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The company has gone through a remarkable transition, rolling out Rouge and improving the efficiency of their fleet. They have tremendous cash flow and they have to put it to work somewhere. In response to the caller’s question, he comments that they might institute a dividend with all that cash, but he is not sure when. This is a cyclical industry, valuation is high, fixed costs are high and so this is not a company he would invest in.
This was one of his top picks in December 2017 and still is. The issues that have plagued it in 2017 such as the production overhang and the demand issues will alleviate themselves naturally over time. For example, the Alberta government is talking about replacing coal with natural gas for electricity generation. Also the management team is very much aligned with shareholders. (Analysts’ price target is 27.00$)
They are continuing the plan that Hunter Harrison put in place to improve efficiency, drive down the operating ratio, and sell assets. Velocity is up 20% this year: trains are moving faster, which provides better service and increases capacity. CSX is improving its capital profile, with higher cash flow margins. He expects every dollar of revenue to convert to about 30 cents in the future from a historical level of 8 cents. There have been complaints from the customer (shipper) base as a result of all the cost cutting but if CSX keeps improving its operating metrics, the customers’ concerns will be resolved. (Analysts’ price target is 62.92$)
This is a turnaround story. The company gained a new CEO (Greg Clark) 18 months ago with its acquisition of Blue Coat. He did a great job of turning around that business. Symantec has a strong legacy business that generates cash flow. Clark will help use that cash flow well in the future, probably with more M&A activity (Analysts’ price target is 29.42$)
He prefers US banks to Canadian banks, given where they are in the cycle. He owned this back in 2016 and it has done very well but the drivers of the growth that were expected in 2016 have now played their role. He doesn’t see a good risk-adjusted return in the near future for this stock.