Canadian Pacific Rail (CP.TO)

Operating margins last quarter had a 600 basis point improvement. If he compares that to Canadian National (CNR-T) there is some room for further operating margin expansion, but we are in the later innings of that game. Lower energy prices is a positive. Oil shipments may decline, but they will pick up in other areas. Fairly valued at this level. Anything under $200, there is upside.

If Keystone is passed, will this hurt the rails? In all of their crude by rail estimates, they assume that Keystone goes through, so don’t let that hold you back. Crude is about 10% of their business. They have calculated that if crude falls by half, they actually will have better margins because of the better economy, and better top and bottom lines. This is a phenomenal rail company. Trading at around 17X 2016 estimates and is less than Canadian National (CNR-T) right now. He thinks this has upside.

The stock chart looks like it is tapping out here. He would think that with a slowing economy, this will be affected. Have done a great job of improving the operating ratio, but there is only so much you can do. Not a stock that he would be particularly attracted to right now. Doesn’t think it has a lot of wind at its back.

One of the drivers in Canada on the rails has been the shipping of oil. To see this continue, there will have to be some stalling on the new pipeline builds. Also, the pricing of services where they have the 2%-4% increase every year, which would have to continue.

This has longer-term visible growth with numerous drivers from the top line along with expense control. Management is looking for 81 initiatives to get the operating ratio down to the low 60s/high 50s. They are looking at a growing their top line through 2018. Dividend yield of 0.66%.

Transportation stocks have done really well. Chart shows a run that has recently happened. We are not actually in a seasonal period for transportation stocks, that is more of a spring time phenomena. The one thing that concerns him is that the sector has done so well and this stock has done so well and the chart shows it has broken its upward trend line. This is a time that he would not be adding to this position.

No worry about maintaining the dividend. The outlook for Canadian railroads in general is that under a price war, Saudis will win back more of the market and it will impact oil by rail. He thinks it is grossly overdone and that markets will move back. CP consumes fuel oil to move the crude and lower prices should benefit them.

Rail lines are good investments. This one has had a remarkable recovery and it moved very quickly. The question is, can it be sustained. Operating ratios are down, and they still have more work to go. The yield is good, not the highest, but it can still grow.

The rails have seen less crude by rail so have pulled back. Wait for the lows of early in the year to get in.

Unlike Canadian National Rail (CNR-T), this is a little bit more oversold on a daily basis. The chart shows a gap, and it could come down a little bit more. Hugging the 16 week low, which is really relevant.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? Canadian railroads have done very well. This one has had a historic advantage because of the nature and the structure of their tracks. He prefers CSX Corp (CXS-N), which is trading at about a 20% discount to its Canadian competitors. He would look to some of the US rails instead.

It is a really good business. Generates very high levels of return. Does not know when hedge funds might sell this company. There may be some short term disruptions due to this. He does not see a lot of upside in it, but with volatility he would want to add to it (say a 25% pull back)

Likes both Canadian National (CNR-T) and Canadian Pacific (CP-T), but prefers this a little better. Feels the growth metrics for this are a little bit stronger and valuations are a little cheaper when looking at a PEG ratio analysis. Given the fact that they have both sold off quite a bit, especially CNR, he would be a buyer. These are good entry points.

Management has a great track record. Prefers CSX-T.

Stock has gotten a little bit ahead of itself. Transports have been great on lower oil prices. He sees $8.90 per share in earnings for 2014 and sees it going to $16.10 in 2017, but based on his 7%-8% revenue growth assumptions and the OR continuing to fall. If these targets are right, this should be a $300 stock in 2016.