Canadian Pacific: Northern runs, northern profits

Posted May 1st 2009 12:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

Not all values are within the U.S. Some values reside primarily outside the nation -- including Canadian Pacific Railway (NYSE: CP).

In general, analysts see F2009 carloads declining, netting a 0-5% revenue loss. That said, analysts also see an increase in potash shipments; meanwhile, the auto, intermodal, and coal export businesses will continue to struggle this year.

Why the Buy recommendation here for CP? Gains in efficiency and system continuity position Canadian Pacific for both U.S. and global growth, when each enters recovery mode.

The above positives, combined with the fact that Canadian Pacific offers the shortest rail distance between western Canada and the Port of Vancouver and between Canada's industrial heartland via Thunder Bay, Ontario, make CP a compelling value at these prices ($35-40). The First Call F2009 / F2010 EPS estimates for CP are $2.35 / $2.81.

Stock Analysis: Canadian Pacific Railway is a moderate-risk stock. Consider buying a 25% position in CP now; then buy another 25% in three months, if U.S./Canadian and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CP position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Canadian Pacific, CP, featured, railroad sector, railroads