If I told you that a stock trading for $40 per share in January would easily grow earnings at a double digit clip in the coming year, you would jump all over the opportunity, right?
Now what would you do if I told you that stock, twelve months later actually fell in value.
Is this the Curious Case of Benjamin Button? No, it’s the curious case of CSX Corp. (CSX). The rail company performed beautifully during a year of contraction delivering higher profits even though shipping volumes decreased.
Of course in what is now becoming one of the worst recessions in recent memory, CSX should be commended for a job well done. Instead, investors are selling the stock. That makes no sense, but it is what it is in these crazy times.
On Monday, CSX announced that fourth quarter results, when released on January 20, would fall short of expectations. The company expects to report a profit of $0.90 per share. Analysts were looking for $0.99.
Victim of the Times
I can appreciate the “beat the numbers” game, but seriously does it really matter at a time like this? Looking back, the big picture shows that CSX had a phenomenal year.
Granted, what matters most to investors is the future. Instead of providing an estimate for 2009, CSX pulled guidance from the market citing the difficult operating conditions at the moment and weakness in U.S. manufacturing.
Investors bailed on the news sending CSX down more than $4 per share this week. The discount should be viewed as an opportunity.
The company will post a full year profit of approximately $3.50 per share for 2008. For 2009 analysts expect the company to post a similar number. At $30 per share the company trades for just 8.5 times trailing and forward earnings.
Although the company did withdraw guidance going forward, the modestly low valuation helps protect investors on the downside. Even if the company makes $3.00 in the coming year, the valuation jumps to just 10 times earnings.
There is a margin for error here that should not be ignored. The economy might be suffering at the moment, but that does not mean we will never grow again. Get over the fear and jump on board CSX.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
