Ride the rails with Canadian Pacific

Posted Aug 28th 2009 3:15PM by Joseph Lazzaro
Filed under: Stocks to Buy

It goes without saying that I favor the rails. In a highway-congested, high-energy-cost nation, the rails are looking very attractive, from a goods transport standpoint.

And that's why I'm Reiterating my Buy rating for Canadian Pacific Railway (NYSE: CP), first recommended on May 1, 2009 at a price of $37.47. If you purchase then, you're up a cool 35% with CP - not bad, for an 'un-sexy' sector.

Further, forget the likely 7-10% decline in FY2009 revenue: institutional investors are looking past that to FY2010's likely gains, on the global economic recovery. That's why shares have been bid-up in the past five months.

In addition, gains in efficiency and system continuity mean even better days are ahead for CP. With a P/E of 17, Canadian Pacific is not that cheap anymore, but the shares are still favored here. The First Call FY2009/FY2010 EPS estimates for CP are $2.32 to $2.92.

Stock Analysis: Canadian Pacific is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in CP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your CP position before October 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