Investors in Canadian National Railway (TSX:CNR) have been on a rough ride for the past year. Canadian savers with a contrarian investing strategy are wondering if CNR stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
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Canadian National Railway stock
CN’s share price is down about 8% in 2025 and is off more than 21% compared to where is sat a year ago. At the time of writing, CN trades near $137.50 per share compared to a 12-month high near $180.
Labour disputes at Canadian ports, along with wildfires, disrupted operations in 2024. New labour agreements reached last year should mean those disruptions will not be repeated in 2025. Erratic weather conditions, however, are unpredictable and will always be a threat to interrupt traffic on CN’s routes.
In 2025, the continued pullback in the stock is likely due to uncertainty around the impact of new tariffs put in place between the United States and Canada, as well as on goods entering the United States from other countries. An extended trade war would likely push the U.S. and Canadian economies into a recession. This would force consumers and businesses to cut back on purchases of raw materials and finished goods, ultimately impacting demand for CN’s services.
On the upside, there is a chance that reasonable trade deals will be reached in the coming months, and the economy will get back to more normal operations. In that scenario, the drop in CN’s share price is probably overdone today. CN’s fourth-quarter (Q4) 2024 earnings report provided guidance for solid adjusted earnings per share growth in 2025, so management was upbeat on the company’s prospects as of the end of January. Investors will want to pay close attention to the Q1 2025 results to see if the company’s outlook is still as rosy.
CN has a share-buyback program in place that enables the company to repurchase up to 20 million shares between February 4, 2025 and February 3, 2026. The current dividend yield on CN stock is 2.6%. CN’s board has given investors a dividend increase every year since CN went public in the mid-1990s.
The company is a key player in the smooth operation of the Canadian and U.S. economies, transporting more than $250 billion worth of cargo every year. CN’s rail network includes roughly 20,000 route miles running from ports on the Atlantic and Pacific coasts of Canada to the Gulf coast in the United States.
Rail competition along the same routes is limited, and there is almost no possibility of new competing tracks being built. Trucking companies can lure away some businesses depending on fuel costs and the distance the customer needs to move the cargo. In general, CN enjoys a wide competitive moat.
Time to buy?
Near-term volatility is expected in the markets, and additional downside is possible for CN’s share price. That being said, contrarian investors with a buy-and-hold strategy might want to start nibbling at this level. Picking up CN on big pullbacks has historically proven to be a profitable move over time.
