Market Crash Alert: Is It Time to Buy Canadian National Railway (TSX:CNR)?

As the stock market remains volatile, the Canadian National Railway stock could be an ideal buy for investors right now.

| More on:
railroad

Image source: Getty Images

While the global equity markets are in turmoil is it time to bank on large-cap stocks such as Canadian National Railway (TSX:CNR)(NYSE:CNI)?

The iShares S&P/TSX 60 Index ETF is trading at $21.4, which is 21% below record highs. Comparatively, CN has lost 15% in this bear market and has managed to outperform the broader indexes.

There is a growing risk of a recession impacting Canada and other regions. Several economists predict that the upcoming downturn may be far worse than the one experienced during the financial crisis of 2008-09.

Railroad stocks perform in line with the economy. If the economic output is subdued, investors can expect shares of the Canadian National Railway to derail.

There is also the looming threat of plunging oil prices, which would lower demand for coal — a key product for railroad cargo. The countrywide lockdowns will further hurt the demand for crude oil and the need to transport them from oil fields.

So, amid the growing uncertainty, are transportation stocks such as Canadian National Railway a good bet right now?

Canadian National Railway has a huge network

Canadian National Railway is the only rail company in North America that connects three coasts, giving it a distinct competitive advantage. The transportation giant generates revenue from Canada, and the United States and transports close to $250 billion worth of goods annually. These goods include crude oil, automobiles, coal, forestry products, fertilizers, food grains and more.

While the COVID-19 pandemic has driven consumer spending lower, CN provides an essential service and enjoys a monopoly, making it a safe stock even in the current environment.

Its focus on earnings and cash flow growth has helped the company increase dividend payments and reinvest in capital expenditure. CN ended 2019 with an operating margin of 62.5% and a free cash flow of $2 billion.

In the last seven years, its sales have risen at an annual rate of 6%, and last year the company invested close to $4 billion in new rail cars, networks and technology upgrades.

Canadian National Railway has generated significant wealth over the last two decades. According to Fool contributor Andrew Walker, a $6,000 investment in CN 20 years ago would have generated $125,000 after accounting for dividend re-investments.

CN stock is currently trading at $108.7 at the time of writing and is down 8.8% year to date. This pullback has increased the dividend yield to 2.1%.

The verdict

The upcoming quarterly results of the Canadian National Railway will throw more light on the impact of the COVID-19 on the company’s financials. However, CN remains a fundamentally strong company. It is almost impossible to time the market, and the ongoing volatility makes it that much more difficult.

The COVID-19 pandemic is likely to be a near-term headwind and will impact the top line of several companies in the upcoming quarters.

But for long-term investors, the outlook for railroad stocks remains unchanged. The recent pullback in CN stock should be viewed as an opportunity to buy a top-quality stock at a lower valuation.

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.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

money cash dividends
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

Are you looking for some of the best Canadian Dividend stocks to buy this year? Here are three great options…

Read more »

Man data analyze
Dividend Stocks

2 Recession-Tough Stocks to Buy in February 2023

TSX stocks, such as Jamieson Wellness, are trading at compelling valuations and might deliver stellar gains to investors.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Defensive Investors: 3 Stocks to Shore Up Your Portfolio

Fortis is a defensive stock with an impressive track record.

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Passive Income: 2 Cheap Stocks to Buy and Never Sell

Buying dividend stocks cheap and discounted is a strategy many value investors pursue to maximize the return potential.

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

Dividend Stocks: Will Debt Load Put a Damper on This Top Stock in 2023?

This dividend stock has a very solid track record of revenue and cash flow growth, ,as well as dividend growth,…

Read more »

A plant grows from coins.
Dividend Stocks

How to Invest in One of the Most Important Commodities in the World (It’s Not Gold)

Many things we take for granted may offer economic value and a powerful investment opportunity beyond commodities like gold or…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Need Passive Income? Turn $15,000 Into $1,016 Annually With These 2 Dividend Stocks

Canadian investors with limited capital can create passive-income streams from two high-yield dividend stocks.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

Why Brookfield Infrastructure Partners Stock Rose 11.8% Last Month

Most, if not all, investors could do well by buying quality dividend stocks like Brookfield Infrastructure Partners (TSX:BIP.UN) on dips.

Read more »