EOT Trade Alert – March 11, 2008

March 11, 2008

Trade Alert:

   Buy NSC June 2008 $55 Calls at $3.20 or better (NSCFK)

Brief Company Background:

Norfolk Southern (NSC) is a railway transportation company.  They operate 21,000 miles of track in 22 states and serve every major container port along the eastern seaboard.  NSC is the largest rail carrier of metals and automotive products in North America.

Short-Term Catalyst:

Three things should drive NSC higher.  First is continued trade with China. I don’t see the US consumer stopping their consumption of Chinese-made goods any time soon. (they may slow a bit . . . but stopping is out of the question).  Shipping these goods across the US is a challenge and the railways are a great solution.

Second, oil prices. With the cost of transportation fuel going up, the low cost providers of shipping will benefit.  Railways, when compared to trucking, can transport the same amount of goods for a third of the fuel cost.  Low cost solutions are always good.

Third, profits.  In a few weeks we’ll see the end of the quarter.  After that it’s earnings announcements.  I think the entire railway industry is going to announce higher than expected revenue and earnings . . . and that includes Norfolk.  This should help drive the stock higher in the short term.

One added bonus . . .billionaires Warren Buffett and Carl Icahn continue buying railroads and related industries.

Trade Details:

Option Ticker Symbol:	NSCFK
Underlying Stock Symbol:	NSC
Current Bid-Ask Price:	$2.75-$2.95
Option “Buy Up To” Price:	$3.20
Break-Even On Stock At Expiration:	$58.20
Maximum Risk Per Contract:	$320

 

Exit Strategy:

NSC is trading around the $53 level. I see resistance around the $58.50 level. Aggressive traders should look to the mid $60s for additional resistance once (if) $58.50 is breached. Support levels are at $49 and again at $47.

Chart:

Category: EOT Trade Alert