Bill Gates’ most unusual investment; at least from a tech geek’s perspective is the Canadian National Railway (NYSE: CNI). Blomberg reported that the world’s richest man is the transcontinental railroad’s largest shareholder.
Many investors will wonder “what was Gates thinking” when he bought into the railroad also known as the CN. Or perhaps more importantly what does Gates know that we do not? After all the Microsoft founder has a very good track record of predicting the future.
Back in 1999 Gates successfully predicted several lucrative present day businesses including digital wallets, Facebook, webcams, price comparison websites and smartphones in his book Business @ the Speed of Thought, Markus Kirjonen noted. This raises the question does Gates see something in Canadian National besides a really good stock?
Is there some other big opportunity there that he sees, but most people would miss? After all, Gates is the guy who spotted the big money in software and operating systems before the rest of us.
CN might have some of the Best Rail Routes in North America
The CN owns some of the best railway routes in North America; including a transcontinental line that connects Dartmouth, Nova Scotia, with Prince Rupert, British Columbia. This line is a potential moneymaker because it connects Ontario, the U.S. Midwest and the Northeast with a Pacific Port.
That port would be an excellent alternative to West Coast freight terminals such as Los Angeles, San Pedro, Oakland and Vancouver, which are already overcrowded and plagued by strikes. Prince Rupert is also located in peaceful Canada, which gives it an edge over the Kansas City Southern (NYSE: KSU) Pacific port in Lazaro Cardenas, Mexico, which has been ravaged by battles between drug cartels and the Mexican military.
To add icing the CN’s track runs right to America’s biggest transit junction in Chicago. There’s also a route that runs all the way south to the Gulf of Mexico at New Orleans, Mobile, Alabama, and Biloxi, Mississippi.
So it is obvious that Bill Gates can read a map, and he’s seen a few of the news stories about overcrowding at the Pacific Coast Ports. As trade with Asia, especially China, grows CN gets more valuable because it offers a direct connection between the Pacific and North America’s industrial heartland.
Is Hyperloop the Real Reason why Gates is buying Canadian National?
Yet one also has to wonder is there some new technology driving Gates’ interest in rail. Is he positioning to take advantage of a major new technological revolution by buying CN stock?
An intriguing possibility is that Hyperloop is the reason, Gates is buying CN stock. The railroad lines the CN operates would be perfect routes for Hyperloop lines. A Hyperloop running along CN’s mainlines between Prince Rupert and Toronto; and Prince Rupert and Chicago, would be a perfect freight conveyor.
It would also form the backbone of a direct freight connection between South America and China via New Orleans. Cargo containers from South America, the Caribbean and Central America, would be shipped to New Orleans by ship, sent to Prince Rupert via Hyperloop then loaded on another vessel for the trip to China.
Gates is obviously up on his technology so he knows what Hyperloop is. He understands; like Hyperloop One CEO Rob Lloyd that the big money in the new technology will be made from freight. Those who make the most money will be the ones that control the best routes.
Is Canadian National a Hyperloop Value Investment?
What’s more fascinating is that Canadian National is a great value investment with or without the Hyperloop. Its’ financial numbers prove that Gates is as shrewd a value investor as his old buddy Warren Buffett.
Here’s some proof that CN is a great value investment.
A net income of $2.942 billion (€2.46 billion) reported on June 30, 2017. That income increased by $220 million (€184.18 million) during the 12 months between June 2016 and June 2017 according to ycharts data. CN reported a net income of $2.1717 billion (€1.82 billion) in June 2016.
Revenues of $9.617 billion (€8.05 billion). Those revenues grew by $419 million (€350.78 million) between June 2016 and June 2017. CN reported revenues of $9.198 billion (€7.70 billion) for second-quarter 2016.
A free cash flow of $606.81 million (€508.02 million) in June 2017.
A profit margin of 30.97% in June 2017.
Assets of $28.64 billion (€23.98 billion) in June 2017.
$4.168 billion (€3.49 billion) cash from operations at the end of second quarter 2017. This was up from $4.055 billion (€3.39 billion) in June 2016.
An enterprise value of $69.33 billion (€58.04 billion) on September 15, 2017.
A market capitalization of $61.31 billion (€51.33 billion) on 15 September 2017.
It looks as if CN has some float, although its cash flow is limited. The railroad reported having just $100.73 million (€84.33 million) in cash and short-term investments on June 30, 2017.
Despite that CN is paying off for investors; they were rewarded with a 25.95% return on equity on June 30, 2017. Gates and others also received a 33.7¢ (€0.28) dividend on September 7, 2017. That was a three cent increase over March 8, when CN paid a 30.7¢ (€0.26) dividend.
This makes CN, a pretty-good value investment, and a widows and orphans stock because the service it provides transportation will always be in demand. This railroad might also be a great Hyperloop value investment because it controls ideal routes for that transportation solution.
If you are looking for a Hyperloop value investment, CN might be it. Even if Hyperloop fails to materialize the Canadian National is a great value investment and Bill Gates is a top value investor whom we should all watch.
A slightly different version of this piece previously appeared at Market Mad House.