Joe Connolly Canadian Pacific Rail CP-T BUY Oct 01, 2002

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. Better run than CNR, with more attractive growth upside. Doesn't have a strong conviction either way right now on CNR versus 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.

His firm switched from rails to 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. 

Likes the railway sector. Oligopolies; infrastructure will never be rebuilt. Its acquisition of KSU will likely be the last acquisition in that area. Somewhat cyclical, but its transport of so many essential goods means it will always have underlying business. Decent pricing power, as rail is less expensive than trucking.

Stock pulled back on trade tariff concerns, as Mexico is a big route for them. Something will be ironed out. Attractive entry point, but see her Top Picks.

Rails are close to being monopolies. They're merging, and so there are fewer of them. The kind of stock that you just hold forever. Not a big dividend payer, but good capital allocators.

Cash-covered means that you have that money sitting and waiting to buy the stock if it goes down. Being a lower-volatility name, the options are not huge (but not bad). For $98, you can look out to November and sell the put for $2.65. That's almost 3%. If the stock drops, you're entering it about $7 net where stock's trading today. A good trade.

Not a space he favours right now. Seeing softness in Canadian economy. Given that we're mid-cycle, might be a bit late to be in the industrial space. 

If he were forced to choose, he likes the technical makeup of CP right now. Likes that it has a bit more scale than CNR.

He was asked to pick his choice of the two rail companies. Even though there is a freight recession CP has better growth going forward and is a turn-around type of story. It has the best management and real estate. Its merger offers service to a different market. With rail, products can go all the way from the east coast to the west coast and with CP all the way from Canada to Mexico. Changing freight from one train to another by truck is very inefficient.

US and Canada are logical and natural long-standing historic trading partners, with tightly integrated supply chains. We need to get back to some semblance of normal. Hopefully, most things will be exempt under USMCA and we can get rid of the tit-for-tat tariffs.

If that happens, you'd expect to see trade flows pick up. That would advantage the transportation sector across the board. So both rails would probably be advantaged. Freight recession has gone on for almost 3 years, but stirrings of that changing. Big spike in manufacturing survey; if this is followed by ISM survey, then should be game on for the whole transportation sector. Sector's suffered from overcapacity, lack of pricing power, and tepid volumes.

Between the two, he'd pick CNR. It has the better network. Wildcard is massive east-west merger proposed in the US. See his Top Picks.

Holds neither. Not overly interested in the space at this time, given the soft environment we're in in Canada. Q2 GDP was -1.6%. Tariffs are also affecting companies, so volume of shipments is lower. Time to own rails is earlier in the economic cycle.

If he had to choose, it would be CP -- it's more diversified in the US and Mexico.

Likes it, but hasn't made $$ on it over the last year (which makes him cry). KCU acquisition gives them the best and biggest network from Canada to Mexico. Rails in general will be sloppy until tariffs settle down.