CSX Corp. Railroad Rolls On

Posted Feb 3rd 2010 5:30PM by Joseph Lazzaro
Filed under: Stocks to Buy

I've liked the railroad sector for a while, and CSX Corp. (CSX), which I first wrote about on May 1, 2009, at a price of $30.56, looks likely to continue to move higher. Here's why:

CSX's volumes should increase and overall prices for transport services should firm, albeit with some softness in selected price categories, as the U.S./global economic recoveries gain momentum in 2010. Basic materials transport, including coal and scrap, should also experience healthy business gains in 2010, and the company's increased efficiency adds to the positive story.

Technically, in the past month CSX's stock dipped below the key, 50-day moving average -- a bearish signal -- and typically that would be a concern, but given CSX's 100% gain in the past 12 months, the calculation here is that it's largely a correction. Further, CSX's stock has recently shown signs of holding support at/near $40.

The First Call FY2010/FY2011 EPS estimates for CSX are $3.16 to $3.83. According to my evaluation of the company's business model, each EPS estimate looks a tad low.

2010 Outlook: I view CSX Corp. as a long-term play, but if investors are looking to sell CSX within the year, it's probably best to take your profits if you were to buy it after it rises to $52-53, if it fails to clear $55.

Stock Analysis: I consider CSX Corporation to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in CSX now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my CSX position before April 2010 and I'd put a sell/stop loss at: $31.

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

Tags: CSX, CSX Corp., rail, transport