Canadian National R.R. (CNR.TO)

CN vs. CP The transports are close to their highs as volumes are hitting historic highs. He can't choose one over the other until the Kansas City Southern deal is complete. Who will win? If you hold a position in either, just hold and wait. If you don't own at all, then maybe buy a small position in both. Then after the deal, trim the loser and increase the winner.

(A Top Pick May 01/20, Up 20%) He's pleased, not surprised by their growth. He bought this some years ago because the railroads were showing pricing power and leverage to a stronger economy and that's certainly happening now, post-Covid, as the economy grows rapidly. Their assets of 32,000 km of track network offer a long life. If the KC Southern deal passes, it will extend their network into Mexico's industrial heartland. This deal is pricey but the synergy would be massive. He likes the deal.

CP-T and CNR-T bid on KSU-N. The bidding war for KSU-N. CP-T and CNR-T are locked into a bidding war. CP-T shareholders want CP-T to push this a bit so they can get it. He does not think CNR-T shareholders are as much in favor of the bid. He does not have a horse in the race, but he thinks CP-T will raise their bid a little. CP-T would benefit more with this US exposure, but CNR-T might have more pure synergies. He is watching it play out from the sidelines.

What will the US regulators and railways think about the proposed takeover of KSU? The bid is high, but fair. Would be lots of synergies in routes and overhead. Wouldn't be surprised if other US rails put in a bid. As a shareholder, you never like to see bidding wars. Will benefit from the move from road to rail. Pretty fully valued, especially for a company that's sensitive to GDP.

CP rail still moves a fair bit of thermal coal, which is decreasing. CNR gets more of its revenue from metallurgical coal, which is increasing. Both provide only a small portion of revenues. They also move chemicals, lumber, autos. If you're betting on worldwide economic recovery for many years, as he is, you have to own the railroads. He's a bit nervous about the acquisition of KCS, but if that goes through, could be terrific. Incredible performers over the long term, and no reason this will stop. He owns CNR, but would have no problem holding CP. Keep holding.

CP buying Kansas City Southern today He owns CN as a core position. He could own both since it's a duopoly and both are good. CN already has a good presence in the U.S. so CP is adding to theirs. It's a good deal for CP and accretive, giving CP access to Mexico.

CP vs CN The CP stock split isn't an issue. He prefers CP in the short term. Late CEO Hunter Harrison turned CN around and his legacy remains as CN continues to reduce costs and do very well. Harrison didn't helm CP until later, around 2012, so CP is a bit behind. CP has good exposure shipping crude, and this business should pick up in summer as more people drive and burn gas during the reopening. He prefers CP which will deliver 10-15% returns vs. CN's 5-10% in the coming year.

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The company raised dividends and beat estimates. There is some concern for the economic recovery but there are no negative company developments. It is currently buyable but there is no rush to get in. Unlock Premium - Try 5i Free

It is quite expensive though it is good. Earnings dissapointed a little on guidance. EPS should grow at 11%. The name is trading at 23x 2021 earnings. CP may be a better buy in terms of valuation.

Do a stop loss? CP has a better operating ratio, so he owns that instead. CP also has more exposure to commodities. Both have enjoyed good numbers last quarter and both trade at a decent PE. But headwinds: a possible slowdown in the global economy, and CN has more issues in the intermodal freight they haul. He's neutral about CNR. (He doesn't like stop losses.) He likes, doesn't love, this sector.