Through May, the S&P 500 is down 5%. The interesting news to me is that some stocks have been doing phenomenally well. They appear to be benefiting from the weak dollar and strong demand for raw materials -- like oil and coal -- in emerging markets.
It happens that I picked three of them for my newsletter -- whose average stock has risen 26% since the beginning of 2008. Here are the top three -- and how much they've risen since their first mention there:
Walter Industries (NYSE: WLT) +124%. Walter is a coal, natural gas, and home construction and finance company that is spinning off the latter and is benefiting from rising coal prices.
Southwestern Energy (NYSE: SWN) +36%. Southwest is an oil and gas explorer that was just added to the S&P 500.
Burlington Northern (NYSE: BNI) +24%. Burlington runs trains and Warren Buffett owns its stock. One analyst boosted 2008 EPS estimates from $5.90 to $6.05 due to fuel surcharges and rate increases, partially offset by significantly higher unhedged fuel costs and flat-to-modestly-lower volumes.
"Having spent a lot of time recently studying the North American transportation industry, my conclusion is that trucking is on the decline while the railroads are poised to increase market share," notes Tom Slee.
"Who would have thought it? Railways are having a good year. They were supposed to be hunkered down, riding out the recession. Instead, the old iron horse is thriving.
"Surging demand for commodities is more than offsetting a slump in building materials shipments. Even higher energy costs are proving a plus for the railroads. Each jump in oil prices gives them a bigger edge over their gas guzzling competitors: trucks.
"Most important, the rails are able to raise rates despite the economic downturn. Their surcharges are sticking. Yet the stocks are out of favour.
When a major, metropolitan U.S. newspaper discovers a investment trend or a hot sector, count on increased share demand for companies in the sector. When that paper is one of the top three dailies, in this case The Washington Post, count on even more demand.
For nearly 30 years, the rails, long neglected in the United States, were considered passé. Then the globalization era dawned, with its exports and demand for commodities. Add a price of oil that's basically risen for 10 years and the results is: the rails are back. And with the above in mind, Burlington Northern (NYSE: BNI) is worth an evaluation.
With 32,000 miles of track in the western U.S. and two Canadian provinces, Burlington Northern accounts for about 45% of the west's traffic and about 23% of U.S. rail traffic.
Analysts see 2008 revenue growth of about 6-8%, down from double-digit growth a year earlier, but still healthy. Margins should remain solid, with modest pricing power. The Reuters F2008/F2009 EPS consensus estimates for BNI are $5.92/$6.81.
Even better: like the three other major U.S. railroads, BNI is in a relative sweet spot until the United States determines its energy policy for the 21st century. Or should one say 'if the United States determines its energy policy for the 21st century.' Investors will carefully note that the value Wall Street attaches to rail stocks pretty much mirrors the price of oil's ascent, due to the higher truck transportation costs implied by a higher price of oil.
JetBlue reported a narrower-than-expected loss in the fourth quarter, and its first full-year profit in three years. It also announced that it's negotiating a deal with investor Deutsche Lufthansa AG.
JetBlue lost $4 million, or 2 cents a share, in the quarter ending December 31. It posted a profit of $17 million, or 10 cents a share, in the same quarter of 2006. An increase in traffic and operational improvements helped offset rising fuel costs. Revenue rose 16.6% to $739 million. Analysts surveyed by Thomson Financial had expected a loss of 5 cents a share on revenue of $731 million.
For the full year, JetBlue earned $18 million, or 10 cents a share, versus a loss of $1 million, break-even on a per-share basis, in 2006. Revenue jumped 20.2 percent to $2.84 billion. Wall Street had expected a 2007 profit of 7 cents per share on revenue of $2.83 billion.
Shares surged 20.24%, or $1.00, to close at $5.94. Shares had fallen to a 52-week low of $4.30 last week.
Readers of this space know that the preference here is for large cap companies, with demonstrated business models, and favorable long-term factors, that have the resources to ride-out short-term economic downturns, including recessions.
And in this category a railroad stock represent a prudent addition to a portfolio, for investors who can tolerate moderate risk.
Pick a railroad. Virtually any railroad. Odds are, you will do fine, long-term, as the nation continues to re-discover the valuable asset - - the national treasury, really - - of its railroads. (More on that latter topic, in a future blog.)
Here are the railroad plays, ranked by risk, with the top stock, BNI, being the lowest risk. A stop/loss, if one were to buy the stock, is also listed:
To say the bears on Wall Street have gained some momentum in late November 2007 would be an understatement.
The consensus now argues that U.S. GDP growth has slowed substantially, with growth likely to remain sub-par through at least June 2008, and the Dow's 1,400-point drop in about a month reflecting that consensus.
Nearly every sector looks vulnerable. Still, some sectors are faring reasonably well. The rails are one, and among the rails, Burlington Northern (NYSE: BNI) is worth an evaluation.
For nearly 30 years, the rails -- long neglected in the United States -- were considered passé. Then the globalization era dawned, along with its exports and demand for agricultural products and coal. Add intermodal shipments and a price of oil that's basically risen for ten years and the results is - the rails are back.
Retailer Kohl's Corporation (NYSE: KSS) is today expected to announce an exclusive multi-year active wear licensing partnership with Fila Luxembourg S.a.r.l., a part of Fila Korea, according to the Wall Street Journal.
According to a senior executive at Telefonica SA (NYSE: TEF), the company's efforts to obtain exclusive control of Vivo have stalled, the Financial Times reported.
News Corp's (NYSE: NWS.A) Rupert Murdoch said the company plans to replace nearly one million paid subscribers of the online Wall Street Journal with 10-15 million "who wouldn't pay a thing." Murdoch's long-term plan is to penetrate developing markets, The Australian reported.
I'll keep this short and sweet because I just got off a twelve-hour shift and I have about six hours to sleep before I get back up and start all over again. Don't pity me, those are just the facts. If I don't average 50 hours a week, the credit union will come and swipe the Chevy truck off of my driveway!
Here are some of the things that I think Warren Buffett likes about the trains:
1.) Railroads are currently in a mildly depressed state business wise yet they are presenting very strong projections for the mid to long term.
2.) I believe that the American Railroad Association and members of the current Congress have a mutually held belief that railroads may expect to be well treated by government through the next presidential administration.
3.) Continuing upward pressure of fuel costs make rail transport increasingly more competitive with the trucking fleet and shall prompt more wholesale purchasing within our own continent.
4.) The rail industry has recently reported its safest year in history and it may expect reduced liability costs both within its own workforce and involving contact with the public sector.
I like trains also. As proof of that you may check out my past blog posts regarding them. While it is true that I didn't come right out and tell you to invest in the railroads, I did hope that you'd look into them.
Burlington Northern Santa Fe Corp.(NYSE: BNI) -- implied volatility low; suggests less Risk as Buffett buys. BNI, an operator of 32,000 railroad route miles, is recently up $6.05 to $88.71. Form 4 filed with the SEC.gov revealed Warren Buffett holding company BRK purchased 1,646,900 shares worth $133.967,245 on 4/4/07-4/5/07. BNI May option implied volatility of 24 is below its 52-week average of 27 according to Track Data, suggesting larger price fluctuations.
Foot Locker Inc. (NYSE: FL) -- April 25 & May 25 calls trading on renewed & unconfirmed Chatter. FL, a footwear & apparel operator of 3,950 retail stores, is recently up $.28 to $23.85 on renewed & unconfirmed takeover chatter. FL April 25 calls have traded 62 times on transaction volume of 1,716 contracts, above its open interest of 1,300 contracts. FL May option implied volatility of 31 is near its 26-week average according to Track Data, suggesting slightly higher price risks.
The Volatility Index for S&P 500 Options (VIX) is up .04 to 13.27.
When a major, metropolitan U.S. newspaper discovers a investment trend or a hot sector, count on increased share demand for companies in the sector. When that paper is one of the top three dailies, in this case The Washington Post, count on even more demand.
For nearly 30 years, the rails, long neglected in the United States, were considered passé. Then the globalization era dawned, with its exports and demand for commodities. Add a price of oil that's basically risen for 10 years and the results is: the rails are back. And with the above in mind, 
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