Canadian National R.R. (CNR.TO)

It is well down from its highs. They have discounted some of the worries that emanated from a slowdown in traffic from the first quarter. A lot of people think the US will slow down and this will impact the rails. He doesn’t agree. He prefers this one to CP-T. This is a good time to get in.

Transports have been failing in the US and everybody has downgraded their targets. This one is trading at around 17X 2015 estimates, versus its five-year average of 17.9. He models 11.4% EPS growth over the next couple of years. As long as we are not going into a really tough economy, which he doesn’t think we are, then he thinks you can get constructive on this and Canadian Pacific (CP-T) at these levels. Realize though that there are not going to be any catalysts for the next couple of quarters.

Both Canadian National (CNR-T) and Canadian Pacific (CP-T) have to go back, $65 for CNR. They have gotten extraordinary profits from shipping oil in the last 1-1.5 years. Even though his model price is $96, $64.82 would be his next purchase price.

He doesn’t own any rails at the moment. They are representative of growth in the economy. Thinks the stocks have pulled back because people are worried about volumes going forward. This one has benefited from the stronger US economy, so after having as big a run as it has had, he thinks we are seeing a bit of a pause. He wouldn’t be stepping in at this price point.

Chart shows a great long-term uptrend from back in 2011, which is a great looking chart for a long-term investor. It is finding support at its last low at around $72.50-$73. At this point he would say the stock is safe and would buy it as long as it confirmed the bounce off the trend line. If he owned it he would probably stay with the story.

Not sure that it is finished its little mini correction here, but it is only down 15% from its recent highs. The whole American transport space is trading down quite a bit in the last couple of weeks, as though the economy is coming to a complete halt, which is not the case. The safety issues, derailments, crude by rail discussions are all factored in and baked into this correction, so it is probably a good time to start looking at this again. Dividend yield of 1.69%.

A great long-term investment area, because they are not really building a lot of new rail lines, and they tend to be very valuable franchises. Over the last 4-5 years they have done phenomenally well, and are going through their first rough patch in a while. In the short term there is still going to be a little bit of selling pressure.

An incredibly well run railway. Have been delivering double-digit earnings growth in what has historically been a cyclical industry. It probably deserves its high valuation. Too expensive for him.

Not a big fan of the rails, and thinks they have some headwinds. There is going to be a lot of regulations going on with the movement of crude. There are maybe 1 or 2 rails that are not selling off, because they are consumer related. This has broken down below the 200 day moving average. If you own, he would take advantage of the recovery that is there now and reduce into it.

Canadian rails? He is neutral on these. A little concerned on this one as it came off because it became expensive. These are economy stocks and are somewhat cyclical. Oil shipments have slowed down, so you may see their earnings going kind of sideways. On that basis, an 18 multiple is probably a little too high, and perhaps should be down around 15. We may have to wait a few more years before another cycle starts. If this company can get some of the ratios in line with Canadian Pacific (CP-T), it would probably have more room to manoeuvre.

The US economy is on a solid footing. The pullback is commodity related. This is a great entry point because these issues will resolve themselves. Leading indicators suggest volumes and prices should move up.

Some of the rails in Canada have done extremely well until recently. They started to flat line and then fall. This one has fallen below its 200 day moving average, which signals that something is up with the stock. Thinks some of the rail shipments, in terms of volume, are a little bit lower than normal. He would wait to see where it goes.

Rails have done fairly well recently and have had a bit of a pullback. His preference would be Canadian Pacific (CP-T) as he feels that they may have more efficiencies that they can push through. Both companies are trading at the upper end of their valuation range. Both companies are controlled by the supply side of things, so he wouldn’t enter at this time.

The Canadian rails have certainly come off in the last little while. They’ve had a fantastic run. His view on this would be that you have time to wait.

Railways are great ways of playing the general recovery in the economy. With oil prices dropping they are not shipping as much oil by rail. He likes management at CP-T a little more. As long as you have a positive view on the economy he would be comfortable in either names but prefers CP-T.