Better Buy: Canadian Pacific Railway or Canadian National Railway Stock?

CNR (TSX:CNR) and CP stock (TSX:CP) have both seen a rise and fall this year, but with shares rising in the last month or so is it time to buy?

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The railway industry is changing, or should we say getting “back on track”? The sector is finally seeing a lot of improvements after so many delays. Companies have dealt with a pandemic, increased demand, supply-chain issues, and more. All while the duopoly of Canadian railways was battling it out for Kansas City Southern Railway

Now, the battle is over. The dust has settled. We’re finally seeing some return to normalcy. But the question is now, which will come out on top, Canadian Pacific Kansas City (TSX:CP) or Canadian National Railway (TSX:CNR)?

Where the rails are headed

As the situation has improved, analysts have noticed a significant amount of investment to create a better service from the railway systems. This will set up huge volume growth in the near future, with higher revenue that will create more income.

Of course there will be minor issues, such as whether demand can keep up as consumers continue to cut back, and weather is always a factor. However, current demand from consumers and industrials continue to support low single to mid-single digit growth in volume for the near term.

This should become more of a demand through the second half of 2024 when we see a serious improvement from the markets. From there, we should see double-digit earnings per share (EPS) growth. Yet these railway stocks now trade with such delicious valuations that honestly, everyone should be eating them up. But which one?

CP stock

In the case for CP stock, the company’s recent pullback in share price offers investors a great opportunity for growth. It’s a nice little reset after a huge amount of growth over the last year or two, despite seeing less volume growth in 2023.

Now that estimates coming out for 2024 are seeming more likely, with growth coming in the near and medium term, it looks like this lower share price could offer a great opportunity for investors – especially with the addition of Kansas City rails and the introduction of a passenger train in Mexico.

Despite seeing more moderate growth in the near term, analysts also believe that volume growth will come sooner as opposed to later. And when that happens, investors will definitely be happy they considered CP stock at these prices.

Shares trade at 22.9 times earnings as of writing with a 0.74% dividend yield. CP is up 2% year-to-date, climbing 8% in the last month alone.

CNR stock

Now the big benefit with CNR stock here is that it doesn’t have the massive debt that hangs over CP stock. After the company won out the war between the pair, CP stock was then given a huge debt that investors will likely see come down over the next few years.

CNR stock is not in this position, and after focusing so much on growth over the last few years has started to turn back to its roots. Those roots are to keep it a premier precision rail line. Now, that doesn’t mean the future will be easy, however, as it could prove difficult for growth with the renewed focus here instead of the obvious growth potential from the acquisition.

Even so, growth is growth and volume is volume. There should certainly be an increase, and CNR stock could prove to be the better of the two when it comes down to getting items where they need to go on time. That’s huge in a time of increasing demand.

For now, shares of CNR stock trade at 21.9 times earnings, with a 1.95% dividend yield. Shares are up 1% in the last year, climbing 13% since October.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

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