Punch Your Ticket With CSX

Railroads have been generally strong performers in the second half of 2012. Large carriers such as Union Pacific (UNP) and Kansas City Southern (KSU) have overcome underperformance in the first half of the year and have now outperformed the S&P 500 for the whole of 2012 (see chart). Sentiment has improved on the sector as 2013 looks like it will be a better year for economic growth than 2012 -- provided the fiscal cliff can be successfully navigated. In addition, auto manufacturing has remained strong, the housing market is coming back and the outlook for exports to China has improved as their economy appears ready to accelerate from recent weakness and a once-a-decade political transition.

Unfortunately, one rail stock that has not participated in this rally is CSX (CSX), which has been a laggard in my portfolio most of the year. The main driver of this underperformance is that the company gets a third of its revenues from transporting coal. This fossil fuel has been under pressure from both low natural gas prices and an increasingly hostile regulatory regime. Utility customers have accelerated their migration to natural gas as their primary fuel source over the last few years. This should continue but offset somewhat by long-term secular export demand for coal coming from Asia. That said, CSX should benefit from better economic growth in 2013 across the economy. The shares are cheap for several reasons....262 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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