Canadian National Railway

Estimated reading time: 54 seconds

Canadian National Railway is my favourite stock. It is not an old-school value stock, which makes it a contradictory thing to write about. It has something that nearly no other stock in Canada has though: a moat.

The term moat is bandied about in investment circles carelessly. Analysts like to describe the levels of moats that they think certain companies have: wide moat, narrow moat, etc. I do not agree with this.

In the same way that something is unique or isn't (sorta unique doesn't exist!), I believe stocks have moats or they don't. The invaders and their horses will drown on the attack, or they won't.

In my view there are only two companies with moats in Canada, and they are both in the same industry. Together, CNR and CP have a duopoly on the rail business. No one is building a new railroad. I can't think of any other companies in the country that are so protected from competition.

Because of their duopoly, traditional value analysis goes out the window. I do not care about the price-to-book, price-to-sales or price-to-cash-flow ratios of either company.

In terms of which to invest in, you could  easily choose both. I've never owned CP myself, primarily because of its dividend policy. I like dividends. The fact that CNR has more market share is only icing on the cake.

I wouldn't buy either one at current levels, though I would add to CNR in the double digits. CP - below $200? It would have to be seriously lagging CNR in any case, and that is not true today.