Canadian Pacific Rail (CP.TO)

Rails are important. To some extent, the need to ship everything out of Canada really gives the Canadian rails a lot of strength.

Sold his holdings in the high $70 as he felt there was no way that they could see those synergies as quickly as they had. He would not be buying this one at its current price.

He has a pair trade in which he is Long Canadian National (CNR-T) and Short this one. This had a very nice run over the last 12 months. Feels that Hunter Harrison has quite a following in the US which is giving it a lot of support. To put new money into the rails, he would look at the US. Likes Kansas City Southern (KSU-N), an increasing play on trade between Mexico and Canada.

Canadian Pacific (CP-T) versus Canadian National (CNR-T)? CNR is his favourite as it is less overvalued. Chart shows this had gone totally parabolic from mid-2012. Feels that it has to get back to the $115 area before he would even consider it.

With very few exceptions, he finds the multiples on railroads have gone up excessively. This one is trading at 20X earnings. Feels there is too much optimism built into the railroads.

He would be a little bit careful of this. It wouldn’t be his 1^st choice in rails. All of the rails right now have a gift, i.e. the arbitrage of oil. The Brent/WTI spread is allowing rails to carry oil and they are getting just about any margin they want for it. Pershing Square have decided to start selling their stocks which has pushed the stock price down. If they are selling, you should consider this as well, but do it over time.

Time to short this stock? He is Short this and he thinks it is still a Short. It might be painful for a while. Valuations are very high. You could do a hedge by Shorting this and going Long Canadian National (CNR-T) or CSX Corp (CSX-N) against it, which is what he has done.

Interesting situation in the Cdn equity market. Great company. Railroads are long-term infrastructure play however, there are a lot of people in this stock who are not long-term investors, which makes him nervous. If you own, you could consider taking some off the table. It is less than at a 2% yield now.

Missed this run, was surprised by it, thinks others were surprised by it too. It's about operational improvment. Bringing Hunter Harisson back. Now trading at 30x earnings. Too expensive right now.

Is Price based on financial consideration, or just the hype? He feels it's based on rapidly improving fundementals. They have sold and taken profits. The company is strong and has good management, but he wouldn't buy more at this level.

He is expecting it to go down in the summer months.

(Sell or continue to Hold?) He sees a combination of 1) single digit top line growth for the next 3 years combined with 2) efficiency ratio falling in a big way which conspires for enormous shareholder growth. However, at 20X, it is really reflected in the stock. Thinks you could buy it here but feels there is better value in Canadian National (CNR-T). CNR is going to be more impacted by weather this quarter so it will probably be a better buy.

Feels this one is priced to perfection. Wouldn’t be a buyer at this price. If you own, consider taking some profits. Use a stop loss of somewhere around $125-$126.

There is much more risk in this rail than there is in Canadian National (CNR-T). The stock is already reflecting the changes that are expected in the company.

Analysts really like it, but personally he finds it difficult when a stock has gone parabolic like this to capture any upside from here. In the next correction this could fall 10-15% easily.