It's time for investors who can tolerate moderate risk to get on board railroad Kansas City Southern (NYSE: KSU), and why not? The nation's inadequate, congested interstate highway system and vehicle system dependent on oil suggests a bottle-neck plagued, high-cost road transportation system in the years ahead.
Hence, I'm reiterating my Buy rating for Kansas City Southern, first recommended on July 29, 2009, at a price of $19.66. If you bought KSU in July, you're up 39%.
Kansas City Southern has operations in the U.S. (56% of FY2008 revenue) and Mexico (44% of FY2008 revenue), including 6,000 miles of track.
Look for KSU's FY2010 revenue to increase 6-9%, and that's a major reason why institutional investors have looked past KSU's likely, double-digit revenue decline for FY2009.
Meanwhile, margins should continue to increase in the year ahead, as should system-wide efficiency. One substantial improvement: KSU is replacing older locomotives with new, more-fuel-efficient locomotives. The First Call FY2009/FY2010 EPS estimates for KSU are 55 cents to $1.08.
Technically, KSU's stock is due for a breather: shares have more than doubled since March. However, view any pull-back above $20 as a Buy opportunity: KSU's stock is headed north.
Stock Analysis: Kansas City Southern is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in KSU now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your KSU position before December 2009. Sell/stop loss if you were to buy shares in this company: $8.50.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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