In 2018, CSX (NASDAQ:CSX) was the tenth-largest railroad company in the world by revenue. That includes big nationalized railroads in Germany, France, Russia, India and Japan. In the United States, it’s the No. 3 railroad by revenues.
It’s also the top railroad east of the Mississippi River, with solid free cash flow and rising margins.
But the trouble is, this isn’t a great time to be in railroad stocks. When you have a global slowdown, it means things like coal don’t create as much demand. And since coal is no longer king — domestically or internationally — that business slows. At Growth Investor, I see much more potential in consumer-oriented industries, technological advances and the revitalization of the U.S. oil and gas industry than I do here. Those are the kind of places where I’m looking for growth stocks now.
Then you add a trade war to the mix. While CSX isn’t getting the majority of intermodal shipping from China at ports, it is picking up distribution and some of the traffic from southern ports. And given Europe’s slow growth, the strong dollar and the Brexit problem that seems unending, there’s not a whole lot of goods getting sent in that direction.
Dow Theory
If you’ve been investing for a long time, you likely have heard of Dow Theory. It was compiled from the principles and work of Charles Dow, the founder of Dow Jones & Company, the Wall Street Journal and the Dow Jones Industrial Average. He also created the first version of the Dow Jones Transportation Average (DJTA).
There are six tenets of Dow Theory. The fourth is the one that continues to help clarify a market that is full of increasingly technical indicators.
It states: Stock market averages must confirm each other.
Simply put, if the economy is doing well, both the industrial stocks average and the transport stocks average should confirm each other. The theory here is, if there is consumer demand for more goods, industrial companies will need to supply those goods, and transport companies need to ship them to market.
If there is a disconnect between the two, then something isn’t right.
The DJIA is up just under 50% in the past three years. The DJTA is up about 33%. In the past year, those numbers look a bit less bullish. The DJIA is up 9.8% and the DJTA is up 7.8%.
That’s a distinct slowdown and shows the effect all these external issues are having on the U.S. economy. It also shows that while the averages do confirm each other in general, economic expansion is slowing.
The Bottom Line on CSX Stock
Yet in the past three years, CSX is up 138%. But in the past year CSX is up only 10%. That’s quite a discrepancy. Momentum is a key factor in the stock strategy that’s responsible for all my greatest stock picks, and CSX just doesn’t measure up at this time.
Earlier this month, its target price was cut at a major brokerage and an influential activist investor sold most of his stake earlier this week.
With all the issues that are weighing on the global economic picture — and how those issues play out for the domestic economy — most institutional investors are getting a bit concerned that some transport companies may be ahead of themselves.
All this is confirmed by my Portfolio Grader that rates CSX stock a “C” here. It’s hard to tell what is going to happen next, and this isn’t the stock you want to be adding to your portfolio right now.
At the end of the day, railroads are a tough business. That’s why I’m looking elsewhere for growth plays. One of my favorites is a tech trend that is already bigger and deeper than most people realize.
‘The Mother of All Technologies’
Up until now, technologies have certainly made our lives easier and more efficient … but with a lot of room for human error. People trip over cords, spill their coffee and get tired.
Artificial intelligence does not.
If that sounds futuristic, well then, the future is already here. If you use apps like Netflix (NASDAQ:NFLX), TurboTax, QuickBooks, Zillow (NASDAQ:Z) or even an email spam filter, then AI is already helping your day run more smoothly. And as scientists find even more applications for artificial intelligence — from healthcare to retail to self-driving cars — it’s incredible to imagine how much data will be involved.
To create AI programs in the first place, tech companies must collect vast amounts of data on human decisions. Data is what powers every AI system.
So any one company that can help with customers’ data issues is the one company that’s most worth investing in.
You don’t need to be an expert to take part. I’ll tell you everything you need to know, as well as my “buy” recommendation, in Growth Investor. My No. 1 stock for the AI trend is still under my buy limit price — so you’ll want to sign up now. Get in while it’s still cheap.
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Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.