Best in Class: Canadian National Beats U.S.

BOSTON (TheStreet) -- Canadian National Railway(CNI Quote) is smaller and less well-known than larger U.S. rivals Union Pacific(UNP Quote) and Burlington Northern Santa Fe(BNI Quote).

But Montreal-based Canadian National, which has remained profitable during the recession, is the most attractive North American railroad stock because the company is hitched to the commodities boom, and Chief Executive Officer E. Hunter Harrison, who started as a carman, can cut costs where others can't.

North American economies suffered pronounced contractions in 2008, prompting a selloff in stocks. Even though equities have recovered nearly half of their lost market value, there are many high-quality companies still selling at a discount to the market and their peer group. Canadian National Railway is a glaring example.

Because Canadian National transports petroleum, chemicals, metals and forest products, it offers a play on commodities. The company is pushing into alternative-energy and custom-transport services. It just completed the first-ever rail transport of twin-pack wind-turbine blades for a wind farm in British Columbia. The move was organized by Canadian National Specialized Services.

Each turbine blade was 135 feet in length and required car modifications and support equipment for the haul. The company has extensive experience in customized services for heavy equipment as a result of Canada's concentration of mining, timber and oil companies. Canadian National estimates it has transported more than 2,100 carloads of wind-turbine components since 2005.

Harrison deserves credit for the company's operation excellence and innovation. His career has been defined by a focus on efficiency. He started in the rail-road business as a carman-oiler in 1963 and worked his way up the corporate ladder as an operations specialist.