CSX Corp

CSX-Q

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.

Hunter Harrison came in and there has been a lot propping it up. Fundamentals have not fallen flat and the chart has come back a little, so it is not looking so bad. Going forward, the expectation is for a pretty reasonable 20X PE on top of a 15%-20% earnings growth. If transports continue to roll, this is going to be hit.

(Market Call Minute.) All the rails have gotten way too cheap. You could probably be buying them all, but his favourite is Canadian National (CNR-T) followed by Canadian Pacific (CP-T).

He loves this rail, just because it has done so well this year. “Operating ratios” is the buzzword in railways and this one had the most room to move to the average. Just in one quarter, Hunter Harrison has moved it more than they have been moved for a while. Expects the stock is going to go a bit higher.

Hunter Harrison is the mastermind, the God of railroads, and he would never bet against him. CSX has to do a lot right to justify the current stock price, but the hedge fund that is involved thinks that if he gets it right, this is a $100 stock.

He likes the transports, which is one of the sectors that has lagged. There is a cloud on the group and that is an opportunity. You have to love those companies that already have the right-of-way that is so valuable. Hunter Harris has a wonderful track record, and you have to give him the benefit of the doubt.

He likes rails. It is going to be a very cyclical sector. In transportation he prefers airlines as being a better value. He also likes companies shipping all these boxes from AMZN-Q.

This has run up so much that he wouldn’t go near it. If you want to play the rails or the transports, he would look at Kansas City Southern (KSU-N) which has been held back by the fears of a wall for Mexico. You could look at maybe the truck stocks or airlines. Feels there is better value elsewhere.

(A Top Pick Jan 27/17. Up 10%.) If Hunter Harrison is able to continue his magic, this stock will have opportunities to move higher still. He would recommend viewers invest in a rail at this time.

Hunter Harris was with CN, and then went to CP. There is no question that from an operational standpoint, things improved, but he would argue from a pretty severe trough when all the rails were pretty distressed. He is a result oriented individual, but takes a short-term view using quarterly results. Prefers a longer-term individual.

Hunter Harrison did it at Canadian National, and then Canadian Pacific, so he assumes he would do it with this railway also.

CP-T vs. CSX-N. [Caller already had CNR-T] One railroad is enough to own. CSX-Q has already moved since Hunter Harrison moved companies. Just hold on to CNR-T.

This is a pretty good railroad, but it has had a heck of a move, so it is hard to be super excited about adding new money to it. Expects Hunter Harrison will get the compensation package he is asking for.

He likes the US stock market right now and the sectors that are economically sensitive. Transports are very economically sensitive. This one has been a remarkable performer in this market. Part of this is that there is some expectation that Hunter Harrison is going to get his hands on this and try to work his magic. Because of this, the stock has really responded incredibly well over the last 6 weeks, and is a bit extended now.

He likes transports generally. Hunter Harrison is rumoured to be stepping in to this company. Better economic growth is going to be good for rails. You may want to give this a little time to cool off before entering.

It is rumoured that Hunter Harrison is taking over the reins for this rail. Should he do that, even with the 20% upside we have seen in this last week or so, the operating metrics will improve, and the outlook for the stock would be significantly higher. Dividend yield of 1.5%. (Analysts’ price target is $43.41.)

Hunter has moved to this rail. This is not CP - 2. It is not the same situation. Different time, valuation and different railway. Their coal business was 20% of the business and has dropped right off. They tried to replace it with intermodal with some success, but struggling. Their ratio is now below 70 and there is only so much Hunter can do. It is a valuation story and it is in the hands of the economy. He would pass on it.

From a currency standpoint, he would prefer to shop in his own backyard in Canada. However, there are a lot of strange things going on with respect to trade wars, and all kinds of movement of goods between the borders, which is going to be a big issue. If you have US$ and looking at this, he doesn’t see why you wouldn’t go into it with Hunter Harris moving over to that name.

An Eastern based railroad. When Hunter Harrison was still employed by Canadian Pacific (CP-T), overtures were made to do a merger. He used to own this because it was cheap, hoping that the existing management would turn it around. If you own, he would be inclined to take some profits.

Hunter Harrison has left CP-T and is rumoured to be heading to CSX-N. The question is whether he can unleash the metrics he did on CP-T. If this is true then you should hang on despite the 20% increase in CSX-N today. Most of the rail stocks are quite expensively valued. Betting on any boardroom battle is always risky, but he has made two underperforming rails into stars.

The rails have come back somewhat with the thought that the US economy might build a little bit. They have been very reliant on coal. As much as Trump talks about bringing back coal and manufacturing, he does not think coal will come back in a big way to rails so they have to offset it. They increased their intermodal business. Basically they are a proxy for industrial activity in the US. He prefers Union pacific.

Rails have been very strong for the most part, post the election. This one is up 8%-9%, maybe 15% since October. Trump has put his commitment back behind the coal miners, and coal is a big portion of this company’s rail. He prefers Kansas City Southern (KSU-N), which owns the rails going from Mexico up to Canada. The stock sold off about 14% post the election because of Trump’s Mexican wall. There is a tremendous amount of traffic, and Kansas City trades at a discount.

Make most of their money shipping coal. With Nat gas going down it is not doing well.

Prefers Union Pacific (UNP-N) in the US, and Canadian Pacific (CP-T) in Canada. There is not much difference between the 2 Canadian rails, but CP is trading a little cheaper. Union Pacific is trading at 16X. The trouble with the Eastern rails is that they are shorter hauls. Efficiencies in rails come with longer hauls. All US rails are beset with coal. Intermodal is where they have tried to grow the business.

(Market Call Minute.) A little more exposed to coal, which is a negative. Operationally they have done a very good job bringing down their operating ratios.

A $25 billion company operating through 23 US states. Rails and transports led to the downside in the correction that started last March/April. Transports have made a nice turn and are behaving much better. Canadian rails have had great rallies off the lows, and are behaving quite well. If you think energy prices can remain relatively low, truckers can be competition to rails. Thinks there are some headwinds. This looks okay, but he would prefer Canadian National (CNR-T) which gets north/south traffic, and the shares have behaved much better. Financials look very strong and they are going to grow their earnings 13% this year and probably 10% next year.

Chart shows this was in an uptrend from 2013. Once it stopped making higher highs and higher lows in early 2015, it broke down. Now we are getting a series of lower highs and lower lows. Right now this is in a downtrend.

This has been a really tough part of the market. For the Eastern rails in particular there is the coal exposure. With natural gas prices as low as they are, there was a 15% decline in coal volume last year, and another 20% this year. This quarter has guided really weak, and then improving from there. Has cost initiatives that they still have to get down. Right now this is a tough place to be. Looking forward to infrastructure that the rails have, especially at this time with how much they have pulled back, she is still Long the stock.

The chart shows a classic topping breakdown. It touched the rising trend line over and over again, and then topped. Broke down through the neck line at around $31, and then fell down. It tried a countertrend rally which didn’t work. The next support level should be at around $17-$18.

A switch into anything might be a good idea. He would prefer an ETF into mid cap banks. Crystallize the loss.

Rails have been beaten up pretty badly. There might be fundamentals that come around as some point in time, but you want to see the charts confirm that fundamental picture. This rail is over indexed to coal, the energy complex, and commodities in general are pretty much in tatters and not showing signs of life. There are definitely better places with lower risk.