Economists from Ben Bernanke on down love to look at the railroads for an overview of what's working in the U.S. economy and what's not.
Data from the Association of American Railroads reflect a recovering housing market and a return to near-pre-recession levels in demand for automobiles.
On the other end of the spectrum, grain shipments were down nearly 10% last year, an indication of the severity of the drought that has distressed farmers in the Midwest.
The nation's shale-gas boom is also reflected in railroad data: Shipments of coal, the most important cargo for operators like CSX (CSX), have slumped as utilities increasingly turn to cheaper and cleaner natural gas to turn the turbines that generate electricity.
Stocks Quotes CSX said coal shipments were down 19% in the fourth quarter, the main factor in the company's 3.1% earnings decline in the period. The company managed to limit the pain, though, via cost cuts and increased shipments of other freight.
CSX appears on a daily list created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude those with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
The Jacksonville, Fla., company operates a rail system that encompasses 21,000 route miles and 70 ports over 23 states, mostly in the eastern United States and two Canadian provinces. CSX also hauls freight via intermodal (rail, ship and truck) transport.
While coal is out of favor in the United States, it remains a valued fuel source around the world, particularly in developing countries in Europe and Asia, where natural-gas alternatives aren't readily available, and any transition to gas or renewables could take decades.
The International Energy Agency estimates that global coal demand will grow by 600,000 tons a day over the next five years, with most of the demand coming from China and India.
China depends on coal for about 70% of its energy needs. The world's most-populous nation has plans to add 16 large, coal-fired power plants through 2016 as part of its five-year economic plan, the IEA reports.
The United States is a prime supplier of that coal.
Over the past five years, CSX shipments of coal for export have climbed from 13 tons a year to 40 tons, and the company expects that trend to continue. The railroad's shipments of coal to domestic utilities, meanwhile, peaked in 2006 at 162 tons and have declined since, as inefficient plants are shuttered, and even efficient plants stockpile coal while they burn more natural gas.
Betting on a continuation of the shale-gas boom carries risks, given the controversial nature of the hydraulic fracturing technology used to tap previously out-of-reach reserves.
But economists are increasingly hopeful that a long-term supply of relatively clean and affordable natural gas will do wonders for U.S. growth, particularly in the manufacturing sector, which, after sending jobs to cheaper countries for decades, has begun a fledgling "in-sourcing" trend to take advantage of cheaper fuel costs and the highly educated workforce in the United States.
Of the 25 analysts covering the company, 12 rate the stock a "strong buy," and 13 have a "hold" recommendation.
CSX has a StockScouter rating of 9, meaning the stock is expected to outperform significantly the market over the next six months with less than average risk.
StockScouter top 10 for March 15 Stock Quotes | ||||
| Company | Sector | Dividend yield | Forward P/E | Scouter score |
| D.R. Horton (DHI) | Homebuilding | 0.6% | 17.7 | 8 |
| Southwest Airlines (LUV) | Airlines | 0.3% | 10.9 | 8 |
| Cadence Design Systems (CDNS) | Software | N/A | 18.2 | 10 |
| Huntington Bancshares(HBAN) | Banking | 2.1% | 10.9 | 10 |
| MFA Mortgage Investments (MFA) | Mortgage investments | 8.7% | 10.1 | 10 |
| NRG Energy (NRG) | Electric utilities | 1.4% | 21.1 | 10 |
| New York Community Bancorp (NYCB) | Banking | 7.0% | 14.4 | 10 |
| Wendy's (WEN) | Fast food | 2.9% | 27.4 | 10 |
| Boston Scientific(BSX) | Medical instruments | N/A | 10.0 | 9 |
| CSX (CSX) | Railroads | 2.4% | 11.8 | 9 |
StockScouter beats the market
Here at MSN Money, we think our StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.
The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.
In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.
An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 909% through Feb. 28, 2013.
Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.
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