CP

CANADIAN PACIFIC RAILWAY LTD. $39 (Toronto symbol CP, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 153.8 million; Market cap: $6.0 billion; Price-to-sales ratio: 1.2; SI Rating: Above average) is down 48.0% from $75.00 in May, 2008 on fears that falling prices for coal and agricultural products will hurt its earnings....

Many of our recommendations have dropped sharply in the past few months, along with the overall market. Here are 10 stocks that we feel have strong rebound potential in 2009. CANADIAN IMPERIAL BANK OF COMMERCE $49 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 380.8 million; Market cap: $18.7 billion; Price-to-sales ratio: 1.5; SI Rating: Above average) is down 37.6% from its recent peak of $78.48 in May, 2008. That’s mainly because it has the most exposure to the problems in the U.S. mortgage market among the big five Canadian banks. CIBC has taken substantial writedowns in the past year, which should cover most of the damage. It also continues to expand its retail banking operations, as well as scale back its riskier operations. CIBC is a buy....

CANADIAN PACIFIC RAILWAY LTD., $37.22, Toronto symbol CP, earned $631.5 million in 2008, down 6.1% from $672.8 million in 2007. Per-share earnings fell 6.0%, to $4.06 from $4.32. These figures exclude foreign-exchange losses and other one-time items. The drop was largely caused by higher fuel and labour costs. Revenue, however, rose 4.8%, to $4.9 billion from $4.7 billion as higher rates offset lower freight volumes. CP’s operating ratio rose to 78.6% from 75.3% a year earlier. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices and temporary layoffs should help lower CP’s costs in 2009. The company plans to issue up to 13.9 million new common shares at $36.75 each. The gross proceeds of $510.8 million will help CP cover its pension costs, which will rise from $95 million in 2008 to between $150 million and $195 million in 2009. In 2010, CP estimates its pension obligations will continue to climb, to between $295 million and $345 million. To conserve cash, the company plans to cut capital spending by $200 million in 2009....

CANADIAN PACIFIC RAILWAY LTD. $44 (Toronto symbol CP; Shares outstanding: 153.8 million; Market cap: $6.8 billion; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP Rail’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended September 30, 2008, CP Rail’s earnings per share excluding one-time items fell 2.4%, to $1.20 from $1.23. Like most railways, CP Rail uses surcharges to offset higher fuel costs. This pushed up revenue by 6.5%, to $1.3 billion from $1.2 billion. CP Rail’s fuel costs rose 49% in the third quarter. Consequently, its operating ratio (regular operating costs divided by revenue — the lower, the better) weakened to 76.0% from 72.9% a year earlier. However, falling oil prices and a new productivity improvement plan should help CP Rail cut its costs. The rising U.S. dollar is a plus for the company, as it pushes up the contribution of its U.S. operations....

CP Rail is down over 50% from the high of $90 it reached in 2007. Earnings were $4.32 a share that year and the stock yielded just 1.2%. The stock was probably overpriced at $90 and 20.8 times earnings, but it now trades at less than 10 times this year’s forecast earnings and has a yield of 2.3%. The stock could go lower, but we think the company will undoubtedly survive the economic downturn. Eventually CP will go on back to $90 and beyond. CANADIAN PACIFIC RAILWAY LTD. $44 (Toronto symbol CP; Shares outstanding: 153.8 million; Market cap: $6.8 billion; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP Rail’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended September 30, 2008, CP Rail’s earnings per share excluding one-time items fell 2.4%, to $1.20 from $1.23. Like most railways, CP Rail uses surcharges to offset higher fuel costs. This pushed up revenue by 6.5%, to $1.3 billion from $1.2 billion....

CANADIAN PACIFIC RAILWAY LTD. $51.90 (Toronto symbol CP; Shares outstanding: 153.8 million; Market cap: $8.0 billion; SI Rating: Average) reports that in the three months ended September 30, 2008, earnings per share excluding one-time items fell 2.4%, to $1.20 from $1.23. Like most railways, CP uses special surcharges to offset its higher fuel costs. Thanks mainly to these surcharges, revenue grew 6.5%, to $1.3 billion from $1.2 billion. CP’s fuel costs rose 49% in the third quarter. Consequently, its operating ratio (regular operating costs divided by revenue — the lower, the better) weakened to 76.0% from 72.9% a year earlier. However, falling oil prices and the benefits of a new productivity improvement plan should help CP cut its costs in fourth quarter. CP Rail is still a safety-conscious buy.

TERANET INCOME FUND $9.50, Toronto symbol TF.UN, has received a new takeover offer from the Ontario Municipal Employees Retirement System (OMERS). The new offer of $10.25 a unit is 6.8% less than the previous offer of $11.00. Teranet’s units are now trading for roughly 7% below the new offer. The lower offer reflects a slowing economy in Ontario and falling real estate values. That could hurt demand for Teranet’s electronic land registry services. As well, it’s increasingly difficult to secure loans for corporate takeovers. Teranet recommended that investors accept the first OMERS offer, after it failed to attract other bidders. Teranet has not yet commented on the new offer of $10.25 a unit. However, it’s still unlikely that a new bidder will emerge. As well, Teranet’s second-largest shareholder has accepted the new offer....

CANADIAN PACIFIC RAILWAY LTD. $65 (Toronto symbol CP; SI Rating: Average) transports freight over a rail network between Montreal and Vancouver. In the United States, subsidiaries connect CP’s Canadian lines to major hubs in the Midwest and Northeast. Alliances with other railways extend its reach to Mexico. In the three months ended June 30, 2008, CP’s revenue was unchanged at $1.2 billion. The lower U.S. dollar and lower shipments of automobiles and forest products slowed revenue growth. Earnings before one-time items fell 13.4%, to $0.97 a share from $1.12. CP’s profits dropped, despite steady revenues, partly from costs related to the U.S. Midwest flooding, but mostly due to higher fuel costs. However, by the end this year, CP expects to have provisions in all of its contracts to let it pass on fuel price increases. It also aims to improve long-term efficiency with several new initiatives, including sharing more tracks with other railways, as well as better scheduling....

Despite a stream of nerve-rattling financial news, starting with the failure of the first U.S. bailout package, the Dow Industrials and the S&P 500 managed to hold above Monday’s lows this week until just before Friday’s close. It’s a mistake to read too much into this, of course. But it is encouraging to see these two indexes move sideways in this depressing news environment. The plunge to new lows by the Canadian market reflects the heavy resources content in our economy and stock market. The Resources sector stands to suffer in an economic setback, and that’s already begun to happen with the drop in oil, copper and other metals. In addition to the decline in our market, our dollar lost nearly four cents this past week, relative to the U.S. dollar. We continue to recommend that you spread your investments our across the five main economic sectors, and devote around a quarter of your portfolio to U.S. stocks. Market turnarounds often occur in times of high volatility and bad news. Our advice is to resist any urge you may feel to sell good-quality stocks, just because you fear they may go lower....

CANADIAN PACIFIC RAILWAY LTD. $61 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 155.1 million; Market cap: $9.5 billion; SI Rating: Above average) transports freight over a rail network between Montreal and Vancouver. It also connects to major hubs in the United States. Due to rising fuel costs and lower shipments of automobiles and forest products, CP’s earnings in the second quarter of 2008 fell 13.4%, to $0.97 a share from $1.12 a year earlier. These figures exclude non-recurring items. Revenue was unchanged at $1.2 billion. CP’s operating ratio (regular operating costs divided by revenue — the lower, the better) rose to 79.4% from 74.7%. The company now aims to improve its long-term efficiency by increasing average train speeds, sharing more tracks with other railways and reducing waiting times in terminals....