Canadian National R.R. (CNR.TO)

Canadian National (CNR-T) or Canadian Pacific (CP-T)? When the market started to weaken last spring, one of the things that led the market to the downside was Transports. Over the last few weeks, transports have been picking up relative to the market, which is encouraging for the market. This is an interesting time to take a look at the transports. He has a simple view. CN is North-South; US-Mexico. CP is more about East-West and more about commodities and more about global trade. He prefers to make the trade on the North American block. CN right now is about 15% of forest products, and the housing market in the US has been growing now at about 10%. He would prefer this rail at this point.

(Market Call Minute.) She likes this, and is waiting for a pullback below $80.

These names are considered cyclical because they are in the industrial space. The chart looks pretty decent in that it has broken above the 200 day moving average and staying above that. Also, oil prices have started to recover so the volume moving from A to B should start to improve. Some others he has been watching include CSX (CSX-X) and Union Pacific (UNP-N).

Transportation stocks tend to do well from about September all the way through to November, with an average gain of about 12%. October alone has tended to gain an average of 5.4%, and has been positive 80% of the time. Chart shows this broke above resistance, which goes back quite a way, and it is just trying to consolidate here. Momentum indicators are turning positive also. It looks good.

Moves lower this time of year, but is doing better this year at this time. He would be cautious at these levels. Look at indicators to see when you want to take profits, probably in the next couple of weeks.

The commodity downturn we saw happen 1.5 years ago, had a big impact on volumes, not just oil, but a number of things that were shipped by rail. This, and Canadian Pacific (CP-T) have become phenomenal businesses over the last 15 years in terms of returns. Rails are businesses he wants to own at the right price, and the right price on this was a couple of months ago, so he has not been adding to it since. This represents good value today. Prefers Canadian Pacific even though it is more expensive.

Trading at fair value, but doesn’t expect a lot of upside in the near term. He really likes that even though they have had declining revenues by about 11%, they are the leaders in their industry, the most cost-effective player and have been able to raise prices. In spite of the revenue decline, they are only down about 2.5% in terms of earnings. A cautionary note for the near term is that transport stocks tend to move with the market, and often tend to lead the market. If we see a 5%-10% pullback, this is good to follow. Trading at 18X forward earnings, a level that it has been trading at for the last 3-4 years. Doesn’t expect a lot of earnings growth in the near term. 16X forward earnings would be a great entry point. Dividend yield of 1.8%.

(Market Call Minute) It is in the best position of the rail ways because of less commodity exposure and because it is North/South.

An entry point on this is $71.50. His model price is $98.80, a 30% upside. Has been waiting for this to come back.

Feels the rails are in for a bit of a rough go. There are a bunch of factors working against them. Oil shipping by rail is a factor and consumer demand is pulling back. The change in the CEO will create some potential small dislocation. If holding for a long-term, it is a great one.

Industrial company with a good, safe dividend. Very well-run. He is considering buying at these levels. Valuations usually don’t get down to these levels. A high-quality dividend growth stock, and one you can buy and tuck away for a few years.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? He owns this one and prefers it. It has less commodity exposure and more cross-border north/south from Mexico. The whole transportation division has been weak lately, but likes it as a long-term investment. You don’t have to run out and buy the rails at this time.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? He likes the rails. This has suffered in the last little while and kind of moved sideways. Buying at these levels makes a lot of sense. A great thing about the rails is the effect that shipping has on the environment. It is much better to transport by rail than by trucking. Also, the rail industry has really consolidated over the last 10 years, and are far more conscientious about their cost structure and their return on capital.

There are some economic concerns with some specifics. As long as you think the US economy is going to hang in, and show the 2%-3% growth that he thinks it is going to, it would be a Hold. The next time it gets to $81, he will be thinking of it as a possible Sell.

(A Top Pick July 16/15. Up 1.61%.) Well-managed with a low operating ratio. They are being challenged by lower volumes, but longer-term this is a good place to put your money. For him this is an Add in the low $70 and a Trim in the high $70.