Canada’s biggest two rail companies, Canadian National Railway Co. (TSX:CNR)(NYSE:CNR) and Canadian Pacific Railway Ltd. (TSX:CP)(NYSE:CP) have traditionally been some of the slow-and-steady champions long-term investors who have bought and held such securities have benefited from in recent decades.
Owning railroads is a long-term play on economic growth and expansion. As the economy continues to churn, moving goods from coast to coast in the most economical way possible becomes ever more important. For most goods, transportation over long distances still typically happens via rail due to the relative advantage such a transportation method offers in terms of cost per mile.
Canada’s railroads have continued to churn out excellent results in recent years, due in part to the fact that many of the Canadian railroads have operated at or near capacity for quite some time for a number of reasons.
Bumper crops in the Canadian prairies, increased product received at Canadian ports being shipped to the U.S. market, and a number of other factors have led to the increase in traffic CNR and CP have seen.
Another near to medium-term catalyst which has yet to play out fully is the impact reduced pipeline capacity will have on Canadian railroads as crude from Western Canada looks for a way out of the oil patch.
In the absence of any major deal between Canada's railroads and oil producers due to capacity issues and a number of other hindrances (contract length) which have yet to be settled, the possibility of additional capacity being taken on by either CP or CNR is yet another short-term catalyst which I believe could result in a big win for investors in the years to come.
Invest wisely, my friends.
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