cn rail

AGRIUM INC., $98.86, Toronto symbol AGU, rose 2% this week on news that activist investment firm Jana Partners LLC now owns roughly 4% of Agrium’s stock. This is the same company that pressured McGraw-Hill (New York symbol MHP) to split itself into two new firms: one that will produce financial-information products and one that will publish textbooks for colleges and schools. McGraw-Hill is a recommendation of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks. Jana now wants Agrium to spin off its retail division as a separate company. These stores sell seed, fertilizer and other products to farmers. They also supply two-thirds of Agrium’s revenue and half of its earnings....

POTASH CORP. OF SASKATCHEWAN, $44.49, Toronto symbol POT, is the world’s largest fertilizer producer. It has six potash mines in Saskatchewan and one in New Brunswick. The company sells its potash to customers outside of Canada and the U.S. through Canpotex, a marketing and exporting firm that is equally owned by Potash Corp., Agrium (see below) and Mosaic Co. (New York symbol MOS). This week, a U.S. court agreed to hear a lawsuit that accuses Canpotex, as well as potash producers in Russia and Belarus, of colluding, or working together, to cut production and push up prices. However, cases like this are often difficult to prove....

BANK OF NOVA SCOTIA $52.20 (Toronto symbol BNS: Shares outstanding: 1.1 billion; Market cap: $57.4 billion; TSINetwork Rating: Above Average; Div. yield: 4.2%, www.scotiabank.com) is the third-largest of Canada’s five big banks, with assets of $659.7 billion.

Without one-time items, the bank earned $1.15 a share in the quarter ended April 30, 2012, up 8.5% from $1.06 a share a year earlier. It is also setting aside less money to cover bad loans: loan-loss provisions fell 2.2%, to $264 million from $270 million a year ago.

The Canadian banking division’s earnings jumped 23.3% due to an increase in deposits and higher demand for loans. The division also did a good job of controlling its costs.

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CANADIAN NATIONAL RAILWAY CO. $84 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 438.7 million; Market cap: $36.9 billion; Price-to-sales ratio: 4.1; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.cn.ca) operates the largest freight-rail network in Canada, with access to major ports such as Vancouver, Montreal and Halifax. It also serves 16 U.S. states, including ports in New Orleans and Mobile, Alabama.

Ottawa nationalized CN in 1922 because of the vital role the company played in Canada’s early growth. CN became a publicly traded company in 1995.

CN hauls consumer and industrial goods (22% of 2011 revenue), grain and fertilizers (19%), petroleum products (17%), forest products (16%), metals and minerals (12%), coal (8%) and automotive products (6%).

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Canadian Pacific Railway is our #1 buy for 2012. However, we also have a high opinion of its larger rival, Canadian National Railway. CN has thrived since it became a public company in 1995, thanks to a series of acquisitions that greatly expanded its U.S. operations. That has helped CN profit from the North American Free Trade Agreement (NAFTA), which spurred a rapid rise in trade volumes between Canada, the U.S. and Mexico. CN is now in a strong position to gain from rising trade with Asia. Moreover, the company’s ongoing focus on improving its efficiency should keep fuelling its earnings growth and give it more cash for dividends....

These three industrial stocks are more volatile than our more conservative picks, like CP Rail and CN Rail (see page 61). Even so, their rising sales, healthy balance sheets and strong reputations in niche markets help temper their risk. All three also trade at attractive multiples to earnings. Moreover, they all kept paying dividends during the recession. However, we only see two as buys right now. SNC-LAVALIN GROUP INC. $39 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 161.1 million; Market cap: $6.3 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.3%; TSINetwork Rating: Average; www.snclavalin.com) is a leading Canadian engineering and construction company. It specializes in large-scale public works projects, such as roads, bridges, transit systems and water-treatment plants....

CANADIAN PACIFIC RAILWAY LTD., $73.54, Toronto symbol CP, has resumed normal operations now that Ottawa has ended an eight-day strike by its locomotive engineers, conductors and yard workers. The strike probably cut CP’s earnings per share by around $0.20 in the second quarter of 2012. The company earned $0.82 a share in the first quarter. At CP’s recent annual meeting, U.S.-based activist investment firm Pershing Square Capital Management, which owns 14.2% of the company, succeeded in replacing seven of CP’s 16 directors with its own nominees....

CANADIAN PACIFIC RAILWAY $74.58 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $12.7 billion; TSINetwork Rating: Average; Dividend yield: 1.9%; www.cpr.ca) is the 2012 “Stock of the Year” for The Successful Investor, our conservative growth advisory. We chose CP early this year because we liked its plan to increase its efficiency. As well, a prominent U.S.-based activist investment firm, Pershing Square Capital Management, had acquired 14.2% of CP and was pushing for more changes. We thought that would further boost the company’s earnings and share price. Despite a market downturn, CP’s stock is up 8.1% since our Successful Investor recommendation. We think it has further gains ahead....

CANADIAN PACIFIC RAILWAY LTD., $74.11, Toronto symbol CP, rose 1% this week after U.S.-based activist investment firm Pershing Square Capital Management, which owns 14.2% of the company, succeeded in replacing seven of CP’s 16 directors with its own nominees. CP’s chairman, John Cleghorn, and chief executive officer, Fred Green, also resigned. Pershing Square will probably try to install Hunter Harrison, the successful former CEO of CN Rail, as CP’s new chief executive officer. Even if CP hires someone other than Mr. Harrison, the company will continue to work on improving its efficiency by purchasing new locomotives, upgrading its tracks and streamlining its schedules....

CANADIAN PACIFIC RAILWAY $76.76 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $13.1 billion; TSINetwork Rating: Average; Dividend yield: 1.8%; www.cpr.ca) reported higher-than-expected earnings in the latest quarter. In the three months ended March 31, 2012, the company’s earnings soared 317.6%, to $142.0 million from $34.0 million a year earlier. Earnings per share rose 310.0%, to $0.82 from $0.20, on more shares outstanding. That beat the consensus estimate of $0.75 a share. Severe winter weather and avalanches in B.C. delayed the company’s trains and depressed the year-earlier results. This was the main reason for the earnings jump. Revenue rose 18.3%, to $1.4 billion from $1.2 billion....