Canadian Pacific Railway Limited (USA) (CP), Norfolk Southern Corp. (NSC): All Aboard the Oil Train – Which Company is Best Positioned to Capitalize on Surging U.S. Oil Product

Page 1 of 2

Oil production in the United States has moved sharply higher in recent years due to high crude oil prices and technological advances in the extraction of petroleum. Much of this new capacity resides in states such as: North Dakota, Montana, Pennsylvania and Ohio; requiring land transportation to deliver the crude oil to refining facilities located elsewhere. While pipelines are one method to transport oil, another method is rail with the number of crude oil containing railcars expanding rapidly over the past few years. This shift is a boon for railroads and manufacturers of railcars representing a compelling bullish thesis. Several companies well situated to capitalize on this trend are presented below.

Canadian Pacific (NYSE:CP) operates over 14,700-miles of railway that serve the principle centers of Canada and the U.S. Midwest and Northeast. This geographical focus allows the company to deliver oil from both the Bakken shale and Canada’s oil sands, constituting a considerable competitive advantage. Oil contributes 6% to the company’s bottom line; however, the present valuation of the company seems rather rich at 37.5 times TTM earnings. While, analysts project sizable earnings growth of 23.93% over the next year, the valuation of Canadian Pacific Railway Limited (USA) (NYSE:CP) seems higher than warranted by historical earnings growth.  Over the past five years the average price-to-earnings multiple has been 18.05 (Table 1), nearly half the present valuation.  Assuming that this sizable growth does come to pass, Canadian Pacific Railway Limited (USA) (NYSE:CP)’s PEG ratio is still a rather lofty 2.05, thus waiting for a better price seems justified at the present time.

Canadian Pacific Railway Limited (USA) (NYSE:CP)

Norfolk Southern Corp. (NYSE:NSC) operates a 20,000-mile railway network, most of which is east of the Mississippi and runs nearly the entire length of the United States from north to south. While Norfolk Southern Corp. (NYSE:NSC) has some exposure to oil in Pennsylvania and Ohio, the company’s earnings declined by 8.7% year-over-year as Norfolk Southern is quite exposed to declining coal shipments, which comprise 20% of revenues. Norfolk Southern Corp. (NYSE:NSC) declined to the mid-$50 per share range last year as a result of investor disappointment, but has recovered since.

While the company is shareholder friendly with a generous dividend and buyback program it seems unlikely that Norfolk Southern Corp. (NYSE:NSC) will be able to outperform, as weakness in coal shows no sign of abating. The current share repurchase program is in effect until the end of 2014 and Norfolk Southern Corp. (NYSE:NSC) has consistently bought back shares to lower its float by 16% over the past five years.  The company also pays a 2.75% dividend at the present price.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!