We’re sailing through a period of seasonal sluggishness with the September slump in full swing. Indeed, rate fears are back in full force, with tech stocks once again leading the charge lower. Undoubtedly, the rest of the market seems to be stuck in a funk, but investors need not fret, as the autumn blues tend to precede the build-up towards the Santa Claus rally. Now, last year, Santa Claus was nowhere in sight. However, this year, things could be different, as we look for any hint of relief for the average consumer.
As the September sag in stocks continues, I’d look to pick up shares of high-quality companies at below-average prices. Further, I’d also pay more emphasis on the shares of companies that did not deserve to be punished. Sometimes, market jitters are so prominent that everything, even stocks of companies that are firing on all cylinders, can fall. Mr. Market is prone to making mistakes, especially when a wave of panic rocks the broader stock markets.
CN Rail stock: Oversold and undervalued
Without further ado, shares of CN Rail (TSX:CNR) seem overly punished. The stock has been dragging its feet for quite some time now. And after Thursday’s hideous session of trade, I think the stock is becoming extremely undervalued while it’s trading for well under $150 per share. After taking a 2.6% hit to the chin last Thursday, shares are trading at $148 and change. That’s close to 52-week lows. The reason? Mostly broader macro headwinds and ongoing concerns about rates.
Undoubtedly, high rates should have been expected. Rate pause and cut expectations seem to be more muted, especially after Canada’s latest hot inflation result.
At the end of the day, CN Rail is a company with a moat so wide that even new disruptive innovations won’t be able to jeopardize the firm’s slice of economic profitability. Even artificial intelligence (AI) technologies can’t stop the rails in their tracks. As AI advances, though, do look for the rail plays to invest accordingly, not only to improve operational efficiencies but to enhance the safety track record.
AI is a disruptive technology that could improve the rail industry as we know it
Simply put, the rail stocks look like wonderful firms that could benefit greatly from the ongoing rise of AI. Though there are no clear plans quite yet, I think it’s a matter of time before AI helps the rails operate at an optimal level. For now, precision railroading seems to be all the rage. In a few years from now, it may be AI scheduling that takes the industry to the next level.
Rest assured, I think CN Rail will very much be one of the pioneers in the space. For now, the stock is discounted, going for 19.05 times trailing price to earnings, with a 2.1% dividend yield. With a modest $97.4 billion market cap and the means to rocket higher on the other side of recent economic weakness (and potential recession to come), I’m considering adding to my stake in shares of CNR.
At around 52-week lows, the stock seems just too good to pass up, given its rich history of annual dividend hikes and its ability to sail through economic headwinds without falling apart.
