Norfolk Southern (NSC-N)

He likes to buy the rails on dips, but not this now. They paid a settlement on a derailment, but their quarter remained down in sales and earnings.

In February 2023, they had a horrifying derailment in Ohio. Last month, a proxy contest was launched by an activist investor holding $1 billion of shares, very critical of management to get their operating ratio down shareholder. NSC lags its peers the past year. 

Last week, they reported a stinker of a quarter: railway operating revenues -5% YOY, income from rail operations -32% and EPS -17%.

Great acquisition of Kansas City by CP was a game changer. CNR is the gold standard in North America. US is not in a recession yet, but if it does happen, all the rails will get cheaper. Don't settle for just a 1% differential from the historical average, when you might be able to get it 20% cheaper.

The rail space has seen a great run on the back of part of a Trump rally as well as the head winds from last year rolling over. She held CSX, but sold in the last few weeks on this rally. Last time we had a really big pickup in volume we saw a reduction in margins so she took money off the table.

We are going to run into resistance around $81. It has to prove itself by getting through $81. If you want to step in and it pulls back, okay, otherwise you have to be patient.

It looks less and less like the merger with Canadian Pacific (CP-T) is going to go through. The customer backlash against this is pretty strong. He would buy this on the basis of the fundamentals, not on the potential deal going through. He would rather own Canadian Pacific.

Looking at the industrial sector overall, rails are the place to be. Have been doing well with a lot of energy projects. From a valuation perspective, you are still good to own the shares.

(Market Call Minute.) Have coal trains going down from West Virginia to the docks and empty trains going back up. Which is the ideal way to run a railway. This is a play on GDP growth because it has a lot of intermodal business on the eastern half of the US.

(Market Call Minute.) People are in love with railways, which is always a bit of a danger signal.

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.

(Market Call Minute.) Likes the railroads. (See Top Picks.)