Shares in Canadian Pacific Railway Ltd. and Canadian National Railway Co. are expensive compared to other North American rail stocks and could? underperform? in the next twelve months, says Kevin Chrissey, analyst at UBS AG.
?CSX Corp. and Norfolk Southern Corp. are the cheapest (trading at 11.7x next twelve month price earnings versus the 13.8x group average) and likely to outperform the group over the next year, particularly relative to the most expensive rails ? CP at 16.4x and CNR at 15.3x,? Mr. Chrissey said in a note to clients.
He said buying the cheapest rail stock in the group at the start of each month and holding it for one year produced an average 1-year return over the past decade of 21% versus the group average of 16%. The cheapest stock also outperformed the group two-thirds of the time and was the single best performer 32% of the time and the single worst performer only 3% of the time.
The stock with the richest multiple, meanwhile, outperformed the group 43% of the time and was the best performer 17% of the time and the worst 22% of the time.
?The key takeaway is that being contrarian and buying the least liked stock often pays off over a 12-month investment horizon as the cheapest stocks tend to benefit both from earnings growth and reversion to the mean with respect to their multiples.? he said.
Source: http://business.financialpost.com/2012/08/24/canadas-rail-stocks-look-expensive-ubs-analyst/
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