CN Announcements

[AgentKid]

CN shareholders had a very good day yesterday, Feb. 28. Shares rose over $2/share in a single day for the first time in I don't know how long, on the basis of two announcements.

• A new contract to haul crude oil from an unspecified location in northern Alberta to Geismar, LA.
• An announcement regarding the tender of certain notes.

The announcement about the crude oil move was vague regarding the Alberta end of the trip, and I don't know enough about the destination to add anything more. But it seems that shareholders must have liked what they heard. Both stories are linked to the CN Media page.

http://www.cn.ca/en/media

Bruce

[Ulrich]

I would think that the appointment of Jim Vena as Keith Creel's replacement also had something to do with the rise in the stock, along with CP's commitment to stop pouching CN talent until 2016. Share prices of both CN and CP have been on a tear lately...although at this point CN's price appears to be more reflective of the Company's  true value while CP's price may be  based on optimistic projections for near term performance improvement. A look at CP's financials shows the company still has a long way to go, and the p/e suggests the stock is currently overvalued.

 

[greyhounds]

AgentKid

• A new contract to haul crude oil from an unspecified location in northern Alberta to Geismar, LA.

Now that is a long haul.

[MP173]

Indeed, that is one LONG HAUL.  Which makes one wonder...how does that stack up as far as length of movement in the grand scheme of railroading?  Obviously there will be some intermodal containers coming off at Prince Rupert heading down to Memphis which would be a little longer. 

Is this going to be a dedicated unit train operation?  My guess is that it will be. 

Not sure if this by itself would spike the stock upwards for one day.  But CN has been on a roll the past year (up 32% plus dividends) in the last year.  The past five years it is up over 93% plus those dividends.  This is an outstanding company (full disclosure, I have been an owner of Illinois Central/CN since 1995...yes that is a smile on my face ).

CN has outstanding free cash flow/revenue.  FCF is the amount of cash during a period (year) which is generated by net income and other accountings such as depreciation and capital expenditures.  It's FCF/revenue is a very healthy 13.4%.  This is cash left over after income/depreciation and after investments in capital expenditures such as new equipment, rail, signals, etc. 

Pat Dorsey in his excellent book "The Five Rules for Successful Stock Investing" calls for a minimum hurdle of 5% FCF/Revenue.  CN has consistently outpaced that level. 

Further, CN's return on equity is a very healthy 23%.  That is the return they have on their investment (revenue/equity).  Here is a comparison of ROE for the class 1's

CN 23.2

CSX 21.3

UP 20.5

NS 17.8

CP 13.2

KCS 12.9

BNSF is wholly owned by Berkshire Hathaway and their annual report issued recently indicated BNSF had very strong earnings.

Railroads are earning big money these days and the stock prices are high.  Whether or not it is a good time to purchase these companies is not my call.   It is a good time to own these companies tho.  Note there is a huge difference between "purchasing" and "owning".

Ed

[Ulrich]

I sure wish CN was the only stock in my portfolio. Back when I started in investing some 20 years ago the "experts" all preached diversification. I did that to some extent and would have been better off today had CN been my ONLY stock purchase. So much for expert advice.

[AgentKid]

MP173

Is this going to be a dedicated unit train operation?  My guess is that it will be.

I have just seen this AM that CP/IC&E/KCS are now going to provide a similar O/D pairing. Apparently the oil companies are looking to play one shipper off of another to ensure prices stay low.

I will get back to you when I have more info.

Bruce

[MP173]

Ulrich:

There are two ways to look at investing:

1.  Divisification..."dont put all your eggs in one basket"

2.  Concentrated..."put your eggs in one basket and watch that basket very, very carefully." 

I too am over diversified with over 40 holdings ranging from individual stocks (19 total) to bond funds, equity funds, etc.  Overall, my asset allocation is pretty much what I want and my mutual funds are all low cost, typically Vanguard or Fidelity. 

Be careful what you ask for...a couple of my stocks have melted down to $zero over the years.  But, fortunately there have been CN's plus about 10 other very blue chippers that have done well.

Ed

[Ulrich]

I agree Ed... personally I prefer "concentrated". Back when I was in college I was given the investment spiel by a large well known investment company (a company we all know). I guess they were hoping to snag the up and coming college grads and their money. They got me and I went along with the investment without a second thought (because they wore suits and were experts). . Obviously I was young and naïve. After four years my "professionally" invested portfolio had melted away to about $250.00 from an initial investment of $5000.00. My fault.. learned from it, and now do it myself and watch it like a hawk. Was a very painful lesson....those 5000 bucks came to me the hard way by working loading dock and construction jobs. I learned that "easy come easy go" does not apply to money...only the "easy go" part does. Fortunately, though,  I'm smarter than the average bear and haven't made that mistake again.

[MP173]

An interesting theory put forth by Jim Otar a Canadian author and expert on retirement planning is that the first $5-10,000 are the most difficult due to as you mentioned the "loading dock and construction jobs" stage of your life, or what Otar calls "accumulation stage".

He recommends complete safety for that first stage of your investment.  In other words, do nothing that will result in complete or massive meltdown of that $$$.  You learned the hard way and it no doubt influenced your investment philosophy.

I do not rely on financial planners or money managers.  This has been an interest of mine for 25 years and I found the "advise" given to me in the early years was more beneficial to the "planner" than to me.  Hence, I started reading and then using internet sources (Morningstar and Bogleheads).

CN has been an outstanding investment for me, from the initial 100 share purchase of IC 18 years ago.  You can look it up on line, but it has been an incredible return for me.  I would NOT want to have a concentrated position in one investment (unless I owned a company).  I do not want a position in any one stock to exceed 5% of my net worth. 

Interestingly, my stock holdings have far exceeded the equity mutual fund returns the past 10 years.  Perhaps I got lucky, but I tried to follow the Warren Buffett method (buy great companies at fair prices rather than fair companies at great prices).  I look for companies with "wide moats".

Enough dry investment talk...

 

Ed

 

[Ulrich]

Otar is so right on that....sure wished I had known that when I was 21.  Oh well...my kids are going to understand this by the time they're 18. Will call the lesson 'Don't be dumb like Dad was".   

[MP173]

Ulrich:

Not sure if you have heard of Jim Otar or not, but his online book on Retirement is really a good read.  It is fairly technical in nature and deals with retirement planning from financial formulas to accumulation to distribution.

Good stuff, but pretty dry...if you are into that sort of thing...I am.

Ed

[Ulrich]

Thanks for the referral Ed...that's the type of stuff I like to read as well. Will look for it..

[AgentKid]

AgentKid

I have just seen this AM that CP/IC&E/KCS are now going to provide a similar O/D pairing. Apparently the oil companies are looking to play one shipper off of another to ensure prices stay low.

Apparently I was the victim of a trial balloon exercise. Neither launching party seemed to know of the other's launch and outsiders like myself were starting to put two and two together where no single two actually existed.

First, KCS was simply shopping around for producers who would ship to refineries that it serves in Port Arthur, TX.

Second, oil producers have in fact been looking at and starting to build loading facilities from particular producing areas on adjacent CP and CN lines. Actual competition from single fields hasn't yet happened yet, though.

One thing more knowledgeable locals might be able to help us out on is the routing from the Twin Cities to Kansas City. Canadian forum members of course assumed that it would take a Soo/IC&E line. But others have suggested that UP has a line between these points that it acquired during a merger. Still others have suggested that the UP line would be no screaming heck due to numerous curves and slow orders. Inquiring minds would like to know.

So that is that.

Bruce