Canadian Pacific Rail (CP.TO)

Canadian National (CNR-T) or Canadian Pacific (CP-T)? He really likes the rails. He hasn’t followed this one too closely, so Canadian National would be his choice.

North American rails suffered from 2 things. Overall economic activity has been weaker and commodity volumes, specifically this rail, has been a lot lower. Coal has been abysmal and oil and gas has been down as well. Despite all this, it is going to grow earnings 10% this year with no top line growth, a combination of really good operational management and cost cutting and share buybacks. Feels earnings growth rate will be in a double digits next year.

(Market Call Minute.) Likes the rails, but prefers Canadian National (CNR-T). However, this one is fine.

This went through a difficult time in 2014-2015, and technically went into a downward trend. Currently it is forming a bit of a base. Seasonally the stock has a history of moving higher from late January through to the beginning of May of each year. The problem is that this stock has double seasonality. After May the stock tends to go down. We have passed the period of seasonality, so now is the time to take some profits.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? Looking at the consensus projections, this is probably more attractive, but thinks they have more work to do in getting their house in order. (See Top Picks.)

This got a little rich when they were transporting tons and tons of coal and oil. Shipments of coal have come back down dramatically, but the valuation has also come down. Earnings continue to stay flat and pick up a little. We are now back to about 15X next year’s earnings, which is pretty reasonable for this rail.

Generally, buybacks are good for shareholders because they reduce shares outstanding. He would rather have a higher dividend, which would do better in this kind of a market environment.

A solid, solid company. Probably the best performing rail in the last 3 years. Over the last 20 years, rails have been phenomenal performers. They are good, solid, long term businesses, and he would never argue with a client owning these. In the short term, they are under a bit of pressure. Their most profitable business is hauling commodities which is under pressure. He is not in a big hurry to buy these because he thinks they continue to be a bit weak in the short term.

CP-T vs. CNR-T. CP-T’s model price is $191.20, bang on its market price. CNR-T is cheaper, model price is $101.80, or a 25% upside. Buy CNR-T at $72.65.

Owns Canadian National (CNR-T) and has been thinking about lightening up a little. Had always thought CP had gotten a little ahead of itself. Also, they keep getting off on these tangents of takeovers. He likes the rails. They are basically economy stocks, and have been showing growth. Feels they are reasonably priced right now.

This has just completed a reverse head and shoulders pattern, which is a bullish indicator. Seasonality on railroads is January 20 to May 18, which implies that you do have some time for this one.

Decided that they can’t make a deal for Norfolk Southern (NSC-N). Too many regulatory hurdles and the board was not in favour of a deal. Buying CSX (CSX-Q) would be an easier deal for the regulators to approve because of the size and the territory it covers. However, it would run into much the same kind of obstacles.

CP-T has the north/south lines and CNR-T has the east/west and north/south. Hunter Harrison has turned things around. The efficiency ratio is gotten way down. Mergers and acquisitions would be fended off. A merger is probably not in the cards right now. Own CP for the growth over time of the company. All the rails are expensive right now.

Pipelines move most of the oil going to market. The rail companies picked up incremental capacity, but that production has come off dramatically. CP-T’s volumes have come off. CNR-T is outperforming CP-T

This is a call on “no recession”. One of the risks is volume, particularly crude by rail and coal. If you were to take their crude by rail and their Teck Resources (TCK.B-T) to zero, which probably won’t happen, the stock would still be very cheap relative to its 10 year. This is a name with a lot of shock absorbers built in. A lot of bad news has already been built in. Sees it growing at 11.5% next year and the year after. If they can acquire Norfolk Southern (NCS-N), that would be accretive for them. Very cheap relative to Canadian National (CNR-T). They still have pretty good Cdn$ tailwinds. He can see this going to $210. Dividend yield of 0.81%.