Canadian National R.R. (CNR.TO)

Moves from the middle of October to April of each year. We are in a trading range right now. The trend is flat, close to its 20 day moving average. Don’t buy right now. Wait until it moves beyond the trading range. Prefers IYT-T.

The only rail that he owns. He likes it because it was and continues to be the best run railway in North America. It is the most profitable. Has substantial operations in the US, so as the US economy starts to pick up, it will benefit. Doesn’t have the same commodity exposure as a lot of the others.

On a seasonal basis this does very well from October right through until about April of each year. Technically, the stock is in a trading range, and what you want is to be in the stock for a breakout above around $79. That would indicate a continuation of the trend.

(A Top Pick Dec 16/14. Up 8.12%.) Got a little bit worried about this in September. One of those names that you want to continue to own. Fairly valued at this point, so wait until it gets back down to around $70.

He loves this rail. This has fairly restrained projected growth for 2016 at 4.1%. Trading at 17.4X earnings. Statistically you should be looking at the US rails rather than this, but this one is a great long-term story.

They are having their problems. It is a macro call. They had a correction which they should have had. Rail car shippings are down. Oil shipments are down. They have to invest more in their rolling stock due to regulatory measures. They trade at lofty valuations. He is staying away from the whole group.

He just upgraded both rails. Volume has been lower and it is in the stocks, but the CAD$ tailwind and firmer prices are not in the stock price. He likes both. CP-T probably has a better growth rate, but he likes, holds and has added to both very recently.

He added to his holdings in the last couple of months at about the current level. His target is $85 over the next year. They are gradually increasing the dividend payout ratios, so over the next couple of years you’ll see at least a 15% increase in the dividend.

This and Canadian Pacific (CP-T) are 2 of Canada’s best companies. Rails were trading too expensively a few months ago, in the 20s multiples. Right now they are around 18-19 times, so a slight premium to the market. Look for them to get 15% lower before buying.

He got out on valuation and then it pulled back so he got back in. The US economy continues to be strong. Interest rates clearly are not going up quickly. It is a strong franchise. He is expecting it to chug along.

The whole rail sector is coming off. This is the most diversified of the group.

The rails have had a really good run over the last several years on the back of the North American economy being strong, but also transporting more oil, more coal and more grains. If people are worried about the commodity sector and transporting some of the key commodities, that could impact the rails.

There is an opportunity here. The stock has really pulled back. It has been hurt by the slowdown in the Canadian economy, and demand for commodities has really hampered the business. For a long-term investor, there is upside. Businesses are cyclical. Has a low operating ratio. Always generates a lot of free cash flow.

Grain and fertilizers are 15.8% of their business. Coal is 4.1%, forest products are 13.6%, energy is 19.8%, automobiles 9.2%, metals are 12.6%, intermodal is 23.3% and diversified is 5.5%. Even in the face of a slowdown in volumes, it has managed a price increase, reacted very quickly by putting a freeze on hiring, and retired 200 locomotives and 10,000 railcars. They still produced a record 56.4% operating ratio.

Not a particularly good entry point. He is not positive on the rails. He would raise as much equity as he could at these high prices. 5.5 times its book value.