Canadian National R.R. (CNR.TO)

(Top Pick Feb12/16, Up 24.02%) He still holds it and has so for years. It is reasonable cheap, rising and stable. About 25% ROE. PE is about 20 times. They have a group of asset you can’t replicate anywhere else. Buy more on weakness.

Sell? Transports have done quite well in the last while and are up a fair bit. This is trading at about 18X earnings. The rail industry has consolidated quite heavily over the last 5-10 years, so you have seen them really thinking about ROI. Because they have a better efficiency and asset utilization, they’ve had better margins, and that is going to continue. With oil stabilizing and commodities doing a little better, you should see better returns over the next while.

Canadian National (CNR-T) or Canadian Pacific (CP-T)?In his view, this one is the better choice. It is the best quality management, lowest cost operator and the company that puts the most money into their fleet. Trading at a slight premium to Canadian Pacific.

It is the best railroad in North America with the lowest operating ratio. He would want to see it come off 5% more before buying it right now. CP-T is a little cheaper at the moment but CNR-T has the best long term record. You have to look at what they haul and what is the outlook for what they haul. Then look at costs and cost cutting. Dividends are not as important as for a utility or pipeline.

It is a great company. He has a small position. He has a lot of respect for the management. They are truly a machine. Valuation is keeping him from increasing his position. CP-T had more potential improvements so increased more.

Transports began selling off at the beginning of the correction in 2015 in the US. That indicated there was probably weakness coming. Coming into this fall, transports were regularly picking up on a relative basis, versus the market. The north/south corridor may not be as good if there is trouble with NAFTA. East/west might be a little better for now.

(Market Call Minute.) The best run railroad in the world. It has delivered terrific results for long-term investors.

It is a good. More US than Canada for economic exposure that pulled back about $4 this week. It neat the estimates on the street. Expect a 10% appreciation making it a double digit return.

Kind of a bellwether Canadian stock. Just reported, and earnings were good. They are starting to see a little bit of headwind from their grain capacity. Also, they are not getting some of the premiums that they got moving oil. A good company, but fully valued. He would look elsewhere.

Rails look very interesting, both technically and seasonally. Technically, it is in a nice upward trend, and broke to a new high last week. Historically, railways hit a very important low around the 1^st week of October and move higher right through until about the 1^st week in January. They then take a bit of a rest and have another run through until springtime.

He currently does not have any rails. This has a lot to do with commodity prices, because the rails make so much of their money on the movement of bulk commodities. He is seeing a lot of changes in the commodity markets. A terrific company, but doesn’t think it is a compelling growth story.

If he is right on the market, rails will be fine, and will go up. He prefers this one right over Canadian Pacific (CP-T). Transports will go with the market. It makes sense that if the economy gets stronger, the transports will get stronger.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? When the market started to weaken last spring, one of the things that led the market to the downside was Transports. Over the last few weeks, transports have been picking up relative to the market, which is encouraging for the market. This is an interesting time to take a look at the transports. He has a simple view. CN is North-South; US-Mexico. CP is more about East-West and more about commodities and more about global trade. He prefers to make the trade on the North American block. CN right now is about 15% of forest products, and the housing market in the US has been growing now at about 10%. He would prefer this rail at this point.

(Market Call Minute.) She likes this, and is waiting for a pullback below $80.

These names are considered cyclical because they are in the industrial space. The chart looks pretty decent in that it has broken above the 200 day moving average and staying above that. Also, oil prices have started to recover so the volume moving from A to B should start to improve. Some others he has been watching include CSX (CSX-X) and Union Pacific (UNP-N).