Is Norfolk Southern Corp. (NSC) Destined for Greatness?

In recent years, oil production has boomed in the United States due to high crude oil prices and advancements in extraction technologies. While pipelines are one method to transport oil, rail has also benefited enormously, as there have been ready railroads near new-producing regions, but no operational pipelines. This shift is a boon for Norfolk, which operates a 20,000-mile railway network, most of which is east of the Mississippi, and runs nearly the entire length of the United States from north to south. Norfolk also has a partnership with Berkshire Hathaway Inc. (NYSE:BRK.B)‘s BNSF railroad that connects Norfolk’s eastern operations with BNSF’s West Coast dominance. Norfolk also serves every major container port across the East Coast.

Norfolk expects continued growth across its chemicals and intermodal segments throughout 2013. Chemicals are in high demand, largely due to rising crude oil production in North America, which continues to surpass current pipeline capacity. Moreover, the shale gas boom is driving the U.S. chemicals sector, which is resulting in higher shipments of industrial chemicals and plastics. Fueled by truck to rail conversions and Norfolk’s investments in its Crescent Corridor program, intermodal business will be a key growth driver for Norfolk in the future.

The coal market, which represents a major headwind for Norfolk, could see a recovery should natural gas prices rise further in the future. The continuation of this trend could lead utilities to switch back to coal for electricity production. Norfolk must continue to focus on productivity initiatives through network right-sizing, higher velocity, and improvements in technology, engineering, and processes.

Putting the pieces together

Today, Norfolk has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is Norfolk Southern Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Canadian National Railway. The Motley Fool owns shares of Berkshire Hathaway.

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