One of the oldest investing theories was developed from the ideologies of Charles Dow and his notes on investing. While Dow himself never called his ideas the “Dow Theory”, different authors have extrapolated on his ideologies to develop what we now know by that name. One of the tenets of the Dow Theory is that transportation stocks are a leading indicator on economic conditions. If transport companies, and specifically railroad companies, were doing well, then industrial companies would follow suit. Essentially the idea is, as long as transportation companies are busy delivering parts and end products, the manufacturers are busy producing their goods.
Of course, our economy has changed greatly since Charles Dow passed away in 1902, but there is still some merit in this line of thinking. Personally I have had three particular railroad companies on my radar for some time now and all three of them are set to report earnings in the next two weeks.
CSX Inc. (Nasdaq: CSX) is set to report earnings on October 16, Norfolk Southern (NYSE: NSC) is set to report on October 23, and Old Dominion Freight Line (Nasdaq: ODFL) is set to report on October 24.
If we look at the Tickeron Fundamental Ratings for these three stocks, we see that all three have better than average Profit vs. Risk ratings, average SMR ratings, and better than average P/E growth ratings. CSX and Old Dominion are slightly overvalued at this time and CSX and Norfolk Southern are both slightly below average in terms of their Price Growth Ratings.
Looking at some of the different indicators from Investor’s Business Daily, all three of the stocks rank in the top 20th percentile in terms of their earnings growth based on the EPS ratings and all three get an “A” in the SMR category. The relative price strength rating shows that Old Dominion has outperformed the other two in terms of stock price performance, and as a result it has a higher overall composite rating.
If you look at the weekly charts of the three stocks, Old Dominion is overbought based on its weekly stochastic readings while CSX and Norfolk Southern have both just moved out of oversold territory in the last few weeks. Both CSX and Norfolk Southern seem to be using their 100-week moving averages as support at this time.
Looking at the sentiment indicators for the three stocks, we see that none of the three are exactly overly loved by analysts. Only Norfolk Southern has more buy ratings than hold and sell ratings, but only by one.
Old Dominion is particularly interesting in that it has 16 analysts following it, but only five of the 16 have the stock rated as a “buy”. I also find it interesting that the short interest ratio is pretty lofty at 7.2. This suggests that there is significantly more bearish sentiment toward the company than the average stock and the other two railroad stocks.
Personally I like all three of these stocks at this time. All three have pretty solid fundamentals and all three have a certain degree of pessimism being directed at them. Old Dominion has outperformed on a technical basis, but it is overbought. If you don’t mind buying in to strength and near a top, Old Dominion probably makes the most sense. If you like buying on a dip, CSX or Norfolk Southern might make more sense for you.