Keep Your Portfolio From Going off the Rails With This Stock

Investors are looking for safe bets during the market turmoil. One of my top picks is Canadian National Railway (TSX:CNR)(NYSE:CNI).

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

As far as long-term buy and hold investments go, Canadian National Railway (TSX:CNR)(NYSE:CNI) has proven to be a gem. In times of uncertainty, stocks like Canadian National are great safe havens. Canadian National has a massive business model moat and extremely stable earnings.

For these reasons and more, Canadian National is a great pick for equity investors rightly worried about more downside on the horizon. In this article, I am going to discuss why I think CNR is one of the best picks on the TSX today.

Investors need to think long term

With nearly 100% of media coverage today, understandably, solely focused on the coronavirus pandemic, short-term concerns are top of mind for all investors. That said, for those with retirement accounts or with investing time horizons longer than a year or two, looking at the bigger picture should be the focus.

Investors should view this market turmoil as a buying opportunity for the long term. Canadian National is one of those insulated long-term plays that would certainly fit into the bucket of stocks to put away and forget about for a long-time. This is one of the key reasons I keep recommending it.

Railroads are not going away. Rail is still the most cost-efficient and environmentally friendly way to transport large amounts of goods long distances. Like its peer Canadian Pacific Railway (TSX:CP)(NYSE:CP), CNR operates in a natural duopoly in this sector in Canada.

These realities are fundamental to a long-term hold strategy on this railroad. As a significant piece of the economic backbone of North America, Canadian National is both necessary for, and congruent to, growth on this continent.

As iconic investor Warren Buffett has stated many times, if you believe in the economic prowess of North America, long-term, buying a railroad is potentially the best way to gain exposure to North American growth over the long-term.

Fundamentals Strong

Even compared with its other North American rail peers, Canadian National has excellent fundamentals. In today’s uncertain economic environment, companies like Canadian National have impressive fundamentals. These include excellent cost efficiency metrics, high asset utilization, and return on shareholder equity growth of between 14% and 23%.

These numbers are also indicative of a company and a sector with excellent economics and long-term stability, factors I like. The fact that Canadian National has outperformed the TSX in 17 of the past 25 years is another testament to the ability of this company’s management team to create long-term shareholder value.

Canadian National’s earnings are cyclically depressed. However, those banking on a recovery should certainly think about picking up shares of CNR during times like these. Railroads are more than a century old and have proven to be among the best long-term investments.

This is due to consistent economic growth and a natural monopoly which has formed around the railroad companies.

Canadian National’s dividend yield of approximately 2% may appear small. However, the company has done well to increase its dividend over time in a meaningful way. This is yet another reason why I like this stock as a very long-term investment in a retirement account, etc.

I believe we should see earnings pick up again in 2021 to around pre-COVID-19 levels. Therefore, in my view, this means this market uncertainty we’ve seen is likely to be short-lived.

Stay Foolish, my friends.

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 Chris MacDonald has no position in any of the stocks mentioned. 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.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »