This is the latest in a series of video interviews in which Pat McKeough will give his advice on a variety of topics. Some will deal with his overall investment philosophy, others on specific investment strategies and still others will be comments on events that are affecting the markets and the economy. This time, he discusses one of the most venerable of Canadian stocks. A reader asked about CP Rail, Pat’s #1 Stock Pick for 2012, and all of the media attention it’s receiving. Shouldn’t we avoid stocks in the limelight? Not in this case, says Pat, and he explains why.

The Real News About CP Rail

Q: Pat, here’s a very interesting question. You advise downplaying stocks in the broker/media limelight, but CP is your number one stock pick of the year and it is front and center in the media. What is your reaction to that?

Pat McKeough: Well I saw that comment come in and I was very happy to see it because I think it’s a very good function of our site that you can write in and ask questions like that, where I obviously didn’t explain our rule as well as I could have.

I tell people to avoid stocks that are in the broker/media limelight, because that can raise investor expectations. But when I say stocks in the limelight, I am talking about stocks that the brokers and the media are very hot on. This intense broker/media interest generates high expectations. I would say in CP’s case it’s the reverse; all they talk about is how poorly managed CP is and how it’s lagged behind and how this is indicative of how poorly Canadian managers run their companies.

Up to a point that is true with CP. But CP also has a lot of underused assets. Since CP started breaking itself up, I guess a decade and a half ago, we’ve had incredible profits just because we’ve bought things that were part of the old CP empire and somebody new got their hands on them and suddenly they were worth a lot more money. I guess the biggest one example would be Fording Coal, but we’ll have to leave that for another time.

Anyway, back to CP. It has drawn a lot of attention, it’s in the focus of attention, but it’s not in the "limelight," because remember the limelight is something that gets shined on stars. And the media do not see CP as a star, at least of all for its management.

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COMMENTS PLEASE

How do you feel about it when a company from the U.S. or some other foreign country takes control of or buys out a major Canadian company, such as Canadian Pacific? Do you feel foreign takeovers present an economic risk to Canada? Or do you feel that Canadian investors should have a right to sell their stocks to the highest bidder? Let us know what you think in the comments section below. Click here.