Is Canadian National Railway (TSX:CNR) Stock Running Out of Steam?

Canadian National Railway (TSX:CNR)(NYSE:CNI) stock has been on a bit of a roll as of late, but is it time to start looking elsewhere?

| More on:
The Motley Fool

Youโ€™re reading a free article with opinions that may differ from The Motley Foolโ€™s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Thereโ€™s no question that railway stocks can make great investments.

But you need to know what youโ€™re getting into ahead of time.

Many readers by now are probably aware of the time that Warren Buffett, owner of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) acquired railway Burlington Northern Santa Fe for $44 billion.

At the time it was touted as an โ€œall-in wager on the economic future of the United States.โ€

After all, railways are responsible for transporting much of an economyโ€™s goods across the country from the factories that manufacture and ship them to the point of destination where they are ultimately sold to consumers.

So it goes without question that the railways would be tied to the growth of the overall economy.

The more goods an economy is demanding to be purchased and sold, the more goods that need to be shipped to their final destinations.

And the more that railways stand to profit.

Itโ€™s also important to note that when Warren Buffett made that โ€œall-inโ€ bet on the American economy, that the U.S. economy was at the depths of its worst economic recession since the 1930s.

That was a time that many โ€“ some, at least โ€“ were fearing an all-out collapse of the modern economic system as we know it.

At the time the big bet Buffett made was seen as quite a risk by the rest of the investment community.

But nearly 10 years removed from that deal in 2018, things arenโ€™t โ€“ or at least donโ€™t appear to be โ€“ as uncertain as they were back then.

Most readers will acknowledge the relationship between risk and return and more specifically that investors more often than not are compensated for the amount of risk they take in a particular investment or trade.

Meaning that back when Buffett bought his stake in BNSF there was actually quite a bit at stake, but fast forward to today and a stake in Canadian National Railway (TSX:CNR)(NYSE:CNI) โ€“ there simply isnโ€™t a lot of risk present that you can expect to be compensated for.

On the one hand, Canadian National Railway does find itself in a bit of a transition year with first-quarter earnings down 16% and increased capital spending forecast for the rest of the year.

But at the same time, CNR stock is up 15% since the end of March.

There appears to be a bit of a disconnect there, am I right?

With earnings expected to grow only modestly in 2018, you might want to ask yourself whether it really is a smart idea to be sticking with this stock right now.

Bottom line

All this isnโ€™t to say that Canadian National Railway wouldnโ€™t make as a solid long-term investment for your RRSP account.

Iโ€™m just saying maybe now isnโ€™t the best timing for the companyโ€™s stock.

For dividend investors, Canadian National Railway stock is trading at a yield of just 1.69%, which isnโ€™t exactly going to make you rich while you wait, either.

To be clear, no one is suggesting that Canadaโ€™s largest rail operator is about to go anywhere anytime soon, but for the time being, you may find that youโ€™d be better off looking at something offering a little more upside today.

Stay Foolish.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy nowโ€ฆ and Berkshire Hathaway wasnโ€™t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the โ€œeBay of Latin Americaโ€ at the time of our recommendation, youโ€™d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month โ€“ one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the โ€œofficialโ€ recommendation position of a Motley Fool premium service or advisor. Weโ€™re Motley! Questioning an investing thesis โ€” even one of our own โ€” helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Berkshire Hathaway (B shares) and Canadian National Railway. CN is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? Youโ€™re not alone. At The Motley Fool Canada, we get it โ€” and weโ€™re here to help. Weโ€™ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 6% Yield? 3 TSX Stocks to Buy Today

These TSX stocks offer yield of over 6% and are well-positioned to sustain their payouts and maintain consistent dividend payments.

Read more ยป

clock time
Dividend Stocks

10 Years From Now, Youโ€™ll Be Glad You Bought These Magnificent TSX Dividend Stocks 

A decade from now, these 2 dividend stocks could give you strong returns through dividends or capital appreciation, or both.

Read more ยป

Silver coins fall into a piggy bank.
Dividend Stocks

TFSA: 3 Top-Tier TSX Stocks for That $7,000 Contribution

The market is full of great long-term stock to fuel your TFSA. Hereโ€™s a look at three top-tier TSX stocksโ€ฆ

Read more ยป

A plant grows from coins.
Dividend Stocks

3 Top Growth Stocks to Buy for March

These three growth stocks might be excellent holdings to add to your self-directed portfolio this month.

Read more ยป

dividends can compound over time
Dividend Stocks

Sell-Off Opportunity: Why This Beaten-Down Canadian Stock Could Rebound

Nutrien stock might be down now, but long-term investors will certainly reap some major rewards.

Read more ยป

man in suit looks at a computer with an anxious expression
Dividend Stocks

U.S. Stock Market Correction: Hereโ€™s Where We Stand

U.S. stocks are pricey. Canadian stocks like Alimentation Couche-Tard Inc (TSX:ATD) are less pricey.

Read more ยป

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Market Correction Coming? These 2 Defensive Stocks Can Protect Your Portfolio

When it comes to essential defensive stocks, these two take the top spots.

Read more ยป

Canadian dollars are printed
Dividend Stocks

Is Passive Income From Stocks Legit? Hereโ€™s How Much You Can Really Make

You can get about 5% per year in passive income, maybe more with high-yield stocks like Enbridge Inc (TSX:ENB).

Read more ยป