Canadian Pacific Rail (CP.TO)

Two words -- freight recession. It's been going on for over 3 years, and manufacturing has been the cause (Covid pulled demand forward, and then people spent $$ on trips and concerts). ISM Manufacturing PMI spiked unexpectedly last week. This gives the rails easy comparisons. Both should do well as manufacturing recovers.

CNR trades at a discounted PE of 17.5x. This is your name for value. Yield is 2.7% -- a meaningful premium to its 10-year average of 2%. Earnings growth of 8% expected. He'd probably choose this one on valuation, and on its intermodal business mix.

CP trades at parity with the group. Trades at 21x PE. Yield is just under 1%. Not cheap, but expected to grow faster (13% compound earnings growth over 3 years). 

Owns neither, as trucking has way more cyclical leverage to a freight recovery.

He's pretty neutral on the rails. CP and CNR are fairly similar, both are economic bellwethers. Many think that the economy's going to be slowing down a bit. Great, long-term legacy companies. You'll make $$, but it won't be over the moon.

Doesn't own CN. CP's long term is great, but depends on tariffs and CUSMA which you can't predict. You have to ride it out. Abandoning free trade is silly and stupid, but there will be a resolution.

Prefers this to CNR, but doesn't know how all this tariff stuff is going to play out with CUSMA negotiations. Those are going to get nasty and ugly. Could be another shoe to drop with the railroads.

He actually prefers trucking to rails at the moment.

He likes the rails. It's a high-quality industrial with huge barriers to entry. The KC merger gave it synergy. It trades at a higher PE than CNR. Investors have rotated out of this into something sexier like Shopify. Is a solid grower. Buy at low-20s PE.

Sold earlier this year on uncertainty surrounding tariffs. Phenomenal business. Thesis of being an integrated NA railroad comes under a bit of threat with the tariffs. Medium-term growth would be affected, and a re-rating might follow. Valuation and growth potential didn't align. Still constructive on the business over the very long term.

The only rail he owns. Best in the space. Interconnected railway between US-Mexico-Canada. Underlying business doing fairly OK. Threat of tariffs affects it, so we need some certainty on trade. Not bad to hold now.

CP is the better value on price to growth, though CNR still does work. Don't be in any hurry to buy the rails. You can hit nice singles with them if bought at the right time.

All the transports have had a tough time -- JBHT just guided lower the other day. Really a bifurcated economy, with some things really humming but freight not doing so well. Concerns about where free trade is ultimately going.

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

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.

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.

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.

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.

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.

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.