Would you please have a look at Canadian National Railway Co. for me? This has been my best investment since 2010 but I am concerned with the 2 for 1 split. Should I take some money off the table when it splits in November?
Thanks for the assignment and congratulations on a great call.
This will be the third time that I examine the case for Canadian National Railway Co. The last time was on Feb. 12, 2010, when the shares were trading for $53.98. What Sheldon wanted to know is if the company was undervalued compared to Burlington Northern Santa Fe when examining the price earnings ratio. It was advised that PE is just one metric that analysts use to determine the value of a stock. It was also noted that the shares had broken the uptrend it had been riding and that it had breached support along the 50-day moving average. In addition it was observed that the shares were looking to catch a bounce off of support along the 200-day moving average which could set the stage for another advance. Retrospectively that is how things evolved.
What was also mentioned was that there could be increased volume into the rail system as higher fuel cost for trucks might drive shippers to chose the lower cost associated with rail. Which as it happened has also transpired. At a recent dinner with my pal Manny Dinis from Triple Star Logistics, he confirmed that over the last three years rail has gained significant market share on less time sensitive cargoes.
The three-year chart indicates that the shares have had a great ride creating gains for investors that got on early. The advance has tested support along the 200-day moving average throughout the run without a serious breach except for the retest of support at $65 in the summer of 2011. The move higher has been helped by the fact that the company has beaten the Street on its earnings in seven of the last eight quarters. There is nothing like earnings growth to add shareholder value. In fact the gap up to the 52-week high of $116.20 on Oct. 23, 2013, followed the Oct. 22 release of third-quarter results which beat the Street by $0.10 a share.
The six-month chart provides a close-up of the buy and sell signals generated by the MACD and the RSI. In September the shares were retesting support along the 200-day moving average when the momentum indicators signalled a buy at $98.00. The run to the 52-week high generated a healthy gain in just less than two months.
As to your question regarding selling a portion of your position after the split I would say that it is always wise to take some profits when you are unsure. You can always buy back in when the clouds of doubt lift. If your only concern is the split I think that you should spend more time considering why that burdens you. Splits double the number of shares you own but cut the price in half. The net consequence to you is that nothing has happened financially. At the moment the shares are overbought and may ease back but I wouldn’t shoot this running horse.
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Make it a profitable day and happy capitalism!