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Canadian National Railway (TSX:CNR)(NYSE:CNI) is one of Canada’s most popular stocks. It is held by billionaires through hedge funds as well as in their personal accounts. This stock is well-known in Canada and the U.S. After Warren Buffett purchased rail stocks, they became very popular. BNSF In 2009, back then. The deal alerted investors to the fact that the rail industry, despite its “old-school” image, still produced solid cash flows.
Today’s picture isn’t looking so good. The CN Railway has a 5.7% decline in its year-end performance, although it is still better than the TSX Index. CNR’s performance is quite poor in comparison to oil and natural gas stocks. In this article, I’ll look into some reasons why CN rail stock is experiencing weakness, and what they mean for investors.
Why CN Railway stock has fallen
The weakness in the wider sector is driving CN Railway’s fall this year. Shipping rates are declining this year which is affecting sentiment towards transportation stocks. CN’s own performance has been reasonably good. CNR boasted that it had achieved a record performance for the quarter.
- Revenue growth of 6%
- 38% diluted growth in EPS
- 24% Cash flow growth
- 11% growth in operating cash flow
That’s pretty solid growth. Of course, the last 12 months includes two 2021 quarters, which means there’s still some 2020 weakness in the base period. However, CNR’s most recent quarter was a beat on revenue, with positive revenue growth. So, it’s not like there’s no growth happening.
Is it possible to buy the dip?
Having looked at CNR’s growth and some industry factors, it’s time to ask if this dip is buyable.
If your universe of alternatives consists mainly of stocks, I’d say, yes, it is. CNR stock was once my own, but I sold it to fund other stock purchases. I still believe it’s a good value. CNR is relatively expensive compared to some other traditional industry stocks, but it’s also very stable and dependable.
The shipping industry is vital and rail is the best way to transport goods over land. CNR is better than your average rail company, because it has a massive three-coast network that most of its competitors just can’t touch. So, when you invest in CNR, you’re investing in a company that will likely grow and improve for as long as the economy does.
The U.S. has recorded negative real GDP growth this year. This is a headwind to the macro economy. Canada is still experiencing positive growth. But CNR does a lot in the U.S. and could be affected by the likely recession there.
Notable: CNR pays dividends, which go higher the lower stock prices go. Right now, the yield isn’t very high, but it could go higher if you buy on future weakness.
CNR can be considered a decent value if we take into account all relevant factors. It’s not the kind of stock that’s going to make you rich overnight, but it’s a very stable, dependable company that grows with the economy. CN Railway could experience some short-term weakness if the U.S. goes into recession. However, the long-term outlook is positive.