Month: July 2012

UNP, Union Pacific Corporation

Hamilton

unp 2012

This railway goes back 150 years. It was listed as a stock back in 1870. It’s performance beats that of either CNR or CP, at least in terms of stock appreciation. The operation ratio has dropped from about 80 a couple of years go to 70 in the first quarter of this year. Profits were up an impressive 39% y-o-y. Given the stocks tripling since the recent lows we would exit or stand aside. The count may not be perfectly correct but reversion to the mean, or the potential for that to happen, is a good enough reason.

CP, Canadian Pacific Railway and CNR, Canadian National Railway

Hamilton

CP jul 2012 lcnr jul 2012 l

The charts do not have the same time frame! CNR is the larger of the two and the only one with East to West and North to South capabilities. Up to 1995 it was a crown corporation. But it is CP that has adopted the beaver as the animal to emulate for its smarts, engineering capabilities and enormous level of energy, in short all those things that Canadians have in abundance. But  in the opinion of one Mr. Ackman of Pershing Square, a hedge fund, the company has very little of those attributes. So after a few years of yanking at its chain he has managed to crown the ex-CEO of CNR as the new CEO of CP, a fellow by the name of Hunter Harrison , a 67 year old no nonsense American from the South. All this is interesting simple because it is so un-Canadian, otherwise we will not comment on the merits of all this.

However, looking at the charts and adjusting for the time difference, the performance is not that dramatically different as both start between $10 and $20 and move up to $80 to $90. The operating ratio was the tricky part, at which  the beaver consistently underperformed. Lots of excuses from snow to no-snow, from bulk goods to normal freight etc. etc. failed to explain that and ultimately a change at the top  was the only solution. Unfortunately that  will probable do absolutely nothing for the shareholders. CP (see a previous blog) probable topped out months ago while CNR is also ready for a big correction. CP completed a B-wave while all this was happening and CNR a 5th wave. Both could lose about $50 in the next few years. In detail;

cp jul 2012 scnr jul 2012 s

CP had a nice run-up  as all this was going on and perhaps all the good things coming from this, supposing there are some, are already discounted in the stock. This one looks like it will turn out to be a buy on rumour, sell on fact situation regardless of whether or not there will be a fact other than this recent CEO appointment.

By the way, if you look closely at the channel drawn in the big Yahoo chart of CP, you will notice that the above expectation would be fulfilled just by regression (reversion) to the mean – often referred to as the surest rule in the stock market – , at about the mid-point of that channel. Nothing really to write home about.

OSK, Osisko Exploration Ltee. update

Hamilton

Back on May the 12th. a Friday, we wrote that this stock should be bought on a lower opening the next Monday. That day it traded as low as $6.25. It did not break the $6 level that, according on the count, it could not do (see the blog). Here is the chart today;osk july 2012

The stock shot up to $9 and then dropped back most of that. An a and b in our opinion. Now we should get the c, or, alternatively, the 5th leg down was not yet complete but still it should not go below $6. If the ABC, with C  as a diagonal is correct, this one could retrace the entire C wave bringing the stock back to $16. Both the RSI and MACD are in up mode.

BCE, Bell Canada Enterprises

Hamilton

BCE june 2012

BCE almost self-destructed back in the tech crash and of course it’s precocious and better known offspring, Nortel Networks actually did. For the record, I have been wrong on this one never expecting it to get back to the Teachers et. al. $41.60 privatisation bid, which itself resembled the recent Greek tragic saga but this time entirely made-in-Ottawa, with bureaucrats on one side and ex-bureaucrats on the other.

This company, like most Canadian blue chips, owes its existence to the strong belief here in Canada that uncompetitive and therefore safe is the way to go. It is a regional monopoly, together with Telus , Rogers and a few smaller players, each with their own fiefdom. It is not unusual today for a family to pay more for TV, phone and internet than they did 30 years ago on their mortgage! By some estimates rates here are about double what they should be. Also it is no coincidence that the richest man in the world figured this out on the other side of the US.

In EW terms there is an initial drop of 5 waves (?) followed by a long drawn out A-B-C, a correction within a down trend. The correction looks like it could be complete or go on for another year or so but in dollar terms it should not gain much further. In fact, like with Rogers, the peak at $42 may already have occurred about 6 months ago. Time to tune out.

bce june 2012 s

Just like with Telus this C-leg is very suspect. For most of the time the stock has a range of about $2 or 5%, this while the financial system seems to be breaking down for a second time. It is climbing on momentum created by memories of blue chips and a general lack of choices. No broker has ever been sued for buying BCE, an oddity itself considering how ridiculed the stock was. These things go on un till they stop and then there is no support other than the bottom , that is below $18.