3 Reasons Why Canadian National Railway Company’s Stock Could Soar Higher

Canadian National Railway Company’s (TSX:CNR)(NYSE:CNI) stock is trading near a 52-week high, but recent catalysts could send it even higher.

| More on:
The Motley Fool

Canadian National Railway Company (TSX: CNR)(NYSE: CNI) recently reported surging second-quarter profits, which climbed by 18% to $847 million thanks to higher freight volumes, primarily from the record grain crop.

Revenue from moving grain and fertilizers jumped 35%, oil shipment revenues climbed 17% and metal and miners’ movement gained 20%.

The company’s stock is trading near a 52-week high, but I don’t think the rally is over yet. Here are three reasons why the shares could move even higher.

1. Robust demand to transport grains

CN Rail may not be happy that the Canadian government recently increased the amount of grain it’s required to ship, however, the expectation of another bumper crop and the government’s desire not to have a repeat of last year is excellent news for the company.

The government wants both CN Rail and Canadian Pacific Railway Limited (TSX: CP)(NYSE: CP) to move 536,250 metric tonnes of grain per week through November to help remove a bottleneck that followed the record 2013 wheat and canola harvests. Now, for this season the current wheat crop has the potential to be the second largest on record.

CN Rail’s CEO voiced his disappointment when the Canadian government announced the new regulations, but investors were happy. They bid the stock up 1.5% shortly after the announcement, and rightfully so. Lots of grain to transport will mean lots of business for Canadian National Railway.

 2. Pipeline red tape

With the completion of pipelines to transport oil from Alberta’s oil sands across North America currently on hiatus until regulatory approval is obtained, CN Rail is seeing unprecedented demand to transport oil.

CN Rail plays a crucial role in transporting crude oil in North America because the company owns the railway tracks that run to the oil sands in Alberta, and across the continent.

While the completion of the pipelines could be a negative for the company’s stock, CN Rail will continue to benefit from increased demand to transport crude. Even if the pipelines are approved, the company will see a few years of high profits during the time it takes to finish construction of the pipelines.

3. Fleet and safety improvements

A dark cloud hanging over the rail sector has been the uptick in rail crashes recently. If a disaster were to occur it would be very bad news for the impacted company’s stock. That is part of the reason that Canadian National Railway announced this past spring that it will phase out its fleet of 183 older tank rail cars used to transport diesel fuel over the next four years.

The legacy DOT-111 cars will be replaced with cars that meet the latest regulatory standards. DOT-111 tanks have a history of puncturing in accidents.

Canadian National Railway is taking its safety regulations further, and extended a U.S. policy on hazardous materials that includes inspections, restrictions on speeds and other measures to its Canadian operations.

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 Leia Klingel has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National is a recommendation of Stock Advisor Canada.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset

3 Soaring Stocks to Hold for the Next 20 Years

These three stocks are good bets for the long haul, given their healthy long-term growth prospects.

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

A plant grows from coins.

2 Dividend Stocks Paying 5% or More That Could Beat the Market in 2024 and Beyond 

Here are two top dividend stocks long-term investors may certainly want to consider for their yields and growth profiles right…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

healthcare pharma
Tech Stocks

What’s Going on With WELL Health Stock?

WELL stock (TSX:WELL) made strong moves once again, with record earnings and even higher guidance for 2024.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

money cash dividends
Stocks for Beginners

Is TD Stock the Best Dividend Stock for You?

Shares of TD stock (TSX:TD) plunged on the news of a money laundering probe. But could this mean it's a…

Read more »

exchange traded funds

New to Investing? Get Started With This Easy, Hands-Off Method

Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) is a glorious first investment candidate for beginner investors.

Read more »