Recent Sell – CNR

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Here’s a quick update on a sale in my portfolio. Sales are always hard, especially when times are good and investors are riding the coattails of one of the best performing bull markets in modern times. When things are rosy, we tend to feel that the good times will continue forever. How many times have we heard from various commentators in the media that this market will never go down, or we will never see a financial crisis in our lifetimes. It is this kind of hubris that sends me running for the hills.

Regardless, its the insane valuations for some of the stocks that I regard as a selling point. What lies ahead…can the company keep its revenues and earnings rising year after year? This particular sale has been a hard one as I consider it an extremely strong company and want to continue holding for a long time. But you know what they say about falling in love with your investments…

I decided to sell and close my position in Canadian National Railway (CNR.TO). I sold my 52 shares @ CAD$105.00 after holding them for just over 3 years. Its a company that I really admire and I believe is the strongest railroad company in N.America. However, the valuations provide no hope of future performance unless we see a major correction in share prices. P/S 5.8, P/B 5.0, P/FCF 40.34 etc. I do not see how those numbers make any sense unless the company’s financials improve drastically with exploding revenue and earnings growth — something I do not expect in the railroad business.

 As I mentioned earlier, this is a company that I really admire and will be on the top of my list during the next business cycle. For now, I hop off the train (couldn’t help resist the pun :))

Total profit: 28.6%

Holding period: 3.2 yrs

Full Disclosure: Our full list of holdings is available here.

14 thoughts on “Recent Sell – CNR

  1. That pun is very funny. We still own them, but you have a point on the high valuation (we also don’t have enough to drip). Perhaps switching to another growth stock is an option. Got to think about this a bit more.

    • The increased valuation just means lower returns going forward. I dont know if I will put this money right back to work, but the current valuations seems extremely stretched. Hopefully this market will make some more sense in a few months.

      R2R

    • I noticed that you bought some shares recently…its a fantastic company and definitely worth holding in a portfolio. I will be looking to re-initiate at a lower price during the next cycle.

      R2R

    • Selling is always a hard decision, esp for me personally. But I have learned over the last couple of years to not be afraid of booking profits while times are good. I’d rather sit on cash after booking profits than look at a something stagnant or worse, stocks crashing erasing all the gains I thought I had.

      R2R

  2. Ronn Johnston says:

    I’m curious as to your reasoning for selling completely out of the position? I’m with you I don’t buy a company unless I believe in the company, not a “trader.” I set a certain allocation for an equity, higher for high conviction equities (D, XOM, PG, O, etc), less for regular buys (STAG, M, EPD, etc) and when valuation exceeds the allocation, I sell the excess.

    For the sake of simplifying the discussion, let’s use cash– If my allocation puts D at $15,000, when it gets overbought to say $18,000, I just sell the 3 to redeploy (in SO most recently).

    Obviously, I like your thinking regarding investment strategies, as I follow you here (and other places); so I’m just curious as to your thinking on selling completely out of a company like CRN, which I would consider a high conviction buy?

    Thanks!

    Ronn

    • Thats a pretty good methodology Ronn. Position sizing can be tricky and I could probably have gone with what you have described, but in the coming months, I see more risk than return in the markets (of course I could be totally wrong as we could see the asset prices increase even further more). I consider CNR a fantastic company that will continue to operate through thick and thin of the economic cycles. As I mentioned in the article, this company will probably be the top of my list for initiating during the next cycle.

      R2R

  3. Selling always stinks but sometimes it’s necessary. I bought stuff years ago that no longer fit what I want to do so I’m getting rid of them only have a few more but no rush.

  4. Good reasons to sell. Its one id like to add too though. Huge moat, great dividend increases and history. also arent they working on something for making transporting crude oil non destructive in a spill. I think they turn it to a solid and transport it then break it down to a oil again.. thought i read a article about it once.

    Ahhh well still nice profits! What would be your target buy back price?

    • Hmm interesting, I havent heard of that (the non destructive spill). I want to see more tradition valuations based on book value, earnings growth, cash flow etc, before I would get back into the position, although I can see CNR continue buying back shares and raising payout ratio to increase dividends…

      R2R

  5. Nathan Kemalyan says:

    I apply the following logic when I think about a “sell” suggestion; If I were the sole owner/operator of the business and someone came along and offered me a premium to what I thought the value of the business is, would I sell the business? If my goal is to have that business pay me to live into the years and it is doing so, then I would ignore the high price offer and continue to draw income off the business until I decide I don’t want to be in business anymore. You’re not obliged to sell if you’re happy with the dividend, rising share count with a DRIP,

    • Thanks for sharing, Nathan. I am approaching it leaving emotion out of equation. I am an investor and am a shareholder to make money. If the market valuations are insane (which I think it is), I have no issues selling my position and taking my profits instead of being emotionally attached to a company.

      R2R

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