Canadian National R.R. (CNR-T)

CN vs. CP It's surging today. Rails are good--they are the economy. CN is more of a commodity shipper and commodities are in demand. Both CN and CP will be hit by the weak grain harvest from lack of rain. He hopes CN wins the battle for KSU. (Didn't comment much on CP.) There is integration risk in buying KSU and they will need to borrow money to close the deal, but this is a short-term problem and it's worth building a network to Mexico.

CP today increased their offer to buy Kansas City Southern He owns none of the rails here, but owns FedEx and has long liked it and its management. This battle will go on for a while. Even if CP wins, it'll likely be a year before the deal closes, and CP will be worth $90 billion, on par with rival bidder CN. CN will still have bigger revenues than CP, while CP will carry more debt if CP wins the battle. So, CP would win the battle, but lose the war. It'll be interesting to see how much synergy CP can generate if CP wins. The short-term winner will be KCS shareholders.

CN vs. CP Easy. Go with CN. Latest news is a letter saying that the merger with KSU is not in the public interest. If the merger happens, it will be accretive long-term. If not, CN remains attractive, trading at 18x 2023 earnings while growing at 11%. At times, he's a CP guy, but here he'd pick CNR. [Note: some audio problems]

CP vs. CNR Owns CNR. Numbers positive over the last little while, but the KSU acquisition may hamper them going into next year, with the stock moving sideways. Rail industry is great: limited competition, hard to duplicate, good pricing power, sweet spot of transportation. KSU acquisition will enhance their business. Forest fires are affecting the backlog, but this is short term.

No surprises in yesterday's results. Company expects KSU deal to be approved. Reaction to the deal is way overdone. CNR is positioned well, with or without KSU. Best in class management. Excellent operating metrics. Yield is 1.89%. (Analysts’ price target is $146.26)

If they did buy KSU, it would be a slight plus. If they don't, it wouldn't take away from CN's story. They have one of the premier network of all North American rails. If you believe that economic expansion continues, CN is well position. His only problem with all the rails is the slightly higher PE than he'd like to see. But long-term, CN is good to hold. He would buy this at $115, though, not now.

Really likes it, one of his larger positions. Bought more when it declined into the $120s. Being penalized by risk arbitrage and lots of debt. Not a lot of regulatory risk. KSU is a great way to connect Canada with the US. Will really have to sharpen their pencils to handle the debt.

Dynamics of the rail industry have always been good. High barriers to entry. Sustainable demand will lead to better pricing power, better margins, and free cashflow growth. With the KSU deal, would be one of the major players in NA. If the deal doesn't go through, stock may pop as CP's did. Yield is 1.86%. (Analysts’ price target is $145.75)

Exceptionally well run. Up until the last couple of years, a great secular growth story. The takeover of KSU will put a cap on the stock for the time being. Over the long haul, the absolute tonnage they've transported hasn't really increased. They've just become more efficient and raised prices. Stagnant profit growth. The KSU deal means a lot more debt, and a lot more shares outstanding. With valuations where they are, he'd take his money off the table.

21-22x earnings. Best rail network in NA, only to get better with KSU, especially tapping into auto plants. Well managed. Efficient, reliable. Cyclically advantaged, with a lot of freight moving. Strategically important asset and infrastructure.