CSX Corp (CSX)

Have been a tough play in both Canada and the US. The commodity cycle is a big part of it. They are talking about weakness in more and more of their businesses. Prefers UNP-N.

He would hold onto rail stocks. He thinks you will see core consolidation in the industry. CSX-T is the cheapest in the group so would be interesting as a target. There are worse places you could put your money.

The US rails have come off because of commodity exposure. Coal is one of CSX’s main ones. CNR-T is the best managed railway in North America and have the best ratios. CP-T is challenging that.

The earnings growth of both Canadian rails has been better than this one’s. It is not trading super expensive, trading around 14.5-15 times earnings, but its growth rate over the next couple of years is high single digits. Whereas you get into a CNR or a CP which have double digit earnings growth.

Railroads have very strong periods of seasonality. They tend to bottom right around the middle of October, and then move strongly higher right through until early January. You then have a period of time where they take a break into February, and then have another move from late February through until May. Chart shows this is clearly in a downward trend, but seems to be trying to base out at the current levels. Be patient. We are into a base building period right now. Any kind of weakness down to its recent lows is really an opportunity to be a buyer for seasonal trade, at least until January of next year.

Have about 20% coal exposure and their operating ratio is closer to 70. If he were going to go into this area, he would be looking at Union Pacific (UNP-N).

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.