The Motley Fool

CN Rail (TSX:CNR): A Top Canadian Stock to Buy in May

Image source: Getty Images

There is a fair amount of uncertainty about the top Canadian stocks that are closely tied with the North American economy. Business and industrial activity is at a standstill during the Covid-19 pandemic, and millions of people are losing their jobs. 

Many analysts don’t believe that these growth-oriented stocks have seen the worst of the economic crisis yet. One such stock is Canadian National Railway Co. (TSX:CNR)(NYSE:CNI), which provides crucial transportation and logistic services to companies in North America.

Volumes at CN Rail and Canadian Pacific Railway Ltd. will likely be “severely impacted in the coming months” as industrial supply chains remain shut down and retail harshly curtailed, National Bank analyst Cameron Doerksen said in a recent research note, carried by the Globe and Mail.

“There is no question in our mind that freight volumes in the next few months are going to be severely depressed with no real historical precedent,” he said. Automotive shipments and container traffic have been hit particularly hard after North American and Asian production hubs went into lockdown due to the virus.

Year over year, auto and container volumes decreased by more than 15% and 12% respectively in March. Container traffic saw its steepest plunge since 2009, the report added.

Short-term weakness

Neither CN Rail’s earnings nor its share price reflect that pessimistic scenario, however. In its first-quarter earnings, CN Rail reported a 29% rise in profit despite all the operational interruptions. These included February’s rail blockades sparked by anti-pipeline protesters, and the pandemic which slowed every sector of the economy from the mid-March.

CN Rail’s share price, after tumbling by 18% by mid-March, is down just 3% for the year. It closed on Wednesday at $113.91.

The reason for this strength is that investors know this weakness is short term and can’t hurt CN Rail business permanently. CNR runs a 19,600-mile rail network that spans Canada and mid-America, connecting the Atlantic, the Pacific, and the Gulf of Mexico. A week-long CN train operators’ strike that ended this week has further highlighted the strength of this stock. 

This wide economic moat makes CNR a stock that has the power to defend its business, while continuing to pursue growth.

Even after the recent pullback, CNR stock is up about 45% in the past five years. With an annual dividend yield of 2.03%, the company pays about $0.575 a share quarterly payout. The dividend has grown about 17% per year during the past five years.

Bottom line

CN Rail is a top stock that long-term investors should consider buying in this uncertain time. It can provide income with the potential for further growth. Consider adding this stock to your portfolio for safety as the economy slips into a recession.

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting...
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago - before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

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 has no position in the stocks mentioned in this report. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends BANK OF NOVA SCOTIA and Canadian National Railway.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.