CP

CANADIAN PACIFIC RAILWAY $75.47 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $12.9 billion; TSINetwork Rating: Average; Dividend yield: 1.6%; www.cpr.ca) continues to expand its rail network in the Bakken area, which could contain more than 500 billion barrels of oil. This region covers parts of Montana, North Dakota and Saskatchewan.

Texas-based U.S. Development Group LLC is almost finished building a new hub in North Dakota to handle Bakken’s rising production. This hub will transfer oil from trucks to trains, which will then ship it to market.

CP is the only railway that will connect to this hub. That puts it in a great position to profit as shale oil and gas production continues to increase: the company expects its shipments from Bakken to jump to 125,000 barrels a day from 23,000 in 2011.

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CANADIAN PACIFIC RAILWAY LTD., $76.45, Toronto symbol CP, reported higher-than-expected earnings this week. 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....

CANADIAN PACIFIC RAILWAY LTD., $75.67, Toronto symbol CP, is starting to benefit from its recent efficiency improvements. As well, more of its trains are running on time, thanks to the warmer-than-usual winter. In the three months ended March 31, 2012, CP’s average train speed rose 27% from a year earlier. It also had 28% more railcars in service, and terminal dwell (the time to load and unload railcars) fell 27%. As a result, CP now believes that it earned $0.80 to $0.83 a share in the quarter. That’s a lot better than the consensus estimate of $0.65 a share....

Last week in this space, I said that if you want to add value to your investing, one of the least productive things to do is to try to “time” the market. By that, I meant attempting to sell good stocks at what looks to you like a price peak, in hopes of buying them back at lower prices. Investors do sometimes sell an IBM or a BCE or a CP or an Apple at a peak in the market, then buy it back 20% cheaper. But a neat outcome like that is extremely rare. It’s more common for something to go wrong with a market-timing plan. The stock may keep rising and not drop at all—or it may only begin dropping after you’ve bought it back at a higher price. Or, it may drop just 5% or 10%, then quickly turn around and rise 50% or 100%. It may never get back into your buyback range, in other words. Or, the replacement stock you buy may drop even more than the one you sold....

CANADIAN PACIFIC RAILWAY $75.47 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $12.9 billion; TSINetwork Rating: Average; Dividend yield: 1.6%; www.cpr.ca) continues to expand its rail network in the Bakken area, which could contain more than 500 billion barrels of oil. This region covers parts of Montana, North Dakota and Saskatchewan. Texas-based U.S. Development Group LLC is almost finished building a new hub in North Dakota to handle Bakken’s rising production. This hub will transfer oil from trucks to trains, which will then ship it to market. CP is the only railway that will connect to this hub. That puts it in a great position to profit as shale oil and gas production continues to increase: the company expects its shipments from Bakken to jump to 125,000 barrels a day from 23,000 in 2011....

CANADIAN PACIFIC RAILWAY $74.14 (Toronto symbol CP; Shares outstanding: 170.0 million; Market cap: $12.6 billion; TSINetwork Rating: Average; Dividend yield: 1.6%; www.cpr.ca), transports freight between Montreal and Vancouver, and connects with hubs in the U.S. midwest and northeast.

In the three months ended December 31, 2011, CP’s revenue rose 8.8%, to $1.41 billion from $1.29 billion a year earlier. Earnings rose 18.8%, to $221 million, or $1.31 a share, from $186 million, or $1.10. CP’s $4.7 billion of debt is a manageable 37.3% of its market cap.

CP’s operating ratio worsened to 78.5% from 77.0%, mostly due to 29% higher fuel costs. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.) But CP plans to lower that to between 70% and 72% in the next three years with a number of upgrades, like new snow-clearing equipment, new trains and software that optimizes train loads and speeds.

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CANADIAN PACIFIC RAILWAY LTD., $75.25, Toronto symbol CP, continues to expand its rail network in the Bakken area, which could contain more than 500 billion barrels of oil. This region covers parts of Montana, North Dakota and Saskatchewan. Oil was first discovered at Bakken in 1951, but it has always been hard to extract from the shale rock. However, modern techniques, such as horizontal (or slant) drilling, have made this oil much easier to access. Texas-based U.S. Development Group LLC is currently building a new hub in North Dakota to handle Bakken’s rising production. This hub, which should begin operating in mid-2012, will transfer oil from trucks to trains, which will then ship it to market....

We recently made CP our “Stock of the Year” for 2012 in The Successful Investor, our conservative growth advisory. We like the company’s plan to increase efficiency. As well, a prominent American hedge fund now holds a stake in CP and is pushing for more changes. That may further boost CP’s earnings and stock price. CANADIAN PACIFIC RAILWAY $74.14 (Toronto symbol CP; Shares outstanding: 170.0 million; Market cap: $12.6 billion; TSINetwork Rating: Average; Dividend yield: 1.6%; www.cpr.ca), transports freight between Montreal and Vancouver, and connects with hubs in the U.S. midwest and northeast. In the three months ended December 31, 2011, CP’s revenue rose 8.8%, to $1.41 billion from $1.29 billion a year earlier. Earnings rose 18.8%, to $221 million, or $1.31 a share, from $186 million, or $1.10. CP’s $4.7 billion of debt is a manageable 37.3% of its market cap....

GENNUM CORP., $13.48, Toronto symbol GND, jumped 119.2% this week after it accepted a $13.55-a-share takeover offer from U.S.-based Semtech Corp. (Nasdaq symbol SMTC). Gennum designs electronic equipment and computer chips that let television broadcasters store, edit and transfer video signals without losing picture quality. It also designs chips that make computer networks faster. The company’s shares are now trading just below Semtech’s offer. This indicates that investors do not expect a higher price. Regulators and Gennum shareholders must still approve the deal, but it should close in April 2012....

CGI GROUP INC. $19 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 260.7 million; Market cap: $5.0 billion; Price-to-sales ratio: 1.1; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) was our “#1 Stock of the Year” for 2010 and 2011.

The company is Canada’s largest provider of computer-outsourcing services. CGI’s services can automate routine functions, such as accounting and buying supplies. That makes its clients more efficient, and lets them focus on their main businesses.

CGI’s earnings jumped 19.9% in its 2011 fiscal year, which ended September 30, 2011, to $435.1 million from $362.8 million a year earlier. CGI spent $305.0 million on share buybacks in fiscal 2011. Due to fewer shares outstanding, earnings per share rose 27.4%, to $1.58 from $1.24. Revenue rose 15.8%, to $4.3 billion from $3.7 billion. If you exclude the negative impact of exchange rates, revenue would have risen 18.9%.

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