Ackman had pushed for replacing Green with Hunter Harrison, former CEO of Canadian National Railway Co. (NYSE: CNI), but following the coup Ackman now said not to expect a coronation, “We’re going to do a proper job, we’re going to meet all the candidates and do it the right way.”

Canadian Pacific’s problems, at least according to Ackman, are due to high operating costs and he wants to reduce those costs. Ackman’s stated goal is to lower CP’s operating ratio — that is cost as a percentage of revenue — from around 80% to 66%. That would match the operating ratio at Canadian National, Harrison’s former company. Most of the credit for CN’s success, however, is attributed to Harrison’s predecessor.

CP’s main problem is that it operates mainly in western Canada in a nasty climate with difficult topography. The company hauls mainly commodity minerals and is captive to swings in the market for those minerals. Lowering costs won’t be easy once the workforce is trimmed.

CP’s ability to compete with the likes of Union Pacific Corp. (NYSE: UNP), CSX Corp. (NYSE: CSX), Burlington Northern Santa Fe (BNSF), owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A), and Norfolk Southern Corp. (NYSE: NSC) is dubious, given that CP is much smaller than any of these and that the only likely merger possibility is Kansas City Southern (NYSE: KSU). A potential merger between Canadian National and BNSF was squashed by regulators in 1999, so a tie-up with one of the larger railroads is unlikely.

What is likely is that Ackman has shaken up sleepy Canadian companies and shareholders. This was Canada’s first big, public battle over corporate direction and many observers believe that it’s just the beginning.

Who could be next? A good bet might by phone maker Research in Motion Ltd. (NASDAQ: RIMM) whose recent struggles are well documented.

CP did not get much of a share price boost yesterday, closing at $75.07 in a 52-week range of $44.74-$79.91. The stock is inactive in pre-market trading this morning.

Paul Ausick

American Railcar Industries Inc. (NASDAQ: ARII) also more than doubled EPS estimates for the quarter and Greenbriar Companies (NYSE: GBX) beat estimates by more than 25%. Railroads fared well too, though not with the same big move. CSX Corp. (NYSE: CSX) beat its EPS estimate by 13%, Union Pacific Corp. (NYSE: UNP) beat by about 10%, and Canadian Pacific Railway Ltd. (NYSE: CP) beat the consensus estimate by 5%.

FreightCar delivered about 3 times as many cars in the first quarter as it did in the same period a year ago. The not-so-good news is that orders fell significantly in the quarter, from 4,027 a year ago to 1,244 this year. Backlog is growing, though, from 5,206 a year ago to 6,934 this year.

Sequentially FreightCar’s backlog has dipped from 8,303 in December 2011 to 6,934 at the end of March. Orders need to pick up or the backlog will peter out in the not-so-distant future.

Rail traffic in April was down -5.5% year-over-year, and coal shipments were down -16.6%, the largest decrease on record according to the American Association of Railroads. The number of rail cars in storage now totals about 20% of the fleet, and the number has increased for five straight months.

FreightCar did not offer any guidance in today’s earnings report, but analysts are expecting EPS of $0.43 next quarter and full-year EPS of $1.88. Given today’s strong report those look like slam dunks. But there are a couple of reasons to be cautious here.

FreightCar’s shares are up about 3.7% in the first 45 minutes of trading, but the shares had traded up as much as 18% in the pre-market. The 52-week range is 12.82-$24.01.

Paul Ausick

McClendon himself is chairman of the nine-member board. Other directors include:

• Two former politicians – Former governor and US Senator Frank Keating, a director since 2003, and former US senator Don Nickles, a director since 2005.
• Two retired CEOs – Lou Simpson, former CEO of Geico Insurance Co. (part of Berkshire Hathaway Inc. (NYSE: BRK-A)), and Richard Davidson, former chairman and CEO of Union Pacific Corp. (NYSE: UNP), a director since 2006.
• One university president – V. Burns Hargis, President of Oklahoma State University, and a Chesapeake director since 2008.
• Three energy company executives – Lead independent director Merrill A. “Pete” Miller Jr., CEO and chairman of National Oilwell Varco Inc. (NYSE: NOV) and a director since 2007; Charles Maxwell, a senior energy analyst among other accomplishments, and a director since 2002; and Kathleen Eisbrenner, a director since 2010 and currently CEO of Next Decade, a company founded in 2010 to promote the development of an export market for US liquefied natural gas.

Chesapeake’s board is also very well compensated. According to the company’s most recent proxy statement, filed in April 2011, Ms. Eisbrenner, the newest board member, received stock and cash worth worth $248,670. The longest serving director of the company, Charles Maxwell, received total compensation of $467,026, and the most highly compensated of the directors, former Governor Keating, received $623,433.

The proxy statement also touts the independence of the board:

In 2011, the Board of Directors, through its Nominating and Corporate Governance Committee, evaluated the independence of each director in accordance with the NYSE corporate governance standards … During this review, the Committee considered transactions and relationships between the Company (and/or any of its executive officers) and each director or any member of his immediate family. Based on this review, the Committee affirmatively determined that all directors, other than Mr. McClendon due to his employment with the Company, are independent.

But that’s not a widely held position. In an amended proxy statement filed in May 2011, a shareholder group argued against the re-elections of McClendon and Nickles:

ISS [Institutional Shareholder Services] cites an “apparent unresponsiveness of directors to the shareholder franchise” and “failure to address significant compensation issues” as primary bases for its recommendation to withhold votes with regard to the election of Mr. McClendon, the Company’s co-founder, Chairman and Chief Executive Officer, and Senator Nickles, an independent director and chairman of our Nominating and Corporate Governance Committee.

The compensation issues that ISS refers to are related both to McClendon and the other directors. In late 2008, Chesapeake bought McClendon’s antique map collection for $12.1 million at a time when McClendon had already sold more than 30 million shares of Chesapeake shares to meet a margin call. In January of this year, a district court in Oklahoma ordered McClendon to pay back the company, with interest, and to pay $3.75 million in fees and expenses to plaintiffs in the suit.

Last year’s proxy statement does allude to McClendon’s well participation program and notes that in 2008, the board signed a new five-year contract with McClendon which included a one-time well cost incentive award of $75 million spread over the length of the contract.

But there is no mention of the $1.1 billion that McClendon has borrowed to fund his portion of operating costs. Chesapeake maintains that there is no obligation for the company to reveal the loans or for the company’s board to review them, citing a Delaware court’s ruling in a 2003 case involving Martha Stewart.

The company has said it will file its 2012 proxy statement by the end of this month. Perhaps then we’ll find out if the board will continue to line-up behind anything McClendon chooses to do or if it will act responsibly with the majority of shareholders interests. The board’s history strongly suggests that they’ll continue to protect McClendon and his interests just as before.

Paul Ausick

CSX reported revenues of $2.97 billion, better than the consensus estimate of $2.91 billion and up 5.7% compared with the same period a year ago. EPS came in at $0.43 compared with a consensus estimate of $0.38. Other US carriers Burlington Northern Santa Fe, owned by Berkshire Hathaway Corp., Canadian National Railway Ltd. (NYSE: CNI), Canadian Pacific Railway Ltd. (NYSE: CP), Kansas City Southern (NYSE: KSU), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP) are still to come. Here’s a look at what analysts expect.

Burlington Northern’s revenues and earnings are reported with Berkshire Hathaway’s later this quarter. Year-to-date, petroleum carloads are up 45% while coal loads are down -6%. Other gains are autos, up 13.6%, while intermodal traffic is up just 1.15%.

Canadian National Railway Ltd. (NYSE: CNI) is expected to post revenue of $2.27 billion and EPS of $1.02, an increase of 13% over the same period a year ago. The company reports earnings on April 23rd.

Canadian Pacific Railway Ltd. (NYSE: CP) is expected to post revenue of $1.32 billion and EPS of $0.78, a whopping 310% increase over a year ago. The company put out a preliminary estimate of EPS at CDN$0.83 earlier this month. Canadian Pacific reports earnings on Friday.

Kansas City Southern (NYSE: KSU) is expected to post revenue of $543.24 million and EPS of $0.72, a 24% increase over the same period a year ago. The company reports earnings on April 24th.

Norfolk Southern Corp. (NYSE: NSC) is expected to post revenue of $2.75 billion and EPS of $1.12, an increase of 12% over last year. The company reports earnings on April 24th.

Union Pacific Corp. (NYSE: UNP) is expected to post revenue of $4.98 billion and EPS of $1.63, an increase of 26% over the same period a year ago. The company reports earnings tomorrow.

Expectations are for rail stocks are high and, based on the gain reported yesterday at CSX, it looks like those hopes are about to be realized.

Paul Ausick

The company’s traffic in March was down -13.6% year-over-year and down -9.2% for the quarter compared with the same period a year ago. CSX Corp. (NYSE: CSX), Union Pacific Corp. (NYSE: UNP), Norfolk Southern Corp. (NYSE: NSC), and Kansas City Southern (NYSE: KSU) have not released numbers yet, but CSX and Union Pacific report quarterly earnings next week so we should know more then.

The decline at Genesee is virtually entirely due to a -42.7% drop in coal shipments in March and a -41.7% drop in coal shipments for the quarter. According to the Association of American Railroads’ latest traffic report, year-to-date coal shipments are down -10.2% on US railroads.

That’s not the largest percentage drop among freight types, but coal represents the largest volume of traffic on the nation’s railroads. US railroads have hauled nearly 200,000 fewer carloads of coal this year than they did last year. Put this down to the lowest natural gas prices in a decade.

The big gainer is petroleum products, which has risen 28.7% year-to-date, to nearly 120,000 carloads, up from about 93,000 a year ago. This is the effect of rail shipments from the Bakken shale fields of North Dakota and Montana, where there isn’t enough pipeline capacity to transport the oil to markets. But the total number is barely 10% of the coal volume.

Genesee’s shares closed up about 2.5% yesterday at $53.55 in a 52-week range of $44.38-$66.83. Shares are inactive in the pre-market this morning.

Paul Ausick

Caterpillar, Inc. (NYSE: CAT) Raised to Outperform as Bull of the Day at Zacks.
Halliburton Co. (NYSE: HAL) Reiterated Buy but lowered target to $54 at Argus.
Harmony Gold Mining Co. Ltd. (NYSE: HMY) Raised to Buy at UBS.
Home Depot Inc. (NYSE: HD) Reiterated Buy and raised price target to $51 at Argus.
Interline Brands, Inc. (NYSE: IBI) named as Value stock of the day at Zacks.
KLA-Tencor Corporation (NASDAQ: KLAC) Raised to Buy at Citigroup.
Michael Kors Holdings Limited (NYSE: KORS) Started as Overweight at Morgan Stanley; Started as Outperform at Baird; Started as Buy at Goldman Sachs.
Netflix, Inc. (NASDAQ: NFLX) Maintained Outperform with $100 target at Credit Suisse.
NII Holdings, Inc. (NASDAQ: NIHD) Cut to Underperform as Bear of the Day at Zacks.
Novellus Systems, Inc. (NASDAQ: NVLS) Raised to Buy at Citigroup.
Pan American Silver Corp. (NASDAQ: PAAS) maintained Outperform but lowered estimates at Credit Suisse.
Texas Instruments Inc. (NYSE: TXN) Reiterated Outperform and raised target to $40 at Credit Suisse; Cut to Hold at Kaufman Bros.
Union Pacific Corp. (NYSE: UNP) Reiterated Buy and raised target to $130 at Argus.
Zumiez Inc. (NASDAQ: ZUMZ) Cut to Neutral at Credit Suisse.

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JON C. OGG

To start with the worst, Frontline is down more than -88% for the year, and its median target price has dropped to $6.00 from $7.25 in late October. At today’s share price of $2.98, the potential upside is slightly more than 100%. DryShips is not much better, with a lower target price of $5.00. At today’s price of $2.37, the implied gain is nearly 111%. Neither Excel nor Diana is as bad, but neither is likely to achieve anywhere near their implied gains of 63% and 46%, respectively. The shipping business has too many ships sailing around at unprofitable day rates. Until that situation resolves itself — not likely until 2013 — anything that resembles value in the shipping business is likely a mirage.

Railroads are faring better because rail traffic is up. The Association of American Railroads reported this morning that November carload traffic on US railroads grew 4% compared with November 2010. Intermodal traffic (containers) grew by 3.7% year-over-year. The largest increase came in motor vehicle carloads, which grew by 42% compared with last year and petroleum product carloads which grew by more than 28%.

Another large gain, more than 30%, came in carloads of crushed stone, sand, and gravel. Because beach sand is the most common material used in hydraulic fracturing of oil and gas wells, it’s probably a reasonable assumption to give the drilling industry credit for the increase.

Of the four railroads, Union Pacific and Norfolk Southern have both had target price boosts since late October. Union Pacific’s median target price is $114.00, up from $110.00. At a current price of $102.70, the potential upside in UP’s stock is 11%. The company’s dividend yield of 2.4% is also tied with Norfolk Southern’s for the best in the group.

Norfolk Southern’s median target price is $85.50, up from $82.00. At a current price of $74.90, the stock has a potential upside of 14.5%. With a slightly higher implied gain and an equal dividend yield, Norfolk Southern might be the best bet among the railroads.

In trucking, J.B. Hunt’s median target price fell from $49.00 to $48.00, but that was quite likely due to two brokers dropping coverage. At today’s price of $$45.40, the potential upside for the stock is just 5.7%. The company pays a dividend yield of 1.2%.

Landstar’s median target price is $52.00, up half a dollar from late October, and again likely due to a drop in the number of brokers covering the stock. At today’s price of $45.90, the potential upside for the stock is 13.3%. Landstar pays a dividend yield of 0.5%. Earlier this week, Landstar was downgraded from ‘buy’ to ‘neutral’ at SunTrust.

Of the two trucking companies, neither has a clear edge over the other. Hunt is more fully valued, but the company reported record results in the third quarter. If Hunt can do that again, then the current target price will be left way behind. Hunt’s strength in intermodal transportation could easily make that happen.

Of all ten stocks reviewed here, Norfolk Southern may be the safest bet, but J.B. Hunt may add more significant growth potential to its relatively limited upside potential.

Paul Ausick

Transportation stocks get a lot more attention as economic bellwethers than they do as market participants. Railroads, ships, and trucks are not particularly glamorous, and the industries are so entrenched that they most resemble utility stocks.

The companies included in today’s overview are CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC), Union Pacific Corp. (NYSE: UNP), Canadian Pacific Railway Ltd. (NYSE: CP), Diana Shipping Inc. (NYSE: DSX), DryShips, Inc. (NASDAQ: DRYS), Excel Maritime Carriers Ltd. (NYSE: EXM), Frontline Ltd. (NYSE: FRO), JB Hunt Transport Services Inc. (NASDAQ: JBHT), and LandStar System Inc. (NASDAQ: LSTR).

Of the ten stocks we’re looking at today, only one trades more than 10 million shares a day and most of the others trade less than 3 million.  On the surface, it would seem that all these stocks would more or less trade in parallel. In practice, though, railroads and trucking companies are faring far better than sea-borne shippers. Railroads are hauling more coal, and trucking companies are having trouble meeting demand for their services. Shippers overbuilt their fleets, and the resulting collapse in day rates has been punishing for their top and bottom lines.

Cargo traffic is closely watched at this time of year as a predictor of holiday retail sales. Typically, ocean container shipping headed to the US tips the coming strength of retail sales. This year, container shipments have been somewhat lower, and this month’s totals will really tell the tale. Rail and truck traffic has been strong though, although the shortage of available trucks is diverting more container (intermodal) traffic to the railroads.

All data from Yahoo! Finance, and share prices were collected shortly before noon today.

CSX Corp. (NYSE: CSX) has a median target price of $27.00 from 24 brokers. Shares are trading today at $22.66, for an implied gain of $4.34, or 19%. CSX’s forward P/E is 11.73 and the company pays a dividend yield of 2.3%. The stock’s 52-week trading range is $17.69-$27.06, and at today’s price that’s about 28% above its 52-week low, posted earlier this morning, and 16% below the 52-week high. CSX met analysts’ expectations when it reported third quarter earnings about 10 days ago. The company noted a 15% jump in intermodal freight revenue, although volume was essentially unchanged from the same period a year ago. CSX said at the time that it does not expect significant growth in the US, but neither does it predict a double-dip recession.

Norfolk Southern Corp. (NYSE: NSC) has a median target price of $82.00 from 23 brokers. Shares are trading today at $74.74, for an implied gain of $7.26, or 10%. Norfolk Southern’s forward P/E is 12.91 and the company pays a dividend yield of 2.5%. The stock’s 52-week trading range is $57.57-$78.40, and at today’s price that’s about 30% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. Norfolk Southern hauled 23% more coal in the third quarter than it did a year ago, and its intermodal traffic volume increased by 13%. Like CSX, the company expects modest economic growth in the US going forward. The company’s implied stock price gain is about half that of CSX, but with both coal and intermodal traffic up and growing, Norfolk Southern is more likely to bust through its current target price than the other railroads we’ve looked at today.

Union Pacific Corp. (NYSE: UNP) has a median target price of $110.00 from 25 brokers. Shares are trading today at $102.35, for an implied gain of $7.65, or 7.5%. Union Pacific’s forward P/E is 13.15 and the company pays a dividend yield of 2%. The stock’s 52-week trading range is $77.73-$107.89, and at today’s price that’s about 32% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. Union Pacific posted third quarter earnings a week ago, and its international intermodal shipments were down -12% year-over-year. That implies that retailers are buying less in anticipation of a slower holiday shopping season.

Just as we tried to look at the effects of a crude price of $120/barrel a couple of weeks ago, today is a good day to look at what effect a crude price of $80/barrel might have. First of all, it would be very good news for consumers who might anticipate gasoline prices around $3.25/gallon, at least briefly. And US drivers need some cheering up.

An $80/barrel price would definitely be bad for big oil companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), and ConocoPhillips Corp. (NYSE: COP). Refiners, however could do better, especially those able to get WTI crude. US refiners situated along the Gulf Coast are essentially tied to Brent prices, while refiners further from the coast can get their hands on the cheaper WTI. That allows these companies to take advantage of the crude differential to achieve more margin.

Of the refiners, Valero Energy Corp. (NYSE: VLO) is most closely tied to the Gulf Coast and higher priced crude. Marathon Petroleum Corp. (NYSE: MPC), Tesoro Corp. (NYSE: TSO), and Western Refining Inc. (NYSE: WNR) all have more plants outside the Gulf Coast region, and thus, a better chance to take advantage of wider refining margins.

Another industry that should do well with $80/barrel crude is the airlines business. United Continental Holdings, Inc. (NYSE: UAL), Delta Air Lines Inc. (NYSE: DAL), AMR Corp. (NYSE: AMR), and Southwest Airlines Co. (NYSE: LUV), among others, have been slammed by high fuel costs. Provided anyone can still afford to fly, airline fuel costs will fall and fares may follow.

Other transportation industries that use large amounts of fuel are shipping and railroads. Shipping companies like DryShips Inc. (NASDAQ: DRYS), Diana Shipping Inc. (NYSE: DSX), and Genco Shipping & Trading Ltd. (NYSE: GNK) could catch a break from lower fuel costs. Unfortunately, over-capacity in dry bulk carriers could hold down any gain that might come from cheaper fuel.

Railroads might fare better. Union Pacific Corp. (NYSE: UNP), CSX Corp. (NYSE: CSX), and Norfolk Southern Corp. (NYSE: NSC) have been moving a lot more goods these days, and lower diesel fuel costs will make these stocks among the best able to take advantage of cheaper fuel. Loads are up, rates are up, and fuel is getting cheaper. That’s a potent combination.

Other transportation winners could include FedEx Corp. (NYSE: FDX) and United Parcel Service, Inc. (NYSE: UPS), both of which are shipping more these days and have taken a hit as fuel prices were rising.

Finally, agriculture-related firms like fertilizer companies and machinery makers could get a boost from lower fuel costs. Ag companies like Archer Daniels Midland (NYSE: ADM), Potash Corp. of Saskatchewan (NYSE: POT), Mosaic Co. (NYSE: MOS), CF Industries Holdings, Inc. (NYSE: CF), and Deere & Co. (NYSE: DE) all benefit from lower fuel costs in one way or another.

Of all the companies we’ve looked at here, only FedEx, UPS, and CF Industries is showing a gain today. CF Industries raised its annual dividend today from $0.40/share to $1.60/share, on top of a blowout quarterly earnings report. CF Industries’ shares are up more than 70% in the past 12 months, and the company expects the rest of 2011 to be just as strong as the first half.

Paul Ausick

The new “8-Pack of Dividends” includes Whirlpool Corporation (NYSE: WHR) and The Home Depot, Inc. (NYSE: HD) as having pent-up U.S. demand & global consumer growth.  Two dividend  picks for the U.S. industrial renaissance are Union Pacific Corporation (NYSE: UNP) and United Technologies Corp. (NYSE: UTX).  Air Products & Chemicals Inc. (NYSE: APD) and ConocoPhillips (NYSE: COP) are two dividend picks for the run in commodities.  Lastly, the “Safe & Steady” picks were in Pepsico, Inc. (NYSE: PEP) and in Johnson & Johnson (NYSE: JNJ).

While these two tech giants were not a part of this “8-Pack,”  Hank Smith gave some interesting insight when it comes to Intel Corporation (NASDAQ: INTC) versus Microsoft Corporation NASDAQ: MSFT).  As you have likely read, Intel just raised its dividend yet again last week and is now among the highest dividend yields in technology.  He called this very shareholder friendly.  Smith maintains that the acquisition of Skype is not as much of a shareholder-friendly move as it would have been to see a significant boost to Microsoft’s dividend.  Smith noted, “If Microsoft would have opted to double its dividend and commit to a 10% to 12% dividend growth strategy rather than making a large acquisition of a questionable company, then Microsoft’s share price would be significantly higher.”

Haverford mostly handles managed accounts but a smaller Large-Cap fund it manages is Haverford Quality Growth Stock (HAVGX) fund, and its returns have been solid during the recovery when you consider the dividend aspect of this growth.  Since the early-2009 lows, this fund has jumped up nearly 85% from the bottom.

When you look at the “8-Pack of Dividends,” these all have relatively high payouts and have all increased those payouts recently.  We included the company, the approximate dividend yield, and by how much the dividend hike was in each:

• Whirlpool Corporation (NYSE: WHR) yields 2.4% and its recent payout was raised by 16%.
• The Home Depot, Inc. (NYSE: HD) yields 2.7% and its recent payout was raised by 6%.
• Union Pacific Corporation (NYSE: UNP) yields 1.8% and its recent payout was raised by 25%.
• United Technologies Corp. (NYSE: UTX) yields 2.1% and its recent payout was raised by 11%.
• Air Products & Chemicals Inc. (NYSE: APD) yields 2.5% and its recent payout was raised by 18%.
• ConocoPhillips (NYSE: COP) yields 3.5% and its recent payout was raised by 20%.
• Pepsico, Inc. (NYSE: PEP) yields 2.9% and its recent payout was raised by 7%.
• Johnson & Johnson (NYSE: JNJ) yields 3.5% and its recent payout was raised by 6%.

Mr. Smith also noted that today’s environment offers dividend investors a tremendous opportunity in dividend-growing stocks.  After 18 months to 24 months of a recovery, now companies are really moving to return more capital to shareholders.

One additional point was made as far as which companies are strong… Smith said, “About three-quarters of dividend portfolio companies actually managed to raise dividends during the recession.”  The current dividend yield for most managed accounts at Haverford today is 2.5%, but they also have a dividend value strategy that includes utilities and other dividend-paying companies with a combined portfolio yield that is closer to 3.8% today.

When we are given a large group of picks in this manner, it is almost impossible not to ask for which of the lot is the best of the best.  Haverford Investments’ Hank Smith believes that the giant recovery is becoming the mature stage of the recovery period now.  In this stage, he is more inclined to look at some of the more defensive names which have lagged many of the others in their performance.  Those two names were Pepsico, Inc. (NYSE: PEP) and Johnson & Johnson (NYSE: JNJ).

JON C. OGG