Good, old railroads. These “Steady Eddie” businesses have provided excellent compounding over decades for patient investors. Indeed, Warren Buffett has been a big buyer of railroads in the past. His purchase of Burlington Northern Santa Fe in the depths of the Great Recession is proof of this.
Here’s why I think this company is still one of the top TSX stocks for long-term investors. Furthermore, I highly recommend investors with a conservative risk profile and a long-term investing time horizon consider this stock as a core portfolio holding.
This is a stock that requires patience and time
Bill Gates owns his massive stake in CN through his endowment fund run by Cascadia Investments. As I’ve mentioned previously, the best thing about shareholders like endowment funds and other institutional investors like pension funds (which happen to own a large slice of CN) is the holding period of these concerns — essentially forever. Having shareholder stability is key when volatility hits. Knowing that there are long-term holders willing to hold a stock through short-term volatility essentially puts a foundation underneath that stock that other stocks do not have.
Indeed, CN is a company which requires a long-term investing time horizon. This stock is best suited for the Bill Gates of the world — those with investing time horizons with no expiry date. The growth this stock provides doesn’t happen overnight. Those looking for Bitcoin-like returns won’t find those here. Defensiveness and slow-and-steady, long-term growth, however, is found in abundance with this stock.
The defensiveness this stock provides isn’t cheap right now
Indeed, when Warren Buffett purchased BNSF, the valuation multiple railroads were trading at was roughly half of where valuations are today in this sector. Of course, a significant recession does this to stocks.
Valuations right now are incredibly high across the board. Railroads have followed suit, with the prices investors are forced to pay today for the defensiveness these companies provide now at premium levels.
In this context, I think patient investors may want to wait to gain exposure to railroads for a time of economic uncertainty. Doing so would be very Buffettesque. Of course, no one knows how long this central bank-led recovery in stocks will last. Interest rates are expected to be near zero for years, with stimulus unlikely to halt any time soon. Those who may be too impatient to wait can’t go wrong with buying this stock today. As long as one is willing to accumulate more on dips over the long term, CN is a stock that will continue to perform well for many decades to come.
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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.