Book Club: One Up On Wall Street

One Up On Wall Street by Peter Lynch is a fantastic read that I would recommend to anyone that finds the stock market exciting. The book is completely opposite from The Intelligent Investor because Lynch is more interested in high growth stocks and is willing to pay up for it. He stresses investing in companies that others are overlooking and his favorites are when a company has a boring name, low number of analyst covering the stock, and it operates in a niche or as a monopoly.

Instead of looking for only value stocks with a low P/B, Lynch categorizes stocks into different classes and evaluates them on a series of characteristics. Slow Growth are your dividend stocks that should show a continued history of dividend growth and a low payout ratio. Stalwarts have a history of steady predictable value growth. Cyclicals are your consumer goods that maintain low inventory and operate in a monopoly. Fast Growers have EPS growth rates above 20% and proven expansion plans and Turnarounds show low debt with increasing revenue.

Lynch's techniques are how I found Rollins (ROL) and Church & Dwight (CHD). When I was reviewing stocks on my screener I just randomly clicked companies that had the most boring names I could find and lo-and-behold I came across these two companies. One operates a worldwide pest extermination monopoly and another owns niche brands with household recognition and both have company names that give no indication of that.

Quarterly Update: CNI

Canadian National Railway (CNI) reported high single to multi digit growth for Q2 as it recovered quickly from the abnormally cold winter weather that caused a slowdown across the industry. With 35% growth, grain snapped back the largest with enough orders to contribute to future quarter earnings. While coal and steel were flat, oil and frac sand picked up the slack in the energy shipments.

I'm happy to see the oil boom in the US is providing a great replacement for an industry that has a large dependence on shipping coal. Coal is on a rapid decline as government policies are restricting new power plants and utilities are transitioning away from coal and into renewables. CNI is seeing the potential for more block trains (a term used to describe when an entire trains is commissioned for one type of cargo) of heavy crude and frac sand to and from large oil drilling sites.

CNI is in my portfolio as a stalwart to balance my high growth tech stocks and it is doing a fantastic job in filling that role. On a pull back I may consider dumping my position in TJX and rolling it over to more CNI.