Q: I would like to buy a railroad for my son's portfolio. I note the Cdn railroads are currently more expensive on a PE basis than the US rails. This would be a long-term hold (he is 29 yoa, and going into RSP). What would be 5i's preferred choice? If you think CP or CNR, I am not opposed to waiting for a more favourable entry point.
5i Research Answer:
We would side with CNR marginally over CP. The Canadian companies tend to be more expensive simply because of less competition. But this has not stopped both from providing investors with great long term returns. There is some economic risk, but for an investor with a long time frame we would not try to get a perfect price. Over a long holding period there will be many recessions, but CNR offers a 2% yield while it builds long term value.