Talks of a recession have been going on for some time now. Although downturns are a part of the economic cycle, people from all walks of life have been continuously wondering when the next downturn is going to happen and how to prepare for it. As an investor, you might have a lot riding on your investments. A recession can make a massive difference to your financial conditions.
Unfortunately, it is impossible to predict when the next recession will hit with accuracy. You might be wondering when the next recession will strike, and all I can tell you is that I am not sure. Nobody is. Most economists predict that the global economy will see a significant downturn before fiscal 2020 ends.
Whether you believe the predictions or not, I will say that it will be a wise move to take a look at your portfolio and make some preparations. As an investor, getting ready for a recession can involve placing your faith in historically defensive stocks. During the past several recessions, there have been a few stocks that have resisted the drastic effects of market downturns.
I think there is one stock that could be an excellent choice to protect your investment portfolio from a market downturn: Canadian National Railway (TSX: CNR)(NYSE: CNI).
Canadian National Railway
With a network of around 20,000 route miles throughout North America, Canadian National Railway is one of the most extensive rail transportation businesses in Canada. The company carries more than 300 million tonnes of cargo worth a quarter of a trillion dollars annually. Almost 70% of CNR’s sales generate from Canada, while the rest are from its operations in the United States.
In Q3 2019, which ended in September this year, CNR reported a rise of 4% in sales year over year, with sales hitting the $3.83 billion mark. The adjusted earnings per share for the company’s stock in the quarter rose to $1.66 — an increase of 11% from the same period last year. The company’s operating ratio did fall, however, down 1.6% from last year, and it reported an operating income increase of 8% to $1.61 billion.
Challenging times
In the past week, CNR saw an eight-day-long strike come to an end, which saw more than 3,000 employees go on strike. The company had to operate on just 10% capacity during that period, and it had to implement a recovery plan. While the strike is over now, the backlog created by the strike will hamper the bottom line, and the start to 2020 could pose challenges for the company.
The company is focusing on optimizing its supply chain to adjust the change in demand for its services. Despite the eight-day strike, analysts expect CNR to increase its sales by 5% year over year in 2019 and 2020. Analysts have also forecasted CNR’s annual earnings to grow by 7% in the next five years.
Foolish takeaway
Canadian National Railway’s price-to-book ratio is 4.9, while the estimated PEG for five years is 3.6. Value investors might not enjoy that, in addition to the fact that it already has a forward P/E multiple of 18. The premium price of $117.05 per share at writing might not be attractive for investors seeking capital gains. As a defensive buy, however, CNR has all the right fundamentals for long-term stability you might need, especially during a recession.
