Kansas City Southern (KSU-N)

Nature of assets makes them valuable. Good business model. Great long term holds. However, not an asset light business. Not founder led or owned. Better options out there for investors. 

The CP deal is important, so it's down to how well they execute this merger. Rails are a great business--pricing power and little competition.

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.

They report Friday. KSU may comment on Washington trying to block the deal with a Canadian rail (CN), and he wouldn't be surprised if this block happens.

CN is bidding for this to counter the smaller CP in a true bidding war for this railroad, the last small rail that can be a takeover target. KSU has crucial routes in Mexico. People don't understand why Mexico is crucial to the car industry--cars are shipped by rail. Almost every big carmaker has a factory in Mexico, and thanks to NAFTA, there aren't many import restrictions. Whoever owns KSU will own this market. Secondly, KSU has many routes in the Gulf of Mexico, which is seeing the biggest boom in the U.S. economy (industrial plants here like plastic). The size of the CN and CP bids means KSU was massively undervalued.

A class 1 rail in the US, but on the smaller side. On the quality of the assets, prefers Union Pacific or CSX in the US. If this is a long-term hold, a good place to be. Strong name, irreplaceable asset. Cyclical. Yet CP is his #1 choice in North America.

Has always been the poster child for takeover rumours, especially for Canadian National (CNR-T). Thinks a lot of the takeover premium has been taken out of the stock. It’s a small company and doesn’t have the pricing power of the bigger siblings. Canadian Pacific (CP-T) wouldn’t get enough synergies if they acquired it. Right now you should stay away from the rails, only because of the massive rebound we have had from the bottom. Prefers Union Pacific (UNP-N) because of its good valuation, but would wait for a pullback.

Tends to be a cyclical company. Much smaller than many of the railways. The extension into Mexico is done through land lease from the Mexican government. This effectively ties the railway to the inter-trade between Mexico and the US. Trade volumes intermodals are definitely going to be a growth story. Longer-term, this will be a little volatile but it will definitely benefit from resurging Mexico as well as the strength in the US. Thinks there is more upside here.

CNR-T is his favourite but this would be his second choice. Likes how it is run. Thinks it will be taken out.

A nice play on the US-Mexican growth. They have a line that goes directly into Mexico and there is a new port there that is catering to the Mexican auto sector.