Stockchase Opinions

Varun Anand Canadian National R.R. CNR-T PAST TOP PICK Jun 09, 2022

(A Top Pick Jul 21/21, Up 12%) Likes it at current levels. He trimmed in the face of a slowdown. He'd add on a meaningful pullback from current $145 levels.
$145.020

Stock price when the opinion was issued

Transportation
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WEAK BUY

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.

COMMENT

She likes the rails but would like to see more consistency in the quarterly reports and more momentum. The dividend is 2 1/2% which is not great. There is upside in the fundamentals and it should turn around for the long term. It scores 6 out of 10 on the value scale.

WAIT
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.

TOP PICK

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.

(Analysts’ price target is $162.92)
HOLD

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.

TOP PICK

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%.

(Analysts’ price target is $162.93)
PARTIAL BUY

Same comments as Cargojet: Chart shows a downtrend, being a laggard, but lately is starting to catch up. You can nibble at here. If we're starting a new economic cycle now, it will be positive for CJT and the economy. Expect weakness in a pullback coming. Play the long game and start adding to this now, but gradually.

HOLD

Old support from 2020-2021 is being tested, so far successfully. Suspects you'll see support coming in, and then may consolidate. Don't sell at this point, but don't load up on it either. Neutral on it.

BUY ON WEAKNESS

Recent move down takes it to probably 17x forward PE, not bad. People are overly worried about economic risk. Will get east-west deliveries from the Jansen mine, plus increase in energy infrastructure. Sees more risk north-south. Not having owned it in a long time, he's started picking away at it.

He'd rather buy into weakness than chase things that have been running hard.

PAST TOP PICK
(A Top Pick Jul 22/24, Down 20%)

Sold in September. We've been in a freight recession for 3 years, longest anyone can remember. Came out with a mixed quarter.