The Canadian railway stocks have been really feeling the pressure from the sluggish North American economies of late. Still, I think it’s a mistake to sell any one of the rail stocks on either side of the border as we move into a potentially more prosperous 2024. Sure, there may be things to worry about in this new year. There are always concerning potential risks to keep on your radar. That said, there are also unexpected things that could go right. And it’s these unexpected positives that could help investors book solid gains on the year.
The rail stocks are a great place to look as a new investor. They’re steady businesses that chug higher over prolonged periods. Not much has changed about the business of the rails since generative artificial intelligence (AI) exploded onto the scene last year.
The rail stocks tend to be terrific long-term stock picks
And I’d argue the business of transporting massive amounts of products from A to B will be little changed in 2024 or even 2034, at least in terms of developments that could disrupt the moats of the top rail plays. The rails are highly regulated and remain one of the most cost-effective and environmentally friendly ways of transporting tons of goods across long distances.
If anything, the rise of AI could help the rails save more money and pad their margins. Also, AI could also help minimize costly derailments and take railway operating economics to the very next level. Indeed, it’s an exciting time to be an investor in the rails, even though Canada’s economy is grinding to some sort of slowdown.
Slowdowns don’t last forever; they never do. Railways will be ready to move freight in record numbers when the time comes. At this juncture, I’m a big fan of CP Rail (TSX: CP), or Canadian Pacific Kansas City, as it’s referred to these days, post-acquisition.
Last year, the stock retreated as management sounded a bit more muted, given macro headwinds. While the Kansas City Southern deal could help take CP to the next level, as more firms look to “on-shore” goods (requiring more transport between the U.S. and Mexico), I still view CP as more of a long-term play. The rails won’t skyrocket overnight, but they can enrich over lengthy periods, even through tough economies.
CP stock: Time to buy and hold?
At $104 and change, CP stock goes for 23.3 times trailing price-to-earnings. That’s not a hefty price to pay, given the long-term growth potential that could lie on the other side of a potential 2024 recession. The 0.73%-yield dividend is also poised to grow by leaps and bounds over the years.
In any case, the $96.9 billion railway doesn’t seem to have much to look forward to in the new year. But that’s exactly why I’d look to pick up the stock while the expectations of others are lowered. I think 2024 may very well be a year when the stock breaks out after its lengthy consolidation, which began just a few years back.
