The Motley Fool

Canadian National Railway vs. CP Rail: Here’s Which Stock I’d Buy

Ambrose O'Callaghan | May 7, 2021| More on:

Image source: Getty Images

The S&P/TSX Composite Index shed 19 points on May 6. Canada’s economy posted a solid rebound in the first quarter, but there is still unease in the air. Investors have gorged on gains in the North American market since the pullback in March 2020. This may be a good time to exercise caution. Top Canadian rail companies are renowned for their stability. Today, I want to compare Canadian National Railway (TSX:CNR)(NYSE:CNI) and CP Rail (TSX:CP)(NYSE:CP). Which is the better buy? Let’s jump in.

How does Canadian National Railway stock look in early May?

Canadian National Railway is a Montreal-based company that is engaged in the rail and related transportation business. Its shares have dropped 4.3% in 2021 as of close on May 6. However, the stock is up 18% from the prior year. The company released its first-quarter 2021 results on April 26.

Management remained confident that Canadian National Railway was well positioned to drive USMCA growth, as the North American economy rebounds. Operating income rose 9% from the prior year to $1.32 billion. Meanwhile, train length increased by 5% and fuel efficiency improved by 4%. Canadian National Railway said that it was targeting double-digit adjusted diluted EPS growth for 2021.

Canadian National Railway stock possesses a solid price-to-earnings (P/E) ratio of 27. It recently announced a second-quarter 2021 dividend of $0.615. That represents a modest 1.8% yield.

The 10 Best Stocks to Buy This Month

Click here to learn more!

Here’s why you shouldn’t sleep on CP Rail

CP Rail is a Calgary-based company that owns and operates a transcontinental freight railway across North America. Its shares are up 7% in the year-to-date period as of close on May 6. The stock has climbed 50% from the prior year. Investors got a look at its first batch of 2021 results on April 21.

Revenues fell 4% from the prior year to $1.96 billion. However, the first quarter was still a success for CP Rail, as it benefited from strong demand across bulk, merchandise, and domestic intermodal. Adjusted diluted earnings per share rose 1% year over year to $4.48. CP Rail is projecting double-digit adjusted diluted EPS growth over the previous year. Meanwhile, it anticipates high single-digit volume growth, as measured in RTMs.

CP Rail stock last had a favourable P/E ratio of 24. It last paid out a quarterly dividend of $0.19 per share. This represents a meagre 0.8% yield.

Which stock is the better buy?

Canadian National Railway stock and CP Rail have both proven resilient over the past year. These transportation giants are in a great position to benefit from a North American economy on the rebound. Predictably, the debate between the two is a close call. However, I’m sticking with Canadian National Railway over CP Rail in early May.

The former is close in terms of its value and it offers a superior dividend yield. Moreover, Canadian National Railway put together a better first quarter and is projecting strong growth going forward. I’m looking to stash this stock going forward.

Here are 10 stocks I'd snatch up in May...

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Ambrose O'Callaghan 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.

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.