Canadian National Railway: Still a bargain

Posted Jul 30th 2009 9:30AM by Joseph Lazzaro
Filed under: Stocks to Buy

Canadian National Railway's (NYSE: CNI) stock has already climbed a lot, but it's still a bargain. Here's why:

CNI is, arguably, one of the world's most efficient railroads: Demonstrated cost controls, plus repeated increases in efficiency offer a "track record" that's hard to beat. The First Call FY2009/FY2010 EPS estimates for CNI are $2.91 to $3.36.

Further, with continued evidence that the markets CNI serves are starting to stabilize, a revenue gain of 5-7% is likely in FY2010, after a 3-5% decline this year. Institutional investors have sensed this, and have been bidding up shares since March.

To be sure, with a P/E of 12, Canadian National's shares are not cheap, but given the business model's favorable characteristics, that's a reasonable price to pay for a considerable upside.

Stock Analysis: Canadian National Railway is a moderate-risk stock. Consider buying a 50% position in CNI now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your CNI position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $23.

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

Tags: Canadian National Railway, CNI