CP, Canadian Pacific and CNR

See our previous blog of July 2nd. We got CNR just about right, a month too early and a couple of dollars too low , but it has already dropped quite nicely. Not so with which is at least $10 higher than we expected so here is the update;

cp oct 24 2012

Enthusiasm for Mr. Hunter Harrison’s talents is unlimited. The 67 year old rainmaker is quickly solidifying his reputation gained at CNR as a train-maker. Profits were up 20% with the top line up 8%, most gains stem from cost cutting. Accordingly the operating ratio went down from 75.8 to 74.1 , all though some detractors point out that the storms that played havoc last year did not occur this time. The stock has doubled in a year and we think that is enough for the moment, actually way too much. With a p/e close to 25 (CNR is more like 14) the stock is grossly overvalued.

In EW terms the stock appears to have completed, or will complete, a text-book flat in which the A-B-C has three legs approximately the same size. The subdivision are nicely balanced and symmetric. Next stop is $35/$30 if this scenario proves to be correct. Sell on the open or use a tight stop-loss.