Canadian Pacific Rail (CP.TO)

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.

They just bought KSU, which will make CP more competitive with CNR. Overall, a good deal. However, he's worried about the valuations of CP and KSU, pushed up by bond yields moving up currently. He's cautious. He owns no rails, but prefers CN long term. He think investors are paying too much for CP. Watch for a better opportunity in the next 1-2 years. CP could see a shakeout in its valuation given sky-high expectations with this deal.

CP bought Kansas City Southern in a US$25-billion blockbuster deal today He owns CN as a core position instead. 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 will get stronger with this US presence. You can own both rails, too.

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.

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. He's neutral about CNR. (He doesn't like stop losses.) He likes, doesn't love, this sector.

He owns CNR instead. Some of the best businesses ever. Can increase prices, diversify. Hard to compete against them. E-commerce explosion has created backlogs. Good stocks to own going forward. Quality company, good management. Sees many years of good returns.

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Generally a good economic recovery play. Between CNR and CP, both are good. CP is cheaper today. Unlock Premium - Try 5i Free

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The decline today was due to an intermodel traffic report, showing that many rails showed declining volumes last week. However, CP did show gains compared to others. There is no other news. The stock rose to $23 in the three days prior to today's $9 decline. Unlock Premium - Try 5i Free

CNR-T vs. CP-T. It has always been a coin flip. He has always chosen CNR-T. You can't go wrong with either of them and they both continue to raise their dividends. He owns more CNR-T than CP-T.

Transportation Companies? In light of e-commerce. Transportation is doing well. CNR-T and CP-T just keep going up. His model price is $161 or 14% upside on CNR-T. CP-T has a model price of $466.84 or a 15% upside.