Canadian Railways Are Still 2 of the Best-Quality Stocks on the TSX Index

Have grain-transport caps affected Canadian National Railway (TSX:CNR)(NYSE:CNI) or its biggest competitor? Let’s review their stats.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’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

While grain quotas may not sound like they’d have much of an impact on transport companies listed on the TSX index, a cap placed last year on grain-transport revenue has led to the country’s two big-name railways exceeding their entitlements under the new rules.

We’re going to take a look at the data and see whether this news has affected the vital statistics for two of Canada’s biggest transport stocks. Will the latest round of press exposure affect value, quality, or momentum stats? Let’s trawl the data and review.

Canadian National Railway (TSX:CNR)(NYSE:CNI)

Buying transportation shares on the TSX index has been a national pastime ever since our biggest stock exchange came into being. But is there a clear frontrunner in terms of value, quality, and momentum? A PEG of 2.9 times growth indicates that Canadian National Railway is overpriced, but let’s look at a few more fundamentals and weigh this up.

Its P/E ratio of 12.8 times earnings is interesting, since it beats the TSX index but exceeds the industry by a few points. Perhaps the clearer ratio is its P/B of 4.2 times book. A somewhat high debt level of 67.6% of net worth and low dividend yield of 1.81% might not make for an attractive stock for new passive-income investors, however.

A past-year ROE of 33% is great to see and exceeds many other high-profile stocks that usually lag around 11-16%. An EPS of $7.84 is acceptable, meanwhile. A boost of 4.4% in expected annual growth in earnings over the next one to three years seems a pretty conservative estimate, considering recent oil-shipping deals that also relate to its competitor below. However, it’s a positive outlook and combines with that high ROE and decent EPS to make for a good-quality stock.

How about momentum? Canadian National Railway gained 3.57% in the last five days, while its five-year market-comparative beta of 0.77 indicates sub-TSX index volatility. Meanwhile, its share price is overvalued by almost one-and-a-half times its future cash flow value, making for a passable momentum stock all told.

Canadian Pacific Railway (TSX:CP)(NYSE:CP)

One of the top TSX stocks to watch for a dip, Canadian Pacific Railway displays better-quality indicators than its above-listed competitor: a ROE of 34%, EPS of $16.64, and 8.7% expected annual growth in earnings all exceed the stats for Canadian National Railway.

Canadian Pacific Railway’s beta indicates exact market-matching volatility, so you can expect Canadian Pacific Railway to move in line with the TSX index. Combine this with overvaluation by about $100 a share compared to its projected cash flow value and a five-day gain by 5.87% and you have a decent momentum stock.

Where Canadian Pacific Railway comes to a halt, though, is in its value. While a PEG of 1.7 times growth could be worse, a P/E of 14.5 times earnings is a tad high, and that P/B of 4.8 times book is higher yet. As such, its dividend yield of 1.08% might be too low to entice new passive-income investors, while comparative debt at 116.2% of net worth may likewise be a disincentive for the risk-averse newcomer to invest for the long term.

The bottom line

With respective market caps of $73 billion and $34 billion, Canadian National Railway and Canadian Pacific Railway are defensive assets that can give some backbone to your passive-income portfolio. However, their yields are a little low, as are their expected outlooks. Overall, they’re strong holds to moderate buys, though the real good news is that recent headlines don’t seem to have hurt either stock’s share price.

Should you invest $1,000 in Firstservice Corporation right now?

Before you buy stock in Firstservice Corporation, 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 now… and Firstservice Corporation wasn’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 “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

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 – 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 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Victoria Hetherington 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. Canadian National Railway 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? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’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

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Got $5,000? 5 Income Stocks to Buy and Hold Forever

These income stocks have a solid dividend-payout history that can help you earn stress-free passive income.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »