Every once in a while on the moneygardener, I get the urge to explain why I like a certain company as an investment. The reasons why I own the stocks that I own for the long term are not as simple as past dividend growth or current low price to earnings ratios. I have specific qualitative, forward looking reasons for owning each and every stock that I own.
Right now, one stock that I am watching intently because I want to add to my position is Canadian Pacific (CP). I was not as interested in CP when it was trading at $86.00 back in July of 2007, but now that the stock is trading below $40.00 I believe CP is ripe for an attractive long term investment. So other than the reasonable valuation, why am I so bullish on Canadian Pacific?
Well, it is a fairly simple thesis; Asian economic growth should be the story of the next 50 years, Canada is flush with resources, and railroads are a boring monopolistic way to play this growth.
Consider this, CP holds a significant market position in the transportation of bulk commodities, which account for a large portion of the company's revenues. Grain, coal, and fertilizers accounted for about 43% of CP's freight revenue in 2007. As a comparison, automotive related products only accounted for 7% of CP's freight revenue.
Over the next 50 years Asia will require a whole whack of coal for steel production and loads of fertilizer and grain for food production. Canada happens to be a prime source for these materials. I see this trend of growing Canadian exports of these materials to Asia as a given and CP will inevitably be a large beneficiary of this growth as they transport from West to Far East.
I own CP shares and I will be looking to add to my position on any weakness in share price in the upcoming weeks, months, and years.