Canadian National R.R. (CNR.TO)

He's stayed away from companies he thinks will be potentially threatened by CUSMA negotiations. Nothing's likely to happen in the near term, but Trump can do anything at any time. Headlines can disrupt traffic.

Quarterly report this morning looked very good -- healthy freight rates and volumes, all driven by the super-cycle in materials and commodities.

Likes them for the longer term. Businesses are 100+ years old, will be around for the next 100 years. Can be hit by trade, tariffs, harvests, wildfires, labour unrest -- it's all just noise. Value-added services to customers. Much cheaper than to transport by road. Long-term growth rates are not super high, about 4-5%. 

Last time he looked, a large language model couldn't replace a railroad ;)

Rails demand patience, but eventually there will be steady demand for their services. They have a history of buying back shares and raising dividends. Not worried. They need an uptick in GDP growth to raise the share price. You can pick away and average into it.

All rails are suffering a recession, but is it over? Rails are cyclical to the Canadian economy. She feels were getting closer to a recession. She prefers CN to CP because of PE and dividend. CP's valuation reflects the Kansas City merger and its synergies, so higher. She owns no rails. She would buy CN on a dip.

No one can replicate their network. This is a core holding. Their valuation has contracted after strikes, lower volumes and a soft Canadian economy. They reduced capex last year to buy back shares. Their network is functioning smoothly, so positioned well if the economy picks up. CNR traded at a premium to the group, but now a discount, which is attractive.

He'd put $$ in CP for now. Generally, they move in the same direction. CP is more in the driver's seat now, realizing synergies from the KSU acquisition. CNR isn't catalyst-rich for an investment thesis at this point.

Prefers UNP.

There's always noise, from wildfires, strikes to geopolitics. And things could be shaky this summer during the CUSMA negotiations if the US walks away. But he has a long-term horizon of 5-10 years. CNR enjoys high barriers to entry, has pricing power, a strong balance and an attractive valuation.

He is holding it for sector exposure. There is still decent upside of $150 by next summer.

Rails are particularly attractive if you think the price of fuel is going to be elevated. Biggest impact so far from rising oil price has been rising diesel prices. Rails are way more competitive in an elevated fuel-cost world.

Likes the rails. See his Top Picks.

The PE has pulled back. Continues to like it. Are reducing capex after investing heavily in recent years. They will accomodate growth if freight volumes pick up without spending more capital. Pays over a 2% dividend. Would nibble at it here.  

Good long-term buying opportunity right now. Tariff concerns last year, with some pressure abated from SCOTUS ruling. Consider diversifying between both CP and CNR.

Whatever comes out of CUSMA will be positive, because at least there will be an agreement. It's the unknown that creates volatility.

Sold off on back of tariffs were going to be bad. But remember, 95% of goods shipped in US are exempt under CUSMA. The other point is just logistics -- if you're in one part of the US, your choices are truck or rail. 

Revenues were up ~2%. Raised dividend. Bought back $2B in stock last year (funded by selling off a piece of real estate it's owned for 200 years). Buybacks are much more effective/accretive when stocks are on sale. Good story. Yield is 2.42%.

Two words -- freight recession. It's been going on for over 3 years, and manufacturing has been the cause (Covid pulled demand forward, and then people spent $$ on trips and concerts). ISM Manufacturing PMI spiked unexpectedly last week. This gives the rails easy comparisons. Both should do well as manufacturing recovers.

CNR trades at a discounted PE of 17.5x. This is your name for value. Yield is 2.7% -- a meaningful premium to its 10-year average of 2%. Earnings growth of 8% expected. He'd probably choose this one on valuation, and on its intermodal business mix.

CP trades at parity with the group. Trades at 21x PE. Yield is just under 1%. Not cheap, but expected to grow faster (13% compound earnings growth over 3 years). 

Owns neither, as trucking has way more cyclical leverage to a freight recovery.