Short CSX Corporation (CSX) Stock and the Ticket Is Free
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The transportation sector stocks have been on fire of late. The iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT) rallied over 20% in the past 12 months and is now at all-time highs. This came quickly after a tough period for markets where experts were fearing a market bloodbath. This is a bullish equity environment and the transports are leading.
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As impressive as the sector is, CSX Corporation (NASDAQ:CSX) is even more so. The stock is up 90% in 12 months. It rose form under $30 to $54. A bulk of the move came on the heels of its January earnings report when CSX stock surged 30% and never looked back.
Fundamentally, CSX stock is not cheap. It’s price-earnings ratio is bloated relative to its competitors. I am always leery about chasing runaway stocks who are overpriced in their sectors. So today’s trade will bet against the short-term price action, but without putting any of my money in immediate risk.
I am not a perma-bear on stocks; I just don’t like CSX at these levels. If I were to allocate bullish risk, I’d rather opt for cheaper valuation. I can even own a premier tech stock like Apple Inc. (NASDAQ:AAPL) or Microsoft Corporation (NASDAQ:MSFT) for much better valuations and healthier balance sheets.
Nothing is likely to go up for ever without a breather. CSX has been rallying too long without any rest. I also worry about expectations. Often enough, if Wall Street establishes lofty expectations, the disappointments cause sharp selloffs. CSX stock, after a 90%-plus rally in 12 months, is vulnerable to having a few people not getting what they want. To the point, most analysts also are on record with “buy” or “outperform” ratings.
Technically speaking, and after the January spike, CSX stock established a plateau around the $46 level from which it sprang to higher highs. As a result, the stock now has two potential support levels between current price and that $46 base.
Both the $52 and $50 per share levels should present some support in case we see dips in the underlying. I have to consider those when placing my CSX option bets.
Before you call for my head because I dared short a stock, you should know that I’m not arguing against the company’s prospects … I’m merely betting against the short-term price action.
In fact, I will be using the company fundamentals to finance my trade. I will be short CSX stock for free, discounting the risk of owning it 20% lower than today.