HOP ON POLAR EXPRESS?

RAILWAY STOCKS (CNR / CP)
There a lot of ramblings about railway stocks. PROS argue (1) economies grow at a very stable 3%-4% over the next couple of years, and rail stocks have high correlation with GDP growth; (2) an upward trend of freight rates over the past year or so, after a very long period of decline (sort of like oil stocks with increasing crude price); (3) "CHINA", Shall I say more? (4) earning momentum, relatively strong Q3/04, Q4, 2005 and 2006 outlooks remain strong; (5) good companies, well managed. CONS counter: (1) strong Canadian dollars will damper their earning potential; (2) fuel costs with crude north of US$40 (although PROS argue that fuel costs are partially mitigated by hedges and fuel charges to customers); (3) valuation; Both CNR and CP are traded at over 16X of trailing E; and 13-15X of its 2005 forward earnings; This represents a premium over its historical trading range. With this level of multiples, they’d better deliver their earnings. Given that, I think I will wait.