Some of you may have heard me talk about my favorite long-term rail company — Kansas City Southern (NYSE:KSU) — on my Fox Business show, Making Money with Charles Payne. And while I continue to like KSU for the longer term, CSX Corporation (NYSE:CSX) is really calling out to me in the here and now.
The company reported first-quarter earnings results on April 14, traded lower after management cut full-year guidance, and has bounced nicely ever since.
CSX is one of the nation’s leading transportation suppliers. Through a network of approximately 21,000 miles of track, the company ships intermodal containers filled with a wide variety of products to its power plant, steel manufacturing and industrial plant customers.
CSX also has access to more than 70 ocean, river and lake port terminals throughout the eastern part of the country, as well as access to West Coast ports through alliances with western rail companies.
Longer term, the rails interest me because of the Panama Canal expansion, which is expected to double the capacity of the canal with a new lane of traffic that will allow for larger ships to pass through. Ships that can carry more containers should be a boost for the railroads that bring those containers to port.
In its first-quarter report, CSX met analysts’ expectations with net income of 45 cents a share. However, revenues of $3 billion were slightly below estimates and the stock fell nearly 4% to a near-term low over the next few days after the company announced that it would no longer be able to deliver double-digit profit growth in 2015, due to weak demand for coal.
Now I should point out that the day before CSX reported, fellow rail transport company Norfolk Southern Corp. (NYSE:NSC) laid an egg when it warned investors to expect weaker-than-anticipated first-quarter results due to its exposure to the coal industry. I don’t believe the market expected much better results from CSX.
However, it’s important to note that CSX did have much better margins and a stronger outlook than its competitor, which told me that the bad news was already baked into the stock price at that point.
The stock’s chart wasn’t pretty for a few days there, but it quickly appeared that CSX had found some support, and I really liked it — remember, we always want to buy on the dip.
I still really like KSU, and if you don’t have any rail companies in your portfolio, I think you should also consider CSX – especially if you can get it on pullbacks considering its 10% climb over the last few weeks.
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