CN or CP: If you had to pick the better railroad?

Question

If you had to buy shares of one of the above railroad companies which would you choose and why? CN had better operating ratios and is the larger company, but some would argue that CP has more room to grow and expand and also to improve (and may be more likely to be merged with a US rail) If you had to invest in either company which would you pick and why?

Answer 1

Does Hooters have a rail line, and if they do, i'd take that train

Answer 2

A tricky business investing in a rail carrier, I should think.

I do not pretend to know the stock market, but I do have some knowledge of the economics behind rail transportation and the intricacies of rail management, or mismanagement.

The volume of traffic on North American railroads can do nothing but increase, but this is a good news / bad news scenario. On the one hand, increased traffic will increase revenue. On the other, significant monetary outlay for improvements to rail infrastructure in the form of track and plant expansion and upgrade, which of course will require a large amount of expenditure, will have to be made to accommodate the increase in volume, since the rail systems are already strained to the maximum. I would think in the short term PE ratios will decline during this period as the percentage of dividends earned on investment will follow suit.

It is inevitable that there will be at least one more merger between the existing rail giants. Depending on how that plays out, a shift in routing will follow, affecting the volume of traffic interchange.

Diversification is another piece of the viability puzzle. Normally diversification is a good business tactic, but it can also be folly. A perfect example is the Sprint communications network. Sprint was built, developed and placed into service by the Southern Pacific. A seemingly good idea on the surface. But the project became so expensive, that for several years, monies earned by that carrier were skimmed off of railroad revenue to the exclusion of improvements to plant and structure, as deferred maintenance was the name of the game. This occurred in the early to mid 70s, when the country experienced an overall downturn in the economy, due in large part to the fuel crisis fomented by OPEC. But, as the economy recovered the SP was way behind the curve and was never able to catch up. This was the true beginning of the end which ultimately allowed the UP to consume the SP, a prize it had its eye on for well over 100 years. Ultimately, Sprint proved to be a boondoggle due to mismanagement, and the system was sold before it could stand on its own economic feet.

In this regard, I would do some research on the top management executives with an eye toward their work history and economic track record for the companies they have headed.

Other capital outlay could be in the offing as more safety measures are mandated which will undoubtedly carry the potential for more cuts into profit margin.

Another point to ponder is whether we have seen all the changes that we will see since the implementation of the NAFTA.

Another aspect to be considered between the two Canadian giants is which has better access to seaports and the intermodal traffic that will be the area of the largest future increases in traffic volume, as well as which has the greater potential for moving bulk commodities.

Taking into account the above limited information, I think I would lean more toward the Canadian Pacific as a means of investment. They are already widely diversified with many fingers in many pies. They have been economically viable and provide much of the service to the western regions of Canada, including the lucrative west coast sea ports. Most intermodal traffic today, and certainly the lion’s share of the future traffic, is and will be generated by the pacific rim countries.

So, put all your eggs in one basket, than watch that basket........

Answer 3

cp has a lot of intermodal yards opening up in major cities check the web site for cp

Answer 4

The CN line because they have access to major ports via US& Canada. their will not be any mergers.