Canadian National Railway Company (TSX:CNR)(NYSE:CNI) has enjoyed a very nice 23% rally this year as the company continues to recovers alongside the Canadian economy. The stock has gone up big, and many investors think the stock is either fully valued or overvalued at current levels. I believe the stock could be getting ready to skyrocket next year as Donald Trump’s new policies will work in the favour of the company.
It’s no mystery that Donald Trump is pro-business, and he wants to give the U.S. economy a kick-start by lowering corporate taxes and reducing the number of regulations that are impeding business progression.
A stronger U.S. economy, when combined with the reduction of regulations, could mean a huge year for Canadian National Railway since 17% of its revenue comes from the U.S.
The amount of traffic moving between Canada and the U.S. will pick up next year, and Canadian National Railway is poised to be one of the biggest beneficiaries of this since the company’s rail network spans both coasts of Canada and goes all the way down to the Gulf Coast. No other railroad has a network like this, and this serves as a huge moat that will protect the business from entrants.
Canadian National Railway is also a fantastic operator, as the management team focuses on improving operational efficiency each year through its investments. The stock has an astounding 24.1% ROE and a steadily improving operating margin.
It’s clear why Bill Gates has such a large stake in the business. The stock is one of the best dividend-growth stories over the last decade; the dividend has been increased through thick and thin. Going forward, we can expect more dividend raises as the economic environment starts shifting in Canadian National Railway’s favour.
The stock currently trades at a 20.2 price-to-earnings multiple, which doesn’t appear cheap, but don’t let this metric trick you; the stock is still undervalued right now. The earnings reports in 2017 will be much better and, as a result, the price-to-earnings multiple will go down drastically as the earnings start to increase faster than the price of the stock.
Canadian National Railway pays a modest 1.64% dividend yield, which may not seem like much at first glance. But it is important to note that this dividend has been increased by as much as 25% for a given year. This is a massive dividend hike, and if you’re a long-term holder of the stock, all of these dividend raises added up will make you very rich.
Now is the time to pick up shares of Canadian National Railway because the stock is poised to be one of the biggest winners of 2017.
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 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 Railway is a recommendation of Stock Advisor Canada.