NEW YORK (TheStreet) -- Shares of Kansas City Southern (KSU) were higher in mid-afternoon trading on Friday after falling about 10% the day after the presidential election on Tuesday, despite most rail companies getting a boost from the election.
The company defied the overall trend because about half of its revenue comes from Mexico, which is at risk for increased regulation, including tariffs and a potential re-negotiation of The North American Free Trade Agreement (NAFTA) under President-elect Donald Trump, CFRA Research analyst Jim Corridore said on CNBC's "Power Lunch" on Friday afternoon. NAFTA is a trade agreement between Canada, Mexico and the United States.
These changes would be "terrible for cross-border traffic and terrible for KSU," Corridore said.
Mexico is "one area where volumes are actually improving," so if Democratic candidate Hillary Clinton had won, then it would be "a very good stock to own," he noted. "But the stock got a re-evaluation by the market after the election, and I think it's appropriately valued right now."
Instead, investors should consider buying Canadian Pacific (CP) or Canadian National (CNI), which are two rails that "operate much more efficiently than U.S. rails" and are "more profitable and will continue to be so," he advised. "We think they're a better place to play right now."
The rail stocks that were rallying after the election were benefitting from a potential improvement in the regulatory environment for the coal industry under Trump, Corridore noted. "Coal is about half of volumes for the rails and that's a big profit generator as well."
However, the firm isn't going to upgrade rail stocks at this point because it's too early to tell how potential changes under the Trump administration wil play out, he said. "Investors are reacting now, and they may be putting the cart before the horse a little bit."
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
TheStreet Ratings team rates Kansas City Southern as a Buy with a ratings score of B-. This is driven by several positive factors, which the team believes should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks the team covers.
You can view the full analysis from the report here: KSUKSU data by YCharts