Opinions
Nick Majendie
Canadian National R.R.
CNR-T
COMMENT
Sep 19, 2017
Stock price when the opinion was issued
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Is watching it after falling to current levels. The rails track GDP levels. CN boasts a slightly lower PE and higher ROE than CP, but are paying much more in price-to book than CP, but you get more. Overall, it evens out slightly in CP's favour. You can buy some shares now and more if it falls further.
Something she's looking at now. Higher yield, lower valuation. Has come up significantly in the past week or two with the market run. If it went back down to $125, she'd definitely be interested. Stable, not easily replicable. Consistent cashflow that supports the dividend. Still the cheapest way to transport goods. Prefers it to CP.
Sold late last year, due to worries partly on tariffs and partly on management's ability to create value. Didn't like that it was buying back stock using debt, or yo-yo projections (up) versus guidance (down). Heavy capex business. Growth hasn't been there with pandemic, tariffs, inflation.
Probably some good value here. If you have a long-term investment horizon, not the worst idea to have a 1-2% position in the Canadian rails and just leave it alone. Doesn't have a strong conviction either way right now on CNR vs. CP.
Both are really good, monopoly-type businesses. On timing, don't do either right now. Tariff inflation hasn't happened yet, but it will. As that causes economic problems, it will affect the economically sensitive names. The NA economy is vulnerable right now.
That said, his preference is definitely CP. Now that it includes Mexico, its footprint is so unique. Growth profile gives them more upside on earnings, which provides a buffer during economic weakness. Both trade at less than 20x PE, but CP is more compelling, along with its phenomenal management team. An OK buy here, but be prepared to buy more if it does get hit. Perhaps buy 1/2 a position now, and then the other half later whether it goes up or down.
Canadian company. He's been 75% US, 25% Canada for a long time. He's now trying to reverse that and repatriate some of that US cash. The stock's been through a lot, dropping $40 in the last little bit. Spending lots of $$ to improve infrastructure, which will hopefully translate into some growth. Tariffs will resolve themselves shortly. Fairly good dividend of 2.53%.
Doesn't own yet, but plans to buy with proceeds from sale of US stocks. Sell if it drops below $130.
Sold this in favour of trucking, a more cyclical and higher-torque way to get exposure to recovery in manufacturing and merchandising. Covid explosion in purchasing made for difficult comparisons later, so trucking experienced a 3-year "freight recession".
Still, there's no good reason to abandon the rails. They give you a good franchise and "forever" earnings power. Sector is largely an oligopoly. Those trains should still be rolling 100 years from now. This name is a backbone of the Canadian economy. Tremendous compounder and TSX outperformer.
Pricing power. Good track record on safety. Last year, economy was weaker, and this hit the rails. Labour disruptions. Volumes were affected. Affirmed guidance after Q1 reporting, expects 10-15% EPS growth (assuming there's still volume growth and no recession). Valuation is now at a very attractive multiple compared to historical levels and to the group.
Went public in 1995, and has increased dividend every year since. Yield is 2.49%.
His preferred choice in rails, and his biggest investment in that sector. They have a tendency to outperform their guidance, and thinks they will do it again this year. Very strong cash flow growth. Good operating ratio performance. Because of the free cash flow growth, the dividend keeps constantly being increased.