cp rail

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....

Every portfolio needs a selection of mainstays that are safe investments, and we believe Canada’s two main railways can help provide these. High fuel costs, flooding in the U.S. Midwest and a slowing economy have hurt earnings at Canada’s two main railways. However, both CP and CN are doing a good job of passing higher fuel costs along to their customers, which helps these two railways remain safe investments. Ongoing efficiency improvements should also increase their long-term profitability. We feel that every Canadian investor should own at least one of these railways as one of their portfolio’s safe investments....

Canadian Pacific Railway’s shares have held up well so far this year — despite a slowdown in the U.S. economy, a jump in fuel costs and extensive flooding in the U.S. Midwest. Meanwhile, the company is now undertaking a number of efficiency and cost-cutting measures that will add to gains when its markets recover fully. 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....

TRANSALTA CORP. $34.95, Toronto symbol TA, rose 15% this week after it received an informal takeover offer worth $39.00 a share from a private equity partnership that includes Luminus Management. Luminus currently owns about 9% of TransAlta’s stock, and has pressured the company to sell non-core assets, buy back shares and raise the dividend. The stock currently trades about 10% below the offer. That’s mainly due to concerns that problems in credit markets will make it difficult for the buyers to borrow the cash they need to complete the takeover. TransAlta is a major supplier of Alberta’s electricity. The buyers could have difficulty winning regulatory approval if the takeover significantly increases TransAlta’s debt, and limits its ability to invest in new power plants or environmental upgrades....

BCE INC. $35.15, Toronto symbol BCE, has deferred declaring its second quarter common share dividend of $0.365 a share. That will save the company $294 million. BCE feels holding on to the cash will help make the $42.75-a-share takeover price more attractive to the buyers. The buyers may wind up paying less for BCE in the wake of tighter bank lending and lower stock markets. But if the dividend deferral pushes up the ultimate price, and you hold your shares outside an RRSP, you will wind up better off — the tax rate on the capital gains you’ll realize on the takeover is less than the tax you would have paid on the dividend. BCE is still a buy....

Watch Pat McKeough’s June 20 interview on the Business News Network “Market Call” program with Michael Hainsworth. Click here to see the interview. Or, go to www.bnn.ca and you’ll find the link on the lower right side of the page. BCE INC. $34.60, Toronto symbol BCE, should move higher next week now that the Supreme Court of Canada has ruled against a lawsuit launched by the company’s bondholders. The bondholders claimed that the takeover of BCE by a consortium headed by the Ontario Teachers’ Pension Plan would reduce the security of their investments. While this latest ruling greatly improves the chances the $42.75-a-share takeover will go through, problems in the debt markets could still prompt some of the consortium members to back out. That could force the buyers to delay, reprice or scrap the deal. If so, the stock will probably fall, but it is likely to stay above its pre-takeover level of around $30 a share....

CANADIAN PACIFIC RAILWAY LTD. $69.08, Toronto symbol CP, fell 4% this week as the slowing U.S. economy prompted the company to lower its earnings forecast for 2008, to $4.50 a share from an earlier estimate of $4.70. Revenue in the three months ended March 31, 2008 grew 2.7%, to $1.15 billion from $1.12 billion a year earlier. Higher volumes of grain, fertilizers and industrial goods helped offset lower shipments of lumber and automobiles. Earnings before unusual items fell 3.8%, to $0.75 a share from $0.78, due to severe winter weather, rising fuel costs and foreign exchange losses. The higher costs pushed CP’s operating ratio (regular operating costs divided by revenue – the lower, the better) up to 82.7% in the latest quarter from 79.5% a year earlier....

CANADIAN PACIFIC RAILWAY LTD. $67 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 153.3 million;Market cap: $10.3 billion; SI Rating: Above average) recently acquired 40 new locomotives, but mechanical problems have hurt the reliability of its fleet. Bad weather, rising fuel costs and an unfavourable regulatory ruling could also put pressure on CP’s first quarter earnings. Despite these setbacks, CP’s earnings in 2008 should still grow about 9% to $4.72 a share. The stock trades at 14.2 times that figure. CP Rail is a buy.

CANADIAN PACIFIC RAILWAY LTD. $70 (Toronto symbol CP; SI Rating: Average) stands out as a great choice for investors who want growth and safety. It 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 December 31, 2007, CP’s earnings rose 2.2%, to $185 million from $181 million. Per-share earnings rose 4.3%, to $1.21 from $1.16 on fewer shares outstanding. Revenue was virtually unchanged, at $1.2 billion. CP will probably spend $5.80 a share on capital upgrades in 2008, unchanged from 2007. CP’s $1.58 billion acquisition of Dakota, Minnesota & Eastern Railroad Corp. (DM&E) in September, 2007 is adding to earnings. DM&E operates a 4,000-km rail network in eight Midwestern states, mainly transporting agricultural products, coal and ethanol to key ports such as Chicago and Minneapolis. CP will likely win regulatory approval for the takeover later this year....