CN and CP Rail Stocks Look Like Screaming Buys Today

CN Rail (TSX:CNR)(NYSE:CNI) and CP Rail (TSX:CP)(NYSE:CP) stock won’t make you rich, but they can help stabilize your RRSP or TFSA.

| More on:
rail train

Image source: Getty Images

CN Rail (TSX:CNR)(NYSE:CNI) and CP Rail (TSX:CP)(NYSE:CP) stocks have endured quite the sluggish ride over the past year and a half. Undoubtedly, the COVID pandemic has weighed on growth prospects, and with a recession on the horizon, things may go from bad to worse. Still, it’s a bad idea to count out the railways, especially the high-quality Canadian ones, which have been put to the test so many times in the past. They’ve made it through downturns and recessions. And although they depend on the health of the broader economy for their growth, CN and CP Rail stock tend to hold up far better than the rest of the market, with dividend raises and all the sort, even in the most trying of years.

With a 2023 recession likely looming around the corner, the railway stocks have been quite a drag. Still, they could storm out of the gate once the recession ends, and the stock market starts looking ahead to 2024 and beyond. At the end of the day, rail stocks are the perfect long-term holdings. They have a wide moat protecting their profitability prospects and tend to be great pick ups, regardless of what the economy is looking like.

Simply put, CN and CP Rail stocks should be considered any time they dip or drag their feet over the course of many quarters. They’re robust businesses that can give you consistent dividend raises every single year.

Without further ado, let’s check in with each railway play to see which, if any, is a better buy for your long-term portfolio.

CN Rail

CN Rail is a rail behemoth that lost its bidding battle against CP Rail last year. Indeed, I predicted that CN was just trying to raise the price for its Canadian rival. I think losing the right to acquire Kansas City Southern was a blessing in disguise. Why? The deal would have accompanied a lot of debt and in a rising-rate world. Further, CN Rail already has an extensive rail network. The firm’s focus should be investing in getting its operating ratio back on track (forgive the pun).

CN’s past few years have been lacklustre. With a new CEO in Tracy Robinson on board, we could see CN Rail really take steps to becoming a top-performing rail player. The stock performance has lagged its rival CP Rail, mostly due to questionable management decisions.

As Robinson looks to make the right investments, I’d look for CN to be ready for the next economic boom. The stock goes for 21.1 times trailing earnings. It’s not cheap, but the 2.03% yield is attractive.

CP Rail

CP Rail stock has really outpaced its rival CN in recent years. Still, the stock is stuck in a bit of a slump, as investors sour on stocks in general. With Kansas City Southern likely to give the firm a long-term jolt, investors have a lot of reasons to give the firm the benefit of the doubt. In the meantime, the deal will limit CP’s financial flexibility and, at the worst possible time.

With strong managers and a robust operating ratio, I’d be a buyer of any dips that happen between now and the year’s end. CP Rail stock is not cheap at 23.4 times earnings, with a tiny 0.83% yield. Due to the higher multiple and complexities involving its latest acquisition, I’d argue CN Rail is a better buy, even if CP has more to gain from strength in grain shipments. The premium is just a tad too rich in CP versus CN stock.

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 Joey Frenette has positions in Canadian National Railway. The Motley Fool recommends Canadian National Railway.

More on Investing

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Investing

Is Canadian National Railway Worth Buying for its 2.2% Dividend Yield?

Let's dive into whether Canadian National Railway (TSX:CNR) is a top buy for long-term investors at this point in the…

Read more »

nuclear power plant
Energy Stocks

Is Cameco Stock Still a Buy?

Cameco stock recently reported earnings that showed the Westinghouse investment is creating some major costs. But that could change.

Read more »

cloud computing
Dividend Stocks

Insurance Showdown: Better Buy, Great-West Life or Manulife Stock?

GWO stock and MFC stock are two of the top names in insurance, but which holds the better outlook?

Read more »

analyze data
Dividend Stocks

Here’s Why the Average TFSA for Canadians Aged 41 Isn’t Enough

The average TFSA simply isn't enough for most Canadians in their early 40s. Here's how to catch up.

Read more »

A plant grows from coins.
Dividend Stocks

The Smartest Dividend-Growth Stocks to Buy With $1,000 Right Now

New dividend-growth investors should consider CN Rail (TSX:CNR) stock and another top play if they're looking to build wealth over…

Read more »

concept of real estate evaluation
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on It

Canadian REITs can turn your TFSA into a monthly paycheque machine for life. Here's how Morguard North American Residential REIT…

Read more »

Start line on the highway
Investing

2 No-Brainer Growth Stocks to Buy Now With $5,000 and Hold Long Term

Market conditions today are ideal for growth investing, and two rising stocks are no-brainer buys in November.

Read more »