Plays On Recovery

Sep 30th, 2009 – Comment

Lou: I have been advised to consider both CNR and IMN as a recommended growth stock? Your opinion on both please? (enjoy you on 640) Dave Hi Dave, Canadian National Railway Co. ( CNR TSX) and Inmet Mining Corp ( IMN TSX) offer opportunities in two completely different sectors which provides the opportunity to diversify […]


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advice

Lou:

I have been advised to consider both CNR and IMN as a recommended growth stock?
Your opinion on both please?
(enjoy you on 640)

Dave

Hi Dave,

Canadian National Railway Co. ( CNR TSX) and Inmet Mining Corp ( IMN TSX) offer opportunities in two completely different sectors which provides the opportunity to diversify and better manage risk. The good thing about these prospects is that they are both going up!

Canadian National Railway needs no introduction as it is one of the two large Canadian railway systems that move freight around the continent. The industry has been suffering through a drop in freight traffic as the recession has taken a bite out of aggregate demand and CNR hasn’t escaped the whip.

cnr

The three year chart clearly shows resistance at $55 and then again at $57.50 so it will take some fairly good news regarding a return to normal shipping patterns to take CNR any higher.

cnr2

The three month chart shows a range bound pattern with resistance at $55 and support at $52.

The MACD turned lower in August indicating a slowing in upside momentum. The stock is also testing support on the 50 day moving average.

A breakout to the upside will require an recovery in freight traffic. If you take the advice and buy CNR you are by definition assuming that the recovery is real and that shipments will return to normal. Keep in mind that some railroad executives have not yet convinced themselves that we are going to get traction on the road to recovery.

Inmet Mining Corp is another proxy play on an economic recovery taking hold. IMN produces base metals and gold which in today’s environment with the U.S. dollar under pressure has helped drive value into the stock.

imn

The three year chart shows a huge bounce off of the low of $12.15 it hit in December of 2008 with resistance at $60. With a six bagger in hand as we come to the end of the year the question becomes how much is enough?

A run at the highs of $100 IMN hit in late 2007 and early 2008 will require a return to historical highs for base metals prices which can only happen if the world economy recovers.

imn2

The three month chart shows the resistance at $60 more vividly and the RSI and MACD both are indicating a shift in momentum to the downside.

When considering CNR and IMN as candidates for growth I would suggest that you want to see both of these breakthrough the resistance that they have been fighting. That way you will have taken out some of the risk that the global economic recovery is living off the avails of stimulus and not the virtue of organic growth.

Happy Capitalism!

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