Company Description
Norfolk Southern Corp. (NSC) through its NSR subsidiary operates
21,500 route miles in 22 states, the District of Columbia and
Ontario, Canada, serving every major container port in the
eastern United States and providing connections to western rail
carriers. NSC operates an extensive intermodal network and is the
nation's largest rail carrier of automotive parts and finished
vehicles.
[Source: Company Press Release]
Reasons to Invest:
This week's Drip of the Week is Norfolk Southern Corp (NYSE:NSC).
There are several reasons why this freight train company is
worthy of the Drip Advisor limelight. First and foremost, from a
technical standpoint, the stock rates an eleven on a scale of one
to ten. Secondly, the company offers an enticing dividend.
Finally, NSC continues to outperform its closest competitors, and
nearly every article I find about the stock paints an upbeat
picture of the company.
Let's start with the news! On August 18th, Reuters put out a
report stating that U.S. railroads were bracing for the fall peak
season. The article was citing that unprecedented volumes this
year have strained resources for railroads. Also noteworthy is
the fact that railroads ship both raw materials and finished
goods, and any slow in the current season could lead to a
downfall in the sector. Should there happen to be any problems
freighting shipments from abroad over the holidays, it could lead
to an additional "Soft Patch" in the already slumping recovery.
For example, Arch Coal Inc (NYSE:ACI) and Peabody Energy Corp
(NYSE:BTU) both fell victim to rail congestion in the past couple
of months, which has hurt profits not only for themselves, but
also for the companies that were depending upon getting their
shipments on schedule. Analysts' expect to see many more
railroad type companies fidgeting over railway congestion, and if
anything goes wrong from here to the end of the year, we could
see sector wide sell-offs.
So now I bet your asking, why in the world would I take a chance
on a stock that could be in a failing sector? Or, that could
fall victim to delayed shipments, which ultimately could cause
the company to miss their earnings guidance? The answer my eager
readers, is this, Norfolk Southern Corp invested in new tracks
and stations a few years ago. Union Pacific Corp (NYSE:UNP) and
CSX Corp (NYSE:CSX) hired more crew and bought more equipment to
cover shortages and relieve bottlenecks, but poor returns on
investments and slow revenue growth has kept some railroads from
spending on infrastructure in the past, and this is hurting them
now. If you think about the fact that NSC has already built new
tracks and repaired the existing tracks it means that they will
be better prepared for surprising shipments or stalled trains.
It also means that they have a little extra room in their budget
to hire on some part-time help if the need arises.
Peak season is said to be from Mid-September through November.
In this period of time, retailers abroad vie for space on clogged
train lines. Most retail stores stock up on everything from
apparel to computers before the holidays, which means that NSC
could be making a lot of its fiscal profits during this stretch
of time. Tom White, a rail industry spokesman said, "We've
already had the nine busiest weeks in history and we haven't hit
the full peak yet." This statement bodes well for the freighting
industry, so long as we don't see any major glitches in the
scheduling.
Since NSC has built so many new tracks and serviced its products,
more companies may want to use NSC for the simple fact that they
seem to be the more reliable source of freighters. Moreover, in
2003, intermodal shipping overtook coal as the largest source of
shipping revenue for the major railroads. This marked the first
time since records have been kept, that coal was not the largest
source of shipping.
Norfolk's net income for the last quarter more than doubled ($213
Million) from the same period a year ago. Shipments of coal,
metals, chemicals and construction equipment all surged on higher
demands, which helped to urge an increase in revenues by 11
percent ($1.81 Billion). It is apparent to me that the TRAN Dow
Jones Transportation Index is on fire. While analysts' are
worried about congested rails leading the index lower, I am more
focused on the long-term picture. Just being involved in a
strong sector, such as the TRAN, for a long period of time, will
enhance your financial well being in this market of uncertainty.
Of course it doesn't hurt to pick a winning stock within that
strong sector!
Ready for some technical analysis? Since October of last year
NSC has been gliding through a tight ranged regression channel
with vigor. What's more interesting is the fact that the stock
started an entirely new regression channel (in March) within its
October 03 channel. This newer channel has a trading range of 2+
points and since the beginning of its formation this past March,
the stock has only closed below this channel once - and that was
in April. On Thursday, NSC broke through the top bar of the
October 2003 channel as well as the March 2004 channel, and
closed one penny shy of its session high (29.29). Does this mean
that the stock is overextended? Does this mean that the stock is
ready for some profit taking? I think the answer to both of
these questions is yes. After all, seven of the past eight
sessions closed in the green.
The real question should be: How far will the stock come down
before continuing its trend higher? If you are concerned with
how much money you have to invest, and you really want to buy as
much ownership as you possibly can (just like me), I would
suggest using the extended weekend to research your entries and
draw a plan for the trade. I could see a pull back to the simple
10 DMA (28.03) or the 13 DMA (27.94) as a more aggressive entry
on the stock. More conservative traders may want to wait to see
the stock retest the bottom bar of its March 04 channel, which is
near the 50 DMA (26.64). I believe that it could take quite some
time to see the 50 DMA retested, but on the other hand it's all
speculation when you try and pinpoint, or better yet, hypothesize
when and where any given stock will be in the future.
Using Qcharts, I drew the Daily, Weekly, Monthly, Quarterly, and
Yearly chart on NSC. What impresses me the most is that the MACD
and Stochastics indicators both note NSC on "buy" signals on
every single one of those charts. Furthermore, NSC has closed
higher for ten out of the past twelve months. Are you starting
to get a mental picture of the chart? The picture in your head
should include several sets of higher highs and higher lows, as
well as strong support from just about every underlying DMA.
Are you tired of hearing all of this positive data? Me either!
How about a little more? NSC divvies out $0.10, per share owned,
per quarter, which tabulates out to an annual dividend of $0.40
per share owned. Considering how cheap the stock is to own, I am
more than happy to invest in a 1.41% dividend yield, year over
year.
This ends another exciting episode of the DripAdvisor.com Drip of
the Week. Stay tuned next week, as we will spotlight another
stock worthy of the DripAdvisor.com limelight.
P.S. I hope that each of you enjoy the extended Labor Day weekend.
My wife and I are heading to the mountains for a little R & R (not
Reading Railroad… GRIN). Since we are leaving before market close
Friday, the Weekly Drip Portfolio will not be updated until Tuesday.
May your travels be eventful and safe.
Remember:
Plan your trade, and trade your plan.
Until Next Week,
Nich Sheldon
Editor In Chief
www.dripadvisor.com
questions@DripAdvisor.com
Broker Recommendations
Strong Buy 6
Buy 5
Hold 4
Sell 0
Strong Sell 0
Brokers Covering 15
DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: Yes
Temper Enrollment: Yes
Min/Max Investment = $10-$3,000/quarter
Reinvestment Fees -
Dividend investment fees: 5% to $2.50
Cash investment fees: 5% to $2.50
Auto reinvestment fees: N/A
Transfer Agent:
Bank of New York
800-432-0140
Corporate Headquarters:
Norfolk Southern Corp
Three Commercial Place, Box 227
Norfolk, VA 23510
Phone: (757) 629-2600
Fax: (757) 629-2361
