Canadians are searching for quality stocks to add to their RRSP portfolios. Let’s take a look at Canadian National Railway Company (TSX:CNR)(NYSE:CNI) and Suncor Energy Inc. (TSX:SU)(NYSE:SU) to see if one is a better pick. CN CN is one of those stocks you can simply buy and forget about for a couple of decades. Why? The nature of the railway industry is such that new players have limited opportunities to construct additional tracks to compete with existing networks. As a result, the current rail business enjoys a wide moat. In the case of CN, the competitive advantage is more striking,…
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Canadians are searching for quality stocks to add to their RRSP portfolios.
CN is one of those stocks you can simply buy and forget about for a couple of decades.
The nature of the railway industry is such that new players have limited opportunities to construct additional tracks to compete with existing networks.
As a result, the current rail business enjoys a wide moat.
In the case of CN, the competitive advantage is more striking, as the company is the only operator in North America that can offer its customers access to three coasts.
CN still has to compete with trucking companies and other railways on some routes, so management remains focused on driving down costs. In fact, CN regularly reports an industry-leading operating ratio and is widely viewed as the best-run business in the sector.
Revenue can fluctuate with shifts in economic activity, but in good times and bad, CN generates impressive profits and solid free cash flow.
As a result, investors have been handsomely rewarded over the years. CN has a compound annual dividend-growth rate of more than 16% over the past two decades, and management allocates significant funds to share buybacks.
The stock has enjoyed a stellar run since the summer, and some investors are hoping for a pullback. With CN, it’s probably best to simply buy a bit every year. Trying to time this stock often results in missed gains.
A quick look at Suncor’s 10-year stock chart doesn’t provide great motivation to hit the buy button. Over the past decade, the shares are actually down about 8%.
Add to this the concerns over the future of the global oil market and Canada’s position in it, and you really have to be an oil bull to take the plunge.
However, if you believe oil prices are destined for an extended recovery and are of the opinion that Alberta’s oil sands producers will eventually get access to the coasts to send their product overseas, Suncor is worth a closer look.
The company’s integrated business structure has enabled it to weather the oil storm in relatively good shape, and management has taken advantage of the difficult times to add strategic assets and drive down costs.
Suncor continues to raise its dividend and has one of the strongest balance sheets in the oil patch, so investors get paid well to wait for better days and shouldn’t have to worry about the business going bust.
At the current stock price, Suncor provides a 3.2% yield.
It’s a resource play which comes with risks, but there is big upside potential in this stock if oil recovers.
Is one a better RRSP pick?
Both companies are industry leaders run by top-quality management teams.
For investors who think oil has a strong future, adding Suncor while the market is still under pressure might prove to be a smart contrarian move.
If you are not convinced Canada’s oil sands is the place to be for the long haul and want a safer, slow-and-steady growth option, CN is probably the better way to go today.
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Fool contributor Andrew Walker 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.