Tuesday, March 2, 2010

Canadian National Railway 2

I am today continuing my review this stock, (TSX-CNR) because it has published its fourth quarterly results and I own this stock. I have owned this stock since 2005 and I have made a return of 12.2% per year on my shares. I have not had this stock for long, so I am only earning 2.8% return on my original investment.

The first thing I look at is the Insider Buying and Insider Selling information. For this stock, there is an eye popping $85.9M sale of stock by officers of the company in 2009. Since the beginning of this year, there has been a bit of buying and a bit of selling. The one recent change that shows some faith in this company by insiders is the recent increase in dividends. Dividends were increased by almost 10%.

The next thing is the P/E ratio. The 5 year average low is 10.9 and the 5 year average high is 15. It would therefore appear that the current P/E of 15.3 would show the current stock price to be high. If you look at the Price/Book Value Ratio, you will see that the current ratio is almost 15% higher than the long term average. This also suggests a current high stock price.

If you look at the Graham Price, the stock price is almost 25% above this Graham Price. I get a Graham Price of $45.86 for 2009 and $43.20 for 2010. The problem is that most analysts feel that the earnings for 2010 will be less than for 2009. Earnings are expected to pick up in 2011 and for that year, I get a Graham Price of $46.68. If you look at the spreadsheet, you will find that at sometime during a year, the stock price was very close to or lower than the Graham Price. So, it would appear that if you are patient and keep an eye on this stock, you could get it for a value at or very close to the Graham Price.

The only thing that suggests a current good price is the dividend yield. The current yield is 1.9% and the 5 year average is 1.6%. Getting back to the Graham Price, the spreadsheet shows that the best 5 and 10 year dividend yields are when the average price used to determine these yields is close to the Graham Price. I know that some people like just using the dividend yield to see if the stock price is good. However, for this stock, all but this shows the current stock price too high.

When I look at the analysts recommendations, I find that they range from Strong Buy to Hold. The consensus recommendation is a Buy. (See my site for information on analyst ratings.) What analysts like about this stock is the low percentage of Dividends to Earnings and Cash Flow. This is the Payout Ratio, and the Payout Ratio in connection with earnings is 25% and in connection with cash flow is 21%. This means the dividend is safe.
The other thing that is liked about this stock is the current liquidity. There are a number of ways of looking at this and if you look at the ratio of current debt to cash flow, the ratio is a health 1.84.

What makes investing so interesting is the various opinions about the stocks and the various ways people look at the same stock. I intend to hold on the stock I have in this company, and I am not currently in the market to buy more. There is seasonality to the market and the market tends to be at the highest in the spring and seems to come down in the fall. I tend to do purchases in the fall, unless there is a very good reason to do otherwise.

Canadian National Railway Company and its operating railway subsidiaries, spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America. Its web site is www.cn.ca/. See my spreadsheet at www.spbrunner.com/stocks/cnr.htm .

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html. Follow me on twitter.

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