Union Pacific Corp (UNP)

Transports have perked up recently. There's been a lot of stuff to move in a strong economy. Truckloads are full. Oil prices rise which tip things in favour of the rails. UNP has a great network in the U.S. with 8,500 trains. This is a play on a still-strengthening U.S. economy. They are efficient with cost vs. revenues declining. (Analysts' price target: $147.12)

Has generally liked rails until about a year ago, and this would have been his favourite. ROC is turning over. The stock has done quite well recently, but the fundamentals are slightly worse. Valuation is very reasonable. If it had a bit of a pullback, you could take a more serious look.

His favourite railroad, but doesn’t think railroads are a great buy right now. They tend not to do particularly well when there is strength in the US$. They are pretty reliant on the export market, which is currently a little tough.

North American rail stocks had a pretty difficult 2014-2015. He got more constructive on them early last year. The stocks have had a pretty big recovery over the course of the year. In the transportation arena, rails are very properly valued. In most cases they are at or above the market multiple. Canadian Pacific (CP-T) stands out as a little cheaper, so there may be a bit more opportunity in that. There has been a real change going on in the North American airline industry, and he thinks those names are going to do the best. (See Top Picks.)

The recommendation is a valuation call. He is deploying US cash. If the market craps out it will only be down a bit. $108.26 model price, 21% upside. CN and CP do not get anywhere near this valuation.

The 2^nd largest railway in the US. We are seeing a lot of these types of names float higher, because valuations just became too cheap. It is currently trading at about 16X forward earnings. It got to a much lower low of close to 13X forward earnings, which is pretty cheap for this type of name.

(Market Call Minute.)

This is a long term play. The rail business in the US is a great looking glass into the strength of the US economy, which has been relatively weak. The only area of strength we are hearing from the rails is in autos. If you are bullish on the US economy, you could take a position in this. Not a trade, but a longer-term Hold.

Really likes this rail. Railways today are good long-term engines. They have a structural cost advantage with the competition. There are issues with coal, but when you can buy companies like this on prices where they are trading today, over a multiyear time horizon you will be rewarded. Very smart capital allocators.

There is general weakness in the transports. This one had a classic downtrend since early 2015. Until the trend line breaks and it takes out the last high, don’t buy it.