60 KIPLINGER’S PERSONAL FINANCE^ 05/2019INVESTING
business to a competitor,
you’ve got a very good
business,” Buffett told the
Financial Crisis Inquiry
Commission in 2011. That’s
particularly true in a period
of tame inf lation overall,
such as now.
CSX (CSX, $73) operates
21,000 miles of track in 23
states, the District of Co-
lumbia, Ontario and Que-
bec. If you need to move a
lot of anything, from cars to
coal to corn, CSX can gener-
ally do it, and more cheaply
than trucks can.
Large companies, such as
General Motors, can some-
times dicker with CSX on
price, but CSX has good
pricing power over smaller
customers with limited al-
ternatives, says CFRA ana-
lyst Jim Corridore. Thecompany should pick up
more of those customers
with CSX’s intermodal—
train to truck—business,
which is especially valuable
for shippers seeking to min-
imize time spent on busy
East Coast highways.
Price hikes and fuel sav-
ings drove a 10% increase in
revenues in the fourth quar-
ter of 2018 compared with
the same quarter a year ear-
lier. Analysts expect earn-
ings at CSX to increase 10%
in 2019 compared with 2018
and another 11% in 2020.
Shoppers might think
of bargains, not price hikes,
when it comes to COSTCO
(CO S T, $ 2 3 4). But the ware-
house club giant (and
Buffett holding) raised its
regular Gold Star member-
ship fees to $60 from $55
in 2017. Executive member-
ships (for businesses) went
up $10, to $120. Overall,
Costco collected $3.1 billion
in membership fees in 2018,
up from $2.9 billion in- Those fees account
for about three-fourths of
Costco’s operating profits.
The company has a 90%
membership renewal rate
in the U.S. and Canada,
and 88% worldwide.
But much of Costco’s
pricing power remains in-
visible to shoppers. Because
the company sells a limited
number of products from
select suppliers, it is able to
negotiate better deals with
those vendors.
The company’s shares re-
f lect its premium prospects,
so look for a sale on a down
day in this volatile market,
or else plan to hold for the
long term.
CONTACT THE AUTHOR AT JWAGGONER@
KIPLINGER.COM.
in 2018, up 20% from 2017.
The company has been
on a growth spurt, with
20.4 million policies in force
at the end of 2018, up 12%
from 2017. New auto insur-
ance applications rose 20%
in 2018 from a year earlier,
and property insurance
applications jumped 53%.
Management has been fo-
cusing on retaining those
new customers, and its
policy life extension, a mea-
sure of customer retention,
has been improving.
As with any property-
casualty firm, there’s al-
ways the risk of an uptick in
catastrophic events, such as
hurricanes and tornadoes.PRICING POWER
“If you’ve got the power to
raise prices without losingT. Rowe Price, a bear mar-
ket could cut into fees at
State Street, but the firm’s
solid balance sheet should
be more than adequate to
weather any storms.CASH GALORE
A company that generates
lots of free cash f low—cash
left over after operating ex-
penses and capital outlays—
has many options for spend-
ing the money. Management
can pay dividends, buy back
shares, retire debt or buy
other businesses.
CISCO (C S CO, $53) makes the
internet work through its
switches and applications.
The company plays a sub-
stantial role in internet
security, the internet of
things, cloud computing
and wireless communica-
tions. Cisco generated $12.8
billion in free cash f low in
2018, ranking it sixth among
all tech companies.
And Cisco wants to share
the wealth. The firm plans
to return half of its free
cash f low to investors in
dividends and share repur-
chases annually. The stock
yields 2.5%; Cisco bought
back $17.7 billion of its own
shares in 2018 and autho-
rized an additional $25 bil-
lion worth of purchases for
an indefinite period. The
shares trade at a price that
would make Buffett smile:
16 times estimated earnings
for the year ahead.
Insurance companies
such as PROGRESSIVE CORP.
(PGR, $74) collect premiums,
which they can invest until
they need to pay claims—a
period that can last many
years. Progressive’s assets—
the amount available to in-
vest—grew to $46.6 billionFundsLet a Pro Pick the Stocks
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