Canadian Pacific Rail (CP.TO)

Volumes are on fire. Might raise guidance. Not expensive. Still discounts to CNR. Has raised his target price. Models 14% EPS growth. Higher margins. Modelling 8% topline revenue growth. You can buy it here, try for a pullback. It’s a name that will go higher.

Up 20% YTD. The TransMountain delay helps them. CP is his preferred railway. They don't have the logjams to get deliveries moving, unlike CN. It's gone too far, too quickly though, so for this reason he recommends looking at CN. Both are proxies on the Canadian economy. A NAFTA resolution would be a big boost. Both rails are good.

It has done very well in the past months given the economy improving. A duopoly, good economics. He likes Transforce Inc. (TSX: TFI) in the space that has just had a whopper quarter.

He would continue to hold it. Transportation of crude by rail has been a big issue for this company. He thinks this is the environment we will live in for a while – crude by rail. For 1 to 3 years it is a hold.

CP-T or CN-T? They are both good to hold as the economy is improving. CP-T is the resource based railway. CN-T may be hurt more by current NAFTA talks, due to its focus on automotive shipments.

Chart looks great as it busts up through highs. It's taken its time to move along. Looks fine.

In this cycle, rails across North America have done spectacularly (as he's senn in his entire career). That said, on a P/B and P/E basis, these stocks are selling at extremes. Stocks that do well in one cycle will not do well in the next. He has a $280 target on CP. Its fair market value is $250. This is now a trading, not an investing, stock.

CP vs. CNR? Lots to like about the rails, fuel efficient, easier to go to electric rail. Long-term, likes trains. Right now, locomotive shortage affecting both companies. Today, he’d buy CP over CNR. Both a bit cyclical, but if you’re patient and diversified, CP is the one you want to own. (Analysts’ price target is $273.34.)

This has a modest 1% dividend that is well-covered. Their sales and earnings were up 9% and 14% in their July report. He expects earnings growth to be 17% this year and 13% next year. Looking at the technical pattern, he thinks there is a possible 41% upside. (Analysts’ price target is $273.34)

CP-T vs. CTC.A-T. CP-T is not as cheap as it used to be. The rails in general are benefiting from a strong North American economy. They have pricing power. It is a great business. CTC.A-T is basically only exposed to a Canadian consumer. He would be cautious on this one.

The rails are a very good business to be. High barriers of entry. Good pricing power. Great place to be. The business is much more robust now. Good long-term hold.

He thinks they have an outstanding CEO. They had a tough start to the issue with well publicized issues and now they are resolved. They are getting more efficient with their capital stock. They run longer trains with shorter dwell times. He thinks they can grow the dividends. He prefers this to CNR-T because of what CNR has to invest in the next few years.

What will be the impact of the trade war and tariffs on Canadian rails? He doesn't know, but wouldn't worry too much. Note that in the past month CNR has gone up while CP has gone down. CP may be more impacted, but it's also dealt with a strike. He prefers CNR and still likes it. They have the Chicago Advantage with their line running through Chicago without getting stuck in that huge hub. CNR is a great proxy on the Canadian economy.

CNR-T/CP-T and Tariffs. It is very early to judge this. Automotive is a small percent of their business. Intermodal is a bigger issue. He thinks companies that move goods around the world will go down if we are in a period of protracted trade wars.

CN Rail versus CP. He does not see the tariff war directly impacting the rail companies. CN (CNR-T) is a little more exposed to cross-border trade, however. CN is a core holding in his portfolio. He does not hold CP. He would not add to his position, rather would continue to hold.