It goes without saying that the rails are a preferred sector in this neck of the investing woods, hence I'm reiterating my buy rating for Canadian Pacific Railway (CP), first recommended on May 1, 2009 at a price of $37.47. If you bought CP in May, you're up about 33%.The upturn in commodity shipments (potash, coal) has not materialized as soon as forecast, but look for the pace to quicken heading into 2010. Meanwhile, increases in efficiency add to the positive story.
The qualifiers? CP will need to make significant investments in the years ahead to upgrade/expand its track network, but long-term institutional investors (IIs), will accept the above, in exchange for likely, adequate revenue gains. The First Call FY2009/FY2010 EPS estimates for CP are $2.36 to $3.06.
Technically, Canadian Pacific's stock chart corrected to about $41 after breaking through psychological resistance at $50 in late summer; a recent rise back above the key, 50-day moving average confirmed the correction.
Finally, the Sell/Stop Loss has been raised to $37, or to just below cost, from $17. Hence, this is an essentially zero-risk trade for your May-bought shares.
Stock Analysis: Canadian Pacific Railway 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 one month, 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 December 2009. Revised Sell/Stop Loss if you bought shares in this company: $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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