2 Railroad Stocks That Have Been Soaring This Year: Is it Time to Buy?

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) has risen more than 35% since last year, but can that trend continue?

| More on:
The Motley Fool

When the economy is doing well, more goods are transported across the country. We’ve seen airlines post record travel numbers in the past year, and by similar logic, it’s not surprising that railway operators have also been doing well. The Canadian economy continues to do well and we’ve seen multiple interest rates hikes as a result, and more could still be on the way.

Two stocks that have benefited from the bullish economic conditions are railroad stocks Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) and Canadian National Railway (TSX:CNR)(NYSE:CNI). As of the end of last week, CP Rail had soared more than 35% in the past 12 months and is near its 52-week high. CN Rail is also near its high for the year, although its returns during the same time frame are a bit more modest at around 15%.

While both stocks have surpassed the TSX’s returns, the big question is whether or not the shares have peaked and whether there is much upside left for investors who buy today. Let’s take a look at both sides of the argument.

Why the stocks could continue to soar

The economy keeps adding more jobs, and the national unemployment rate is only 5.8%, which is the lowest it has been in four decades. If this trend continues, then it’s hard to imagine things slowing down for either CP or CN Rail, as traffic levels are likely to continue to rise.

Over the past 10 years, the stocks have shown very positive trends, rising 300% during that time. While there may be dips that may occur as a result of economic conditions, these two stocks are proving to be very stable, consistent performers. And given how large this country is, the demand for rail transportation simply isn’t going anywhere anytime soon.

Why the stocks could falter

Although the stocks have done very well over the past 10 years, it was about a decade ago that we saw the last big economic crisis, and since then things have been fairly stable. However, that could change as U.S. politics are presenting lots of uncertainty for Canadian companies.

What happens with NAFTA could have a big impact on the Canadian economy and poses a big risk to many businesses. We’ve already seen one Canadian company make a drastic move after facing the threat of significant tariffs.

Uncertainty is always an investor’s nightmare, and there’s a lot of it involving the U.S. right now. It has the potential to affect many industries and rail stocks could just be a small part of that, but they certainly can’t be ignored either.

Bottom line

In the short term, there’s a fair bit of risk when it comes to the economy and what will happen with U.S. relations. However, if there’s a change in the U.S. leadership, then any changes may be short-lived anyway. The problem at this point is that there are more questions than answers.

Over the long term, however, these stocks look to be good buys that are likely only going to continue to grow as the economy expands and gets stronger.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — 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 David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. CN is a recommendation of Stock Advisor Canada.

More on Investing

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »

telehealth stocks
Tech Stocks

Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »