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A Global Guru
01/13/2006 12:00 am EST
Having lived and worked all over the world, Vivian Lewis is comfortable recommending stocks in virtually any country on the globe. Her favorite selections for the year ahead are a ride on the rails just north of the border and an "Indian Giver" in Bangalore.
"While I expect a pickup of inflation, I do not expect there to be a decline in world trade. So I am focusing on a North American growth stock as my favorite conservative idea for 2006. Canadian National (CNI NYSE) is the continent's railroad with the highest profit margin and the only one operating north to south and east to west.
"Having taken over US carriers Wisconsin Central and Illinois Central, its tracks now reach to the Gulf Coast (Texas and New Orleans), and Mexico. Expansion south of the border means CNI did not duplicate lines while gaining a new hub in Chicago. It also pushed to new ports like Prince Rupert (British Columbia), which supplements Vancouver to deal with the inflow of goods from China, mostly intermodal (containerized).
"Because of its route advantage, it has pricing power. But it has also enhanced efficiency. Q3 results were excellent. Higher haulage prices were matched with better logistics. CNI now runs shorter freight trains on a fixed schedule rather than waiting around to make up long trains. This has fed right to the bottom line. Diluted earnings per share at C$1.47 was up 24% while net income increased 19% to a record.
"CNI benefited from a longer-term operating ratio decline to 63.3%, well below 76% operating ratio of 2002. The third quarter operating ratio however was up 2.1 percentage points. The lower a railway's operating ratio, the more efficient it is. Despite the modest rise, the Montreal-based rail giant has the lowest operating ratio of any North American railway major. This is one of the reasons CNI's record 9-month free cash flow hit $1.058 billion, up 33% from prior year levels. The firm benefited also from favorable income tax adjustments."
"For my top speculative pick, I like an ‘Indian giver’— Infosys Technologies (INFY NASDAQ). Infosys is a major player in the Indian IT (information technology) market, run out of Bangalore. It contracts with international companies to provide them with services to meet their software needs, and last year opened offices in the US as well as other Western countries to feed more business to India.
"The stock price has been under pressure for a while and the odd reaction to good results is typical of how Indian tech companies have performed lately. It barely gained in 2005 and there is always someone (usually but not exclusively in Mumbai) ready to say the golden goose is cooked. Other rumors claim that its workers are discontented (hah! if you were living in India you would jump at the chance to work at a lovely air-conditioned campus like INFY's).
"The stock recently fell despite exceptional results for the quarter ended December 31, 2005. Third quarter revenues at $559 million, were up 32.2% from the corresponding quarter last fiscal year. Earnings per ADR increased to $0.53 from $0.42. Consolidated earnings per ADS expected to be $2.04-2.05 for fiscal 2006, showing growth of about 30%."
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