as a result of all the cost cutting but if CSX keeps improving its operating metrics, the customers’ concerns will be resolved. (Analysts’ price target is 62.92$)

(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.