This was a timely article after our recent analysis on CSX. We believe that coal demand is likely to continue its decline as the glut of natural gas will cause utilities to take advantage of the cleaner, and less costly fossil fuel. Also the once in a lifetime construction boom seen in China seems to be coming to a slowdown of sorts, therefore demand for coal is losing one of the key stimuli of the last few years.
While this is a negative development for the railroad industry, we still see more goods being shipped across the railways, and the long term advantages versus trucking are likely to continue to widen with fuel prices being so high. Due to the reliance on Appalachian coal, CSX and Norfolk Southern (NSC), have seen their stocks drop to attractive prices. Last week CSX announced that they were likely to report record earnings despite the decline in coal traffic, largely boosted by intermodal transportation. At TTCM we are very disciplined at the price we are willing to pay, so we are utilizing strategies such as selling longer term puts to allow us to get into the stocks at cheaper prices. If the stocks rally we will still be making money at acceptable rates of return while taking less risk than just buying the stock outright.