Multiple stocks on the Toronto Stock Exchange have provided sky-high returns to investors over the past 20 years. One such stock is the Canadian National Railway Company (TSX:CNR), one of the most impressive railroad providers in North America, and a stalwart in the Canadian stock market.
Canadian National’s stock price is up over the very long-term. Yes, there have been blips in the past, with previous recessions hurting the investment thesis around this name. But over the long-term, CNR stock has been among the best value, growth and dividend stocks, as least as far as the TSX is concerned.
Let’s dive into why that may continue moving forward.
CNR stock isn’t cheap, but investors are paying for quality
At roughly 20 times earnings, CNR stock is one that certain growth investors may look at and think “that’s not bad.” I mean, it really isn’t. Looking at the average multiple on S&P 500 stocks, there’s a solid value argument to be made on this stock on a trailing price-earnings basis. But it’s certainly a multiple that’s historically high, and given the macro uncertainty ahead, anything can happen to bring that multiple down.
The thing is, this world-class transportation provider has seen consistent and solid growth over time. The company annually transports approximately 300 million tonnes of manufactured products, natural resources, and finished products in the North American region.
Canadian National Railway Company is backed with a massive scale, making it one of the top-performing logistics and transportation companies in the North American region. Over the past few years, the company has built its network by acquiring properties in the United States and Canada.
How is this company performing financially?
In 2023, the Canadian National Railway Company brought in revenue of $16.8 billion and operating income of nearly $6.6 billion. The company’s operating ratio was 60.8%, an increase of 0.8 points from the previous year. Moreover, net income was an impressive $5.6 billion, increasing 10% on a year-over-year basis.
So, most of Canadian National’s metrics are moving in the right direction. From an earnings per share perspective (most important to most stock prices, as that’s what most multiples are based on), the growth was even higher. Last year, the company brought in $8.53 in diluted earnings per share, up 15% over the previous year. That’s impressive growth, as is the company’s return on invested capital at 16.8%.
This is a must-buy stock in 2024
My view has become increasingly defensive, given where valuation multiples are across the board right now. Yes, CNR stock is historically expensive. But looking at the overall market, it’s a reasonable valuation the company can clearly grow into. Barring some sort of economic catastrophe (in which most stocks would likely decline by more), this is a company that should continue to perform well over the long haul.
For those seeking defensive exposure to the North American economy, Canadian National is a great long-term way to do so. This is a stock I think investors need to hold for at least five years to see its true compounding benefits. For those with such a time horizon, now’s not a bad time to be buying, in my view.
