Ride the Rails to Safety

As I write this missive, the global stock markets are selling off in the wake of the Bear Stearns implosion. Remarkably the U.S. market is not following suit, well at least not yet.

Could the markets be any more uncertain?

I think not. So what is an investor to do in this crazy environment?

When stock prices become incredibly unpredictable investors should rely on a more systematic approach to investing in order to take out the guess work.

One of the best investment systems available is our own Louis Navellier and his Blue Chip Growth Letter. Louis takes the guessing out of the game for investors by presenting a very easy to use Buy List based on a proprietary stock grading system.

In reviewing his current Buy List, I found several stock investments that make the grade if you will. Even better, Navellier breaks out his buys into 3 categories: conservative, moderately aggressive, and aggressive.

In my Rational Investor opinion, investors should be looking very closely at the conservative side of the list and one of my favorites is rail based transportation company CSX Corp. (CSX).

CSX: A Recession-Proof Stock

This low beta stock, .63 to be exact, offers investors somewhat of a safe haven during very turbulent times. The company pays a dividend of 1.2% and receives an overall grade of B on Navellier’s scale.

Now mind you CSX is no glamour company, but they are rock steady and frankly they are growing quite nicely. Its system is vital to transporting the necessities of life like food, oil, coal and other commodities. They are the ultimate cog in the wheels of commerce.

And trust me, they will get paid no matter what happens with the economy over the next year.

Tight capacity in the system results in pricing power for CSX and it shows. The company has done well beating earnings estimates of late and Navellier gives CSX an A in that regard.

From a fundamental valuation standpoint, the stock trades at a reasonable price. Shares trade for 16 times trailing earnings, 14 times forward earnings, 1.97 times sales, and 2.3 times book value.

CSX has traded in a tight range of late and at $49 per share today is below Navellier’s buy below price of $52 per share. That number may not hold much longer.

Yesterday, the company announced that they expect first quarter earnings of $.74 to $.77. That is quite a bit better than the current estimate of $.63 per share. For the full year CSX expects earnings of $3.40 to $3.60 per share beating the current estimate of $3.05.

Navellier says this is a conservative buy.

Really? It looks to me like pricing power and efficiencies are providing a significant amount of growth regardless of economic conditions. In the same announcement, the company stated that it expects to grow by 18 to 21% annually.

I have had great success selecting stocks that are trading for earnings multiples that are well below expected growth rates. That’s the case with CSX.

I think you can find safety in rails even during a recessionary period that we now face. CSX is a buy according to Navellier and I would rate it the same. In any other market situation, CSX would be trading for a much higher price.

If there ever was such a thing as a no-brainer, this would be it!

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