Canadian Pacific Rail (CP.TO)

Exceptionally strong in terms of its turnaround that, by and large, has already been orchestrated, and is reflected in the stock price. He is trimming his holdings because of the weighting in portfolios. Has one of the best growth rates, when you look at the “growing crude by rail” story, as well as the requirement to transport grain and intermodal.

Quite an expensive stock. Hunter Harris came in and improved operating efficiencies much better than he thought he would. Thinks the stock is priced without much room for error.

Likes the rails. They are a proxy on the overall economy. Energy output is up 500,000-1 million barrels a day over the last 5-7 years and has to be transported. Grain is backlogged because we can't move the stock quickly enough.

Canadian National (CNR-T) or Canadian Pacific (CP-T)? CEO has done a very good job, but not good enough to justify the stock price. Compared to any other railroad company in North America it is at least 50% more expensive.

Canadian National (CNR-T) versus Canadian Pacific (CP-T)? This ones multiple is a bit higher now, which hasn’t happened for a long time. On various metrics, Canadian National is the most efficient in North America, and probably on a global basis as well. Canadian National shows better metrics and is a little less expensive.

CP has far outperformed CNR in the last year to year and a half. An active investor took a position and made changes. There were operational improvements. A lot of that good news is built into the share price. Better to look at CNR where there is more opportunity.

(Market Call Minute.) Tremendous job was done by Hunter Harrison. Thinks they have plucked all the low hanging fruit and doesn’t see crude by rail growing by 3%. He would wait for a pullback.

Crude by rail is clearly here to stay, especially as long as the pipelines do not get built. He expects pipelines will get built eventually and crude by rail will slow down but doesn’t think they will disappear. This is pretty richly valued and feels there are better names to own in this space, especially in the US.

Even at these lofty levels, he still sees more upside beyond margin consensus to Operating Ratios. Thinks ORs can come in below 65% if revenue growth remains in the 7%-8% range. With their excess cash flow on this quarter, he feels they could fund a buyback. Trades at a half a point premium to Canadian National (CNR-T) but due to their visibility and these positive catalysts, he thinks you can buy this. The time to buy it is somewhere here when you have concerns about the impact of weather to Q4.

(Top Pick Jan 3/13, Up 58.46%) Glamorous. It is the smallest of the big rails. If commodities turn around then this is not the finish. He thinks it still has legs. After 4 or 5 years the CEO will have to go because CRA will tax him on his global assets.

Way overpriced compared to CN. 17 times earnings next year is just too high. CNR is his railroad of choice.

Costs have fallen. Operating ratio is close to 65%, which is close to CNR. A much more profitable rail. The price contains all the earnings growth so he would not be buying it here but if it pulled back he would be interested.

(A Top Pick (Short) Aug 22/13. Down 21.95%.) Actually ended flat on this trade. The period of seasonal weakness for this is from the beginning of August all the way to the end of September and then reverts into the period of seasonal strength so he covered his Short and went into the broad transportation industry sector and benefited quite substantially.

Management under Hunter Harrison has done a great job by cutting costs and improving margins. Their operating ratio targets have been achieved at least 2 years ahead of schedule. Now at a multiple premium to Canadian National (CNR-T).

Rails have done brilliantly but he doesn’t know at what point they get a correction. This one is getting a little expensive.