Canadian Pacific Rail (CP.TO)

Will benefit from the recovery. High barriers to entry. Trading at 18x, the higher end of a 10-year valuation range. More expensive than CNR. First wants to see the outcome of the bidding war for KSU. CP seems to be the best fit, but it's up to KSU.

Share declines are due to its bid for Kansas City Southern. Rating agencies have downgraded CP because CP will take on debt to buy KCS. However, CN has offered a higher bid that KCS prefers. CP's valuation is now more attractive than its American peers. Whether CP wins KCS are not, CP will benefit from the reopening.

Better suited to do the KSU deal than CN. Great things about rail are high barriers to entry, good pricing power, limited by rational competition, good volume growth means better margins and cashflow. Great industry to be in. KSU deal may take a long time, but will help the winner's bottom line. He owns CN instead.

CN vs. CP The transports are close to their highs as volumes are hitting historic highs. He can't choose one over the other until the Kansas City Southern deal is complete. Who will win? IF you hold a position in either, just hold and wait. If you don't own at all, then maybe buy a small position in both. Then after the deal, trim the loser and increase the winner.

CP-T and CNR-T bid on KSU-N. The bidding war for KSU-N. CP-T and CNR-T are locked into a bidding war. CP-T shareholders want CP-T to push this a bit so they can get it. He does not think CNR-T shareholders are as much in favor of the bid. He does not have a horse in the race, but he thinks CP-T will raise their bid a little. CP-T would benefit more with this US exposure, but CNR-T might have more pure synergies. He is watching it play out from the sidelines.

CP rail still moves a fair bit of thermal coal, which is decreasing. CNR gets more of its revenue from metallurgical coal, which is increasing. Both provide only a small portion of revenues. They also move chemicals, lumber, autos. If you're betting on worldwide economic recovery for many years, as he is, you have to own the railroads. He's a bit nervous about the acquisition of KCS, but if that goes through, could be terrific. Incredible performers over the long term, and no reason this will stop. He owns CNR, but would have no problem holding CP. Keep holding.

They just bought KSU, which will make CP more competitive with CNR. Overall, a good deal. However, he's worried about the valuations of CP and KSU, pushed up by bond yields moving up currently. He's cautious. He owns no rails, but prefers CN long term. He think investors are paying too much for CP. Watch for a better opportunity in the next 1-2 years. CP could see a shakeout in its valuation given sky-high expectations with this deal.

CP bought Kansas City Southern in a US$25-billion blockbuster deal today He owns CN as a core position instead. He could own both since it's a duopoly and both are good. CN already has a good presence in the U.S. so CP is adding to theirs. It's a good deal for CP and accretive, giving CP access to Mexico. CP will get stronger with this US presence. You can own both rails, too.

CP vs CN The CP stock split isn't an issue. He prefers CP in the short term. Late CEO Hunter Harrison turned CN around and his legacy remains as CN continues to reduce costs and do very well. Harrison didn't helm CP until later, around 2012, so CP is a bit behind. CP has good exposure shipping crude, and this business should pick up in summer as more people drive and burn gas during the reopening. He prefers CP which will deliver 10-15% returns vs. CN's 5-10% in the coming year.