Up 13% in a Month, Is CNR Stock a Buy?

CNR stock (TSX:CNR) looks like it’s on the recovery, but a recent report could bring shares downwards if not addressed by the company.

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Shares of Canadian National Railway (TSX:CNR) have been rising higher and higher as demand continues to increase in the market. Interest rate hikes seem to be a thing of the past, with inflation also looking like it’s going to retreat. This could be strong news for the railway industry, and CNR stock in particular.

So today, let’s look at whether it’s a good time to buy CNR stock with shares up 13% in the last month or so as of writing. Or whether investors need to be a bit more cautious before considering the stock.

A history of precision

CNR stock based much of its growth on becoming a precision railroad company back in the 2000s. The company has become the top dog when it comes to scheduled railroad commitments. However, during the pandemic far more attention was shifted over to growth. That growth caused a lot of issues as CNR focused on the acquisition of Kansas City Southern, eventually purchased by its competitor in the Canadian railway sector.

Now, the company is focusing back on its precision railroad path. It wants solid cash flow, less congestion and no more strikes, while trying to manage unpredictable issues such as the weather. By doing this, the company should have fewer problems, with a generous mix of products including everything from agriculture and chemicals to forestry and cars.

And despite losing out on the acquisition, the railway still has a competitive advantage. This comes from its three-coast system, bringing it all the way down to New Orleans. Further, it enjoys exclusive access to the port of Prince Rupert.

Still, issues abound

While CNR might be focusing on its past, it hasn’t exactly focused on its less recent past. This was identified when the 12-person council of Indigenous advisers quit recently. This came as the council stated it was obvious CNR would not be taking any proper steps to repair its relationship with Indigenous peoples.

CNR has had a long history of involvement with residential schools and colonization. The company has yet to make a public apology at the time of writing. And while the group was hired by CNR to advise it on how to move forward with Indigenous peoples, the advice was “ineffective,” in the words of one council member.

Passenger trains were used by CNR when it was owned by the Crown. These trains would remove Indigenous children from their communities, bringing them to residential schools that have inflicted harm both physically and mentally, attributed to generations of suffering. CNR has since been referred to as “the train of tears.”

It matters

The issue here is CNR could be falling behind. By not apologizing to the Indigenous peoples for the company’s involvement, this could create a situation that leads to an eventual fall in share price. Companies that use the railway may cut ties if it becomes clear the company has no intention of apologizing to the communities.

And this could hurt in the next year, as CNR stock is already behind in terms of growth and volume. Volume looks like it should increase over the second half of 2024. However, CNR stock could still face other near-term issues. And the economy hasn’t recovered yet, so demand will need to be high if it hopes of attempting to become the best in the Canadian railway market.

For now, it’s still in second place. So sure, it might be focusing on getting back to its roots as a precision railway. But if CNR hopes to get ahead of the curve, it’s going to need to look a lot farther back to make some serious changes.

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. The Motley Fool has a disclosure policy..

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