CSX: Another railroad at a bargain price

True, CSX's revenue, like most railroads, is expected to decline in FY 2009, but the view from here argues a slightly longer time frame yields a different picture. Improvements in operating efficiency, widening margins due to lower fuel costs, impressive contract renewals, and a diverse customer base tip the balance in favor of a Buy.

Further, a p/e of 10 means the potential upside is large; but risks do exist: a failure of the U.S./global economy to start to recover by the end of 2009 would weigh on CSX's results, and keep the company's shares treading at low levels. But the sense here is that we will see a U.S. economic bottom by the end of Q3, followed by a global recovery shortly thereafter. The First Call FY 2009 /FY 2010 EPS estimates for CSX are $2.89 to $3.20.

Stock Analysis: CSX Corp. is a moderate-risk stock. Consider buying a 25% position in CSX 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 CSX position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.