Canadian Pacific Rail (CP.TO)

Great company. One of 6 major rails in North America. From a long-term perspective, they are all great holdings. This had a fantastic run from 2011 to 2015. It is still in a consolidation phase. The entire rail space is pricey from his perspective, and he has a hard time finding anything to buy in the sector. This would be a Hold to a Weak Sell. On pullbacks, these are very interesting stocks.

It is a strategic asset. There is a duopoly in the rail space in Canada and this is the leader. They have a pretty well entrenched management team. They can drive some significant improvement in their operating ratios. The valuation is on the rich side so he would take profits.

(Top Pick Feb 6/17, Up 2%) He got out. There was a bit of a lid and he sold at that point. He’d take it out if you made a bit of money on it.

(Top Pick Mar 31/16, Up 14%) It was cheap relative to the group and still is. He models 12% EPS growth. You can still own this. He prefers this to CNR-T because it has a better valuation and is more commodities focused.

CP-T vs. CSX-N. [Caller already had CNR-T] One railroad is enough to own. CSX-Q has already moved since Hunter Harrison moved companies. Just hold on to CNR-T.

There is talk of a merger with CSX (CSX-Q) that is going to take time. Hunter Harrison has his hands full in trying to squeeze costs out of CSX as fast as he did with CP, which has now consolidated. There is now talk that “oil by rail” is going to come back in. There are upticks in industrial activity, which is good for all rail stocks. He is looking hard at this but would like to see some better pricing. He likes other sectors at this time.

This is fairly valued at around $200. Management is pretty strong and it has an OK dividend, but operating efficiencies and ratios have improved significantly over time, and how much more can they get out of it at this point. Fully valued. Dividend yield of 1%.

He is not generally a big fan of CEOs as a rock stars, but in the case of Hunter Harrison what he did at CP-T was notable. The efficiencies he found will stay on after he leaves. Rails are commodity dependant. If prices go up they will do well. Trump is good for railways. Commodities are unpredictable. He thinks CP-T is fully priced.

(A Top Pick Dec 30/16. Up 1.01%.) He really likes the look of the chart. Bought it right about where it is trading at now, but sold it at $202. Even though he liked the bigger formation on the chart, there is a little bit of a lid at around $202 and decided to get out with the market going to look a little choppy. However, he can still re-buy it.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? He likes both. Hunter Harrison leaving has somewhat neutralized this. On a valuation basis, you aren’t getting a bargain of one over the other. He would take a half position in both.

He likes the transports in general. This was in a downtrend, but seems to have broken out, and there is a bit of a base in the breakout. If you buy it at somewhere around $191, in the spring it will be a good time to own it. (Analysts’ price target is $223.21.)

Canadian National (CNR-T) or Canadian Pacific (CP-T)?In his view, Canadian National is the better choice. It is the best quality management, lowest cost operator and the company that puts the most money into their fleet.

Rail stocks have done quite well this past year, especially after the US election. She likes the rails, but owns Canadian National (CNR-T), which she feels is the best operator. CP’s operating ratios have lagged, so there could be more upside.

(A Top Pick March 31/16. Up 20.14%.) He felt that the growth scare we had last year would pass, and that this was very cheap. They had a lot of levers they could pull in terms of cost cutting and lowering their ORs. All of that is still true and this has further to go.

He likes rails. They are unreplicatable networks. They are diversified. But at any given point you have things that are working and things that are not. Autos are at cyclical peaks. Grain will rebound. He thinks you will get double digit earnings growth going forward. But it won’t be in a straight line.