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Two locomotives paired with a tank car fuel tender.

Investors are taking a more bullish view of pipeline companies and re-evaluating railway stocks in the wake of the deadly Quebec train disaster.

Shares of Canadian National Railway Co. and Canadian Pacific Railway Ltd. bounced back on Tuesday from losses taken Monday, but analysts warn increased scrutiny around rail safety may make them a less attractive investment for the longer term.

Fund managers suggested trimming positions in Canadian railways to reflect potential negative fallout from the derailment and explosion of refinery-bound tank cars operated by Montreal Maine & Atlantic Railway Ltd., a private company controlled by Chicago-based Rail World Inc.

"If I owned CN and CP, I would take the opportunity to take a little bit of profit in case this morphs into some regulation that we can't imagine now," said Bruce Campbell, president of Campbell Lee & Ross Investment Management.

The derailment could also increase the likelihood that proposed pipelines, such as TransCanada Corp.'s Keystone XL, will be approved, Mr. Campbell said.

"On the pipelines and energy side, I think it's positive longer term … for pipeline over rail. Given that pipelines are more likely to be approved, it's positive for Canadian energy stocks."

Companies that may benefit include TransCanada, which is hoping to win approval from the Obama administration for Keystone XL despite environmental protests, as well as Enbridge Inc. with its proposed Northern Gateway pipeline to the B.C. coast.

Mr. Campbell said he likes the prospects for Enbridge shares, as well as those of Cenovus Energy Inc., which would be a beneficiary of pipeline approvals and build outs.

In a rail outlook report released Tuesday, CIBC World Markets analysts said the Quebec derailment "could be used as an argument by pipeline proponents to push forward pipelines such as Keystone."

However, it also noted that rails are better positioned to transport heavy crude over long haul routes "since rails move heavy crude two-to-three times faster than pipelines."

CIBC said the Quebec explosion has implications for railways, including the possibility of increased safety regulation that would result in higher costs.

"Crude spills are highly publicized and attract a lot of attention, each time sparking debates about rail safety," CIBC analysts Jacob Bout and Yaroslava Teslya said.

Still, derailments are relatively rare and, as of the first quarter of this year, are in line with historical averages. The report said CP's average train accidents rate per million miles travelled is 1.76, while CN's average accident rate is 2.18.

CIBC downgraded CN to "sector performer" from "sector outperformer" on Tuesday, but kept its price target at $110. It lowered its second-quarter earnings per share estimates to $1.62 from $1.68, based in part on expectations of lower shipping volumes for coal and grain.

At the same time, the bank raised its second-quarter earnings projections for CP to $1.47 per share from $1.38, citing more jobs cuts and a better operating ratio.

Despite concerns about transporting crude by rail, an RBC Dominion Securities report released Tuesday shows "robust growth" in North American railway shipments of petroleum products. They expanded 37 per cent in the second quarter from year-earlier levels. CN has the lowest growth in oil traffic of all carriers in the quarter, but RBC said it expects the company's prospects in that area to rebound.

"While the data suggest an underwhelming crude-by-rail trend, we believe that traffic within this commodity group may be shifting in favour of longer-haul crude shipments, which we would view as a positive," RBC said.

It said CP's crude oil shipments remain on a "strong growth track."

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