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

Hand writing Time for Action concept with red marker on transparent wipe board.
Stocks for Beginners

Buy the Dip: 2 Insanely Cheap Growth Stocks to Buy Today!

Many Canadian growth stocks are looking insanely cheap today. Here are two stocks that have long histories of making investors…

Read more »

Cogs turning against each other
Dividend Stocks

1 Passive-Income Stock to Counter Volatility

Looking for a stock that can counter volatility now and tomorrow? This stock is a reliable option for growth and…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

A Top REIT for High-Yielding Income

This top REIT on the TSX offers investors a considerable amount in shareholder dividends through its massive dividend yield.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

Should You Buy Canadian Bank Stocks in the Face of a Potential Recession?

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock a is a great blue-chip name that investors should not hesitate to buy on…

Read more »

analyze data
Metals and Mining Stocks

3 Under-the-Radar Commodity Stocks to Buy

Three commodity stocks are likely to break out soon if inventories in metals markets continue to decline or demand outpaces…

Read more »

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »

Investing

2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends
Investing

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »