Did Wall Street overdo it? Indeed they did, but the net result of that undiplomatic break-up is that certain railroads are offering bargains for investors who can tolerate moderate risk, and Norfolk Southern (NYSE: NSC) is one.
In general, analysts see production cuts in the auto manufacturing and mill segments weighing on results in FY 2009, with the weakest volumes expected in the first half of the year.
Still, NSC's investments in its infrastructure, increased capacity on heavily trafficked lines (Heartland and Crescent corridors), and higher railcar utilization, represent favorable longer-term trends. Those positives, plus volume improvements that will occur, assuming a recovering U.S. economy by Q4, and Norfolk's diverse customer base, warrant a Buy rating here, at a low p/e of 9. The First Call FY 2009/FY 2010 EPS estimates for NSC are $3.26 to $3.70.
Stock Analysis: Norfolk Southern is a moderate-risk stock. Consider buying a 25% position in NSC now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your NSC position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $16.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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