cp rail

BANK OF MONTREAL $54.32, Toronto symbol BMO, has announced several charges that will cut its earnings when it reports results for its first fiscal quarter ended January 31, 2008. The charges will total about $325 million or $0.70 a share, and consist mainly of writedowns of asset-backed securities and higher loan loss provisions. The bank earned $2.9 billion or $5.66 a share before unusual items in fiscal 2007. Bank of Montreal has now pledged roughly $12 billion U.S. to support two of its structured investment vehicles holding asset-backed securities. The extra liquidity should help them dispose of these assets in an orderly manner. These assets have minimal exposure to U.S. subprime mortgages, and Bank of Montreal feels the risk of loss is low. While the possibility of further writedowns adds risk, Bank of Montreal remains well capitalized....

SAPUTO INC. $28.15, Toronto symbol SAP, has agreed to buy the operations of Wisconsin-based Alto Dairy Cooperative, which makes cheeses under a variety of brand names and private labels. The $160 million U.S. price is 22% more than the $131.0 million (Canadian) or $0.63 a share that Saputo earned in the six months ended September 30, 2007. The new operations should expand revenue at Saputo’s U.S. operations by 20%. The company has a strong history of successfully integrating new operations, which helps cut the risk of expanding through acquisitions. Saputo is a buy....

CANADIAN PACIFIC RAILWAY LTD. $66 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 153.2 million; Market cap: $10.1 billion; SI Rating: Average) has also run into problems with its plan to buy a U.S. railway. In September 2007, it agreed to pay $1.48 billion U.S. for Dakota, Minnesota & Eastern Railroad Corp. (DM&E), which operates a 4,000-km rail network in eight Midwestern states. DM&E mainly transports agricultural products, coal and ethanol to key ports such as Chicago and Minneapolis. CP also plans to spend $300 million U.S. to upgrade DM&E’s tracks and railcars. This is a big investment for CP, which earned $603.9 million (Canadian) or $3.87 a share in the first nine months of 2007. Like CN, this acquisition also faces local opposition. While this will prolong the regulatory review process, CP will likely win approval for the takeover....

The shares of Canada’s two big railways, CN and CP, have moved down in the past six months due to concerns that the high Canadian dollar would hurt export volumes. However, both are taking advantage of the high dollar to expand their operations in the United States. While these acquisitions have run into opposition from environmental groups and others, they should eventually win regulatory approval. CANADIAN NATIONAL RAILWAY CO. $51 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 494.5 million; Market cap: $25.2 billion; SI Rating: Above average) has agreed to buy a major portion of a 319-km railway near Chicago for $300 million U.S. The company also plans to invest $100 million U.S. to expand capacity on the new line. To put these figures in context, CN earned $485 million (Canadian) or $0.96 a share in the third quarter of 2007. This lightly used line would let CN bypass heavy rail traffic in Chicago. However, the company’s plan to increase volume on these tracks has encountered strong opposition from local municipalities. CN had hoped to complete the purchase in early 2008. But an environmental review could delay the transaction by about 18 months....

CANADIAN PACIFIC RAILWAY LTD. $70 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 153.1 million; Market cap: $10.7 billion; SI Rating: Above 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. CP’s revenue rose from $3.7 billion in 2002 to $4.6 billion in 2006, largely due to the expansion of trade with Asia. Profits fell from $3.06 a share (total $487.5 million) in 2002 to $2.52 a share ($401.3 million) in 2003 due to higher fuel costs....

One of the most powerful ways to succeed as an investor is to disregard market turbulence like today’s, in which there is a large random factor. Instead, buy companies with hidden assets such as high research spending, under-utilized real estate and brand names, and dominant market positions. It can take years before hidden or little appreciated assets begin to generate earnings for the company or capital gains for its investors. But eventually, hidden assets will pay off. In the meantime, they cut your risk of permanent loss. In July, takeover rumours helped push CP Rail up to a new all-time peak. A potential bidder saw CP’s land holdings as a hidden asset. Skeptics point out that this land is beneath railway tracks, and unsuitable for residential housing. However, warehousing is another story. Pessimists also overlook the hidden value of CP’s cost-cutting plan, and its key role in Canada’s economy. Both fuel earnings growth and cut risk....

CANADIAN NATIONAL RAILWAY CO. $56 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 510.2 million; Market cap: $28.6 billion; SI Rating: Average) operates a 32,000-km freight railway network across Canada, and south to the Gulf of Mexico. It hauls a variety of goods, including oil, metals, grain, forest products and manufactured products. CN’s revenue fell from $6.1 billion in 2002 to $5.9 billion in 2003, but grew to $7.7 billion in 2006 partly due to acquisitions. Per-share profits rose from $0.91 in 2002 to $3.40 in 2006.

Prince Rupert has big growth potential

Perhaps CN’s most important purchase in the past few years was BC Rail Ltd. The deal expanded CN’s presence in Western Canada, and gave it exclusive rail access to the port of Prince Rupert, which is closer to Asia than other west coast ports....

CANADIAN PACIFIC RAILWAY LTD. $64 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Above average) provides freight service through a 13,500- mile rail network between Montreal and Vancouver. It also operates in the U.S. Midwest and Northeast through subsidiaries. Alliances with other rail companies extend its reach to Mexico.

Diverse cargo cuts risk

CP transports a wide variety of products, such as grain, coal and manufactured goods. That helps cut its reliance on a single industry or customer....

NOVA CHEMICALS CORP. $35 (Toronto symbol NCX; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Extra risk) plans to close a polystyrene plant in the UK. Writedowns and severance costs will cut Nova’s earnings by $43 million (all amounts except share price in U.S. dollars). The closure is part of the company’s plan to cut its annual costs by $65 million. To put these figures in context, Nova earned $108 million, or $1.30 a share in the second quarter of 2006. Nova Chemicals is a buy....

CANADIAN PACIFIC RAILWAY LTD. $55 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) also profits from the resources boom, since products such as coal, fertilizers and forest products account for a third of its freight revenue. The company is vulnerable to higher fuel prices, but so are its competitors, and it can pass much of the extra cost along to its customers. Recent investments in new locomotives and track have improved its fuel-efficiency by 5.6% in the past five years. Greater fuel efficiency also gives CP an advantage over trucking firms....