If you're looking for boring stocks, railroads have to land near the top of the list.
They've been a mainstay of the U.S. for well over a century. The business is certainly crucial. But it feels like a relic of the past.
Don't let that fool you into thinking you can't make money in these companies, though...
CSX (CSX) dates back to the 1800s. Its railways serve roughly two-thirds of Americans. You probably wouldn't expect this stock to produce big gains... It's not a high-flying tech opportunity.
But big outperformance is possible right now due to a specific setup.
History says this boring stock could lead to 25% gains over the next year. And that makes it worth a look right now.
Let me explain...
CSX has fallen sharply since mid-August. It's down 13% in a month and a half. But the recent drop has likely gone too far, too fast.
The stock is now in oversold territory. That means a reversal in the trend is likely soon.
When I say "oversold," I'm referring to the relative strength index ("RSI"). This looks at recent movements in a stock to see if it has gone too far, too fast in either direction.
When a stock falls below and rises back above an RSI of 30, hitting oversold territory, a rally is likely to follow.
That's exactly what we're beginning to see with CSX. After peaking in August, the stock has fallen dramatically... hitting oversold territory earlier this month. Take a look...
The stock fell below an RSI of 30 for the first time since January. This kind of setup has happened less than 1% of the time since 2000.
Furthermore, two decades of data show that you can expect outperformance thanks to this rare event. A 25% gain is possible over the next year. Check it out...
CSX might seem boring, but it has been a big performer since 2000... returning 14% per year. Today's setup offers a chance to do even better though.
Buying after similar instances has led to 4% gains in three months, 11% gains in six months, and a 25% gain over the next year. That crushes a buy-and-hold strategy.
This might seem crazy for a boring railroad company. But most companies can lead to big gains if you buy them at the right time... And CSX is no exception.
Now, CSX is still in oversold territory. That means you'll want to see it rise back above an RSI of 30 before buying. Once that happens, the stock will likely be off to the races.
Remember, history shows a 25% gain is possible over the next year. So this is a stock you want to keep a close eye on right now.
Good investing,
Chris Igou
Further Reading
Contrarian investing works because once too many people pile up on one side of a trade, the opposite is likely to occur. We're seeing that happen in one commodity today. And the recent bearishness could mean a major rebound is likely... Read more here: This Beaten-Down Commodity Is About to Soar.
"Most folks want other people to like and agree with their investment ideas," Ben Morris writes. But when too many investors are betting in the same direction, it's often an indicator that a reversal in the trend is just around the corner... Learn more here: Two Ways to Profit as This Consensus Bet Reverses.
One market has fallen sharply in recent weeks. Now, after a major decline, a snap back is likely in the short term...
DEMAND ISN'T SLOWING DOWN FOR THIS SOFTWARE PROVIDER
Today, we're highlighting a software company that's benefiting from its stable business model...
Regular readers know Software as a Service (SaaS) businesses have a big advantage. Under this model, customers "rent" the software they use instead of owning it... Plus, they can access it anywhere using the cloud. This allows for recurring revenue, leading to sizable gains for shareholders. Today's company is a perfect example...
Datadog (DDOG) is a $45 billion software provider. It offers a monitoring and security platform for cloud applications, working with large companies such as Comcast, Samsung, and DreamWorks. Datadog's platform has been in high demand throughout the COVID-19 pandemic, as many companies have adopted cloud tech and transitioned to work-from-home environments. And that demand isn't slowing down today... In the second quarter, Datadog posted $234 million in revenue – up 67% year over year.
As you can see in today's chart, DDOG shares are soaring. They're up more than 300% since the stock went public two years ago... And they've continued hitting new highs. With many folks still working from home and more companies embracing the concept of a digital workplace, Datadog should continue to perform well...
