Canadian Pacific Rail (CP.TO)

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.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? He thinks both of these look a little bit rich as compared to other transportation companies. If he was in the sector, it would be something like FedEx (FDX-N) or UPS (UPS-N). Hunter Harrison seems to have done a phenomenal job of turning this around and is saying there is still a lot of operating leverage to take place, so if you have to pick one, he would probably go with this one.

(Market Call Minute.) This is expensive now and he prefers CXS (CSX-N).

There is a slowly improving market environment in North America. This company moves a lot of stuff. Transports are hitting a new high, which tells you the market believes the economy is slowly getting better. They are a big beneficiary of the lower energy prices.

Bailed out of the railroad stocks quite a while ago. This has risen on the basis of coming out of an operating ratio in the 70s, and is now down to the mid-60s. Comparing it to the much larger and more established Canadian National (CNR-T), you are paying much higher multiples for one that is being fixed, rather than the one that has worked all along.

Rails are both holds here. Very stretched valuation. You are looking at valuations on rails across North America being very stretched. Don’t add to the position. CSX is more attractive.