The Motley Fool

Canadian National Railway (TSX:CNR) Is About to Dip: When it Does, Buy it!

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Analysts are a bit worried about Canadian National Railway (TSX:CNR)(NYSE:CNI). On the one hand, this stock has been performing on a level almost akin to miracles. At the time of writing, shares are trading at $124, and that’s far and away the highest it’s ever performed.

But that’s what has them worried in the short term. CNR engages in rail and related transportation, and a lot of that has to do with crude oil shipment. With the oil glut curtailing production, that has also meant a shortage of shipping for CNR. In fact, in the next 12 months, some are expecting the stock to drop to $90 per share.

But those analysts are contradicted by others who say this stock will only continue its stratospheric rise, predicting $140 in the next 12 months.

Honestly, there’s only one takeaway I can put in here: it doesn’t really matter.

Well, not much.

This stock has continued to perform throughout its history, making it an ideal stock to have in your portfolio to keep your money rising as steady as a rail. Whether the stock drops or not, it won’t be down forever. But there is the potential for it to drop in the near future, providing an ideal buying-in opportunity on this rich-maker stock.

Historically, this company has been a cash king. CNR generates free cash flow on average of 15% of sales in the last decade, mainly from the oil and forest industry. The rest of that focus is on intermodal, agriculture, and chemicals, giving it a diversified mix of exposure to various industries.

The railway is also in the process of expansion and reinvestment, improving its railroad assets and infrastructure by covering the expansion of 140 miles of double track and 140 new locomotives with 20% of its revenue, and acquiring Canada’s largest private transportation company, TransX. This should continue over the next several years the company continues this process.

Now, you might have heard that the company announced less-than-ideal results in the last quarter, but most analysts aren’t too concerned, as these issues were outside the company’s control. Operating expenses increased 14% year over year due to weather conditions, foreign currency translations, and higher labour costs. While these issues shouldn’t necessarily worry investors, it could mean another quarter of slumped results.

CNR’s first quarter of 2019 produced $3.54 billion in revenue, or a gain of $350 million compared to last year, and adjusted net income rose to $848 million. So, why are analysts worried?

The results were good but still missed analyst expectations, sending the stock slightly down before rebounding again. Again, the results came from outside factors, and putting money towards capital projects for the year. This could send shares down in the short term, but if you’re looking for a long-term investment, it’s definitely no time to panic.

And if you’re looking to get in now, even if the stock slumps, you’ll have the company’s dividend that was just increased by 18% to 1.8% dividend yield as of the time of writing. On top of that, the company is putting cash aside to repurchase shares in the near future, which should tell investors $124 could only be the beginning.

Foolish takeaway

Analysts are recommending a hold right now on this super-high stock. However, if you’re interested in holding this stock for decades to come and don’t want to wait, it shouldn’t matter whether you buy it now or in a couple of months.

If history is any indicator, by 2023 this stock could be at the $200 mark, turning a $30,000 investment into $50,000 in a few years. That estimate isn’t too far away, making this stock the kind that could take you into that “rich” category in a few decades.

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Fool contributor Amy Legate-Wolfe has no position in any of the 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.

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