Buying CSX After Its Weak Earnings Report

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Rail transport is an excellent business. The major companies involved all have steadily rising sales and profits, they all have strong profit margins, and they return capital to shareholders while retaining enough to reinvest in their businesses.

But at any given time there are usually one or two railroads that are out of favor. While the major railroad companies all have similar businesses, they have different geographies, and they therefore transport different goods. As some of these goods come into or fall out of favor, the related railroad companies’ share prices react accordingly.

Coal has been a particular weak spot for the railroad industry over the past few years, and those railroads that operate on the East Cost of the United States – Norfolk Southern (NYSE:NSC) and CSX (NYSE:CSX) — have seen this weakness in their businesses.

Norfolk Southern felt coal-related weakness in 2011 and 2012, though the company has since recovered as a result of greater efficiencies and increased exposure to other sectors of the economy. During that same timeframe, CSX felt this weakness, but not nearly to the extent that Norfolk Southern did. As a result, CSX shares handily outperformed.

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