Canadian National Railway (USA) (NYSE:CNI)

railway pick

Upward pressure on oil will continue to fuel the railroad sector's continued climb this summer, and the upcoming confirmation of an American recession this summer along with a continuation of the dollars fall here at home will only accelerate the integration of business and railroad to offset higher energy prices.

Railroad play - great intrinsic value ratio

What can I say about CNI. They are a fabulously run company. The railway does outstanding business, particularly in with the tourist segment.

This stock is going to go up during the summer months with more building going on and needing supplies.

gas prices will force more rail transportation in the public and private sectors

efficiency over trucks

There are two potential reasons to purchase stocks, or entire companies, for this matter: (i) the presence of a durable, competitive advantage or (ii) Monopolistic market positioning. Canadian National represents the latter - although one could make the case for it inhabiting an oligopolistic position, as it is 1 of only 2 railroads in all of Canada. If Canadians wish to transport anything over long distances, with any enhanced measure of efficiency, they will have to employ the services of Canadian National - if I could afford it, I would buy the entire company...
Earnings will only grow as fuel prices climb higher, and costs of doing business are largely fixed. Watch this grow over the long term.

As fuel rises people will turn more to rails, I dont see any any change near. Possible merger with BNI

"Only railroad which crosses east-west and north-south...linking customers to all three NAFTA nations."

I see the CN logo to and from work every day as they route soutward from Lake Michigan to alleviate the hub-jam that is Chicago.

$113 oil doesn't hurt.

Stock Madness Elite 8: Canadian National Railway
By Todd Wenning (XMF Phila)
March 27, 2008

Canadian National Railway vs. National Oilwell Varco

Canadian National Railway (NYSE: CNI) is certainly the underdog in this tournament.

After all, it's pitted against some of the most popular stocks on the market, like Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG), and with our annual March Madness contest determined by popular vote, the odds are well-stacked against CN.

But in the spirit of surprise victors in the NCAA tournament, like Davidson and Western Kentucky, Canadian National Railway deserves a shot to show its merit. In the first round, it's up to me to convince you that it's a better stock than National Oilwell Varco (NYSE: NOV).

I got three reasons for ya
While National Oilwell Varco might do a fantastic job at extracting black gold from the ground, Canadian National Railway is the better stock for three reasons:

1. It benefits from increased demand for more than one commodity.
2. It's the best-run North American railroad (and the best value).
3. It's led by dedicated management.

Commodities on demand
Timber. Steel. Plastics. Petroleum. Coal. Grain. (Did I mention that CN's fate isn't tied to one commodity?)

These are just a few of the goods that Canadian National Railway transports across North America and to China every day.

Yes, I know there's not a railway that crosses the Pacific to China. What CN does have, however, is exclusive rail rights to the brand-new Prince Rupert port on the Canadian west coast, which also happens to be the closest North American port to Asia by two full shipping days.

Only five months ago, China's largest steamship company, China Ocean Shipping (COSCO), completed its first arrival at Prince Rupert port, thus beginning a meaningful contract with CN to deliver Chinese imports and haul away North American exports.

Canada and the U.S. are not only large importers of Chinese goods, but our lands are chock-full of natural resources that are in hot demand in emerging markets. Even if developing economies slow down in the near term, you can be sure that their governments will continue infrastructure spending, thus perpetuating the growth potential for CN.

Putting the "y" in "why"
One of CN's main competitive advantages is the "Y" shape of its North American rail network. It stretches from the Canadian west coast to the Canadian east coast and down the Mississippi River, making it the only railroad that connects the Pacific and Atlantic oceans and the Gulf of Mexico.

Moreover, when compared to its main North American competition, it becomes clearer that CN is not only "best in breed" but also the best value of the group (see full article for table: http://www.fool.com/investing/general/2008/03/27/stock-madness-elite-8-canadian-national-railway.aspx)

Taken with the company's generous 2% dividend yield, its superior ability to turn sales into profits and increase shareholder value, CN's below-industry forward P/E looks all the more enticing.

Roots in the rails
Finally, CN is run by a CEO with 45 years of experience on the rails. In 1963, E. Hunter Harrison was a carman-oiler in Memphis while still attending school. Not only does Harrison have a lot invested both emotionally and professionally in the railroad's success, but he also understands and relates well to all levels of the business.

Railroads. Canada. Dollar down. Can get anywhere.

I'm a retired 40 year veteran Sales & Marketing Railroad Professional. Railroads are poised to gain market share against trucks into the future. With highway congestion hampering truck movement and only gettting worse, the much greater fuel efficiency of railroads versus trucks and the Department of Transportation estimates of 80% growth in transportation required by 2020, there is just no other way to ship this greater amount of freight without moving increasing volumes of product via rail.

With good fundamentals and railroads ploughing maintenance and upgrade money into their plant over the past 5 years, they will be ready. Good pricing fundamentals along with new economical, high efficient locomotives being put in service and continuing to be developed, I believe they will lead the way in freight growth. CNI is poised to handle a large amount of the import/export traffic with the virgin development of a true, deep water port in British Columbia for bringing Asian imports into the Midwest and Eastern US. With west coast U.S. ports at capacity, a great amount of this growth will have to come via CNI route. Also, the great next oil reserves (tar sands) in the world are located on CNI in Alberta Canada, now aggressively being developed.

Two main rationales for this pick. First as the price of fuel continues to increase the railways become a more economical means of moving product to market. The second rationale is that Warren Buffet is a believer in the rail sector and he is a pretty good investor. The possible downside to the rails is if the recession turns out to be so severe that shipping of goods drops and the price of fuel decreases to a point to remove the rails competitive advantage over trucks.

Railroads will continue to make money and invest in infrastructure to sustain future growth, and there will be significant opportunities to improve efficiency and increase capacity per track mile. On the other hand, governments will have less and less money to invest in new highway infrastructure and will continue to let existing roads deteriorate.

It's all about energy -- as the oil squeeze tightens, rails will be near term winners. Trucking will be hit hard as shippers try to get the best economy in their shipping needs.

The CEO Hunter Harrison is very much disliked by the people that work for him. Get rid of him and you may have something.

This one I am picking for the long haul. With the price of gas and the costs to ship these commodities across the country by trucks, railway is going to be a big deal and a smart way to ship goods. Now, there is some downside and that rail isn't exactly the most economicly friendly either. But over the next year or so, railways will be big.

North American rail is an underrated industry that I believe will outperform through the next 20-30 years. In a nutshell, we are a global world now more than ever and more and more goods are being shipped long distances. When the price of oil climbs, it's less profitable to ship by truck and more freight goes by rail. I was a huge fan of BNI for several years and jumped on it when Warren Buffett started buying. I like BNI over UNP, NSC, and CSX in the US. In Canada, CNI and CP are the whole game. MFStockadvisor just chose CNI, which prompts this pick. You're not going to see the stock double in short time, but it's my bet that this old industry will see a growth surge over the next 2 decades.