cn rail

We recommended Canadian Pacific Ltd. in our very first issue in January 1995. At that time, CP held a variety of businesses beyond railways, such as hotels, coal, and oil and gas. We saw these as undervalued assets. In 2001, CP unlocked some of this hidden value by spinning off these businesses as separate firms. As a stand-alone railway, we still felt CP had plenty of room to improve. A prominent American hedge firm shared our opinion, and in 2012, it installed former CN Rail chief executive Hunter Harrison as CP’s new CEO. Thanks to a major costcutting plan, CP hit a record high of $248 in October 2014. The stock has moved down lately on slowing volumes of grain, oil, coal and other commodities. However, CP’s improving efficiency sets it up for more gains as the economy rebounds....

ENBRIDGE INC., $52.32, Toronto symbol ENB, continues to move ahead with the major reorganization it announced in December 2014. The company plans to transfer its pipelines to 19.9%-owned affiliate Enbridge Income Fund Holdings Inc. (Toronto symbol ENF). This company owns 42% of Enbridge Income Fund (Enbridge Inc. owns the remaining 58%), which holds a variety of businesses, including oil and gas pipelines and solar and wind farms. Under the proposal, Enbridge will transfer pipelines that pump oil sands crude to the U.S., along with wind farms in Alberta and Quebec, to Enbridge Income Fund....

CANADIAN PACIFIC RAILWAY LTD., $204.48, Toronto symbol CP, continues to benefit from lower fuel prices and an aggressive cost-cutting plan, but the slowing economy is hurting its freight volumes and revenue. In the three months ended June 30, 2015, the railway earned $404 million, up 8.9% from $371 million a year earlier. Per-share profits jumped 16.1%, to $2.45 from $2.11, on fewer shares outstanding. These results exclude unusual items, such as a foreign-exchange loss on CP’s U.S. dollar-denominated debt. On that basis, they just missed the consensus estimate of $2.46. Revenue fell 1.8%, to $1.65 billion from $1.68 billion, also falling short of the consensus forecast of $1.68 billion....

IMPERIAL OIL LTD., $46.95, Toronto symbol IMO, has started up the second phase of its Kearl oil sands project in northern Alberta. The company owns 71% of Kearl; ExxonMobil (New York symbol XOM) holds the remaining 29%. Exxon also owns 69.9% of Imperial. Kearl’s first phase began operating in April 2013 and produced an average of 95,000 barrels a day (67,000 to Imperial) in the three months ended March 31, 2015. Imperial’s share of Kearl’s output represented 20% of the company’s overall production of 333,000 barrels. This new phase will ultimately double Kearl’s capacity to 220,000 barrels a day (156,200 to Imperial). The company spent $9 billion on the expansion, which is equal to 23% of its $39.8-billion market cap (or the value of all of its outstanding shares). However, Kearl’s reserves should last 40 years....

CANADIAN PACIFIC RAILWAY LTD., $240.18, Toronto symbol CP, gained 3% this week after reporting record first-quarter revenue and earnings. The company earned $375 million in the three months ended March 31, 2015, up 49.4% from $251 million a year earlier. Per-share earnings jumped 59.2%, to $2.26 from $1.42, on fewer shares outstanding. These results exclude unusual items, such as a foreign-exchange loss on CP’s U.S. dollar-denominated debt and severance costs stemming from a recent restructuring. On that basis, the latest earnings beat the consensus estimate of $2.19. Revenue rose 10.3%, to $1.67 billion from $1.51 billion, matching the consensus forecast....

LOBLAW COMPANIES LTD., $61.78, Toronto symbol L, operates around 1,140 supermarkets across Canada, mainly under the Loblaw, Provigo, Real Canadian Superstore and No Frills banners. In March 2014, it purchased Shoppers Drug Mart, which operates 1,300 drugstores. This week, the company announced that it would build 50 new stores and renovate 100 others in 2015. In addition, it continues to expand its e-commerce operations. In all, Loblaw expects to spend $1.2 billion on these projects. That’s equal to the $1.2 billion, or $3.22 a share, it earned in 2014, excluding costs to integrate Shoppers....

CANADIAN NATIONAL RAILWAY CO., $83.72, Toronto symbol CNR, reported stronger-than-expected results this week. It also raised its dividend. In the three months ended December 31, 2014, CN’s revenue rose 16.8%, to $3.2 billion from $2.7 billion a year earlier. That beat the consensus forecast of $3.1 billion. The company saw higher revenue in all of its freight categories: metals and minerals (up 34.4%); petroleum and chemicals (up 20.5%); automotive (up 17.8%); grain and fertilizers (up 17.6%); forest products (up 10.6%); consumer and industrial goods (up 9.5%); and coal (up 7.5%)....

CANADIAN NATIONAL RAILWAY CO. $78 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 809.3 million; Market cap: $63.1 billion; Price-to-sales ratio: 5.5; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.cn.ca) has several key advantages that put it in a strong position to profit from an improving North American economy.

For example, it’s the only railway that accesses all three coasts: Atlantic, Pacific and the Gulf of Mexico. As well, CN owns an exclusive line that lets it avoid major bottlenecks in the Chicago area.

To top it off, lower fuel costs will enhance CN’s industry-leading efficiency rates. Crude-by-rail and fracking sand volumes should also remain steady, even with recent oil price drop.

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We looked at a wide range of stocks before settling on CAE as our #1 pick for 2015. Here are the top three runners-up. All are highly attractive buys, but we feel CAE offers a better mix of long-term potential and low risk. CANADIAN NATIONAL RAILWAY CO. $78 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 809.3 million; Market cap: $63.1 billion; Price-to-sales ratio: 5.5; Dividend yield: 1.3%; TSINetwork Rating: Above Average; www.cn.ca) has several key advantages that put it in a strong position to profit from an improving North American economy. For example, it’s the only railway that accesses all three coasts: Atlantic, Pacific and the Gulf of Mexico. As well, CN owns an exclusive line that lets it avoid major bottlenecks in the Chicago area....

CSX Corp., $36.67, symbol CSX on New York (Shares outstanding: 995.4 million; Market cap: $36.5 billion; www.csx.com), has risen lately, along with most railway stocks. The company has also held merger talks with Canadian Pacific Railway. CSX is the biggest railroad in the eastern U.S. The merger talks have now ended, partly because a deal would face significant regulatory obstacles. However, CSX’s outlook is positive, even without a merger. The company posted higher-than-expected profits in the latest quarter on increased grain and crude oil shipments. Total volumes rose 7%. CSX is also investing heavily for longer-term growth—including new connections in the Chicago area, the worst bottleneck in the rail industry....