1 Magnificent Canadian Stock Down 12% to Buy and Hold Forever

This top stock may be down 12% right now, but don’t see that as a problem. See it as a solid sign to buy for a long-term hold.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 11, 2024 3:30 pm EST

Imagine this. You’re walking through your favourite store and spot that high-end item you’ve been eyeing for months. It’s not just any item. It’s something timeless, reliable, and useful. Now, it’s sitting on the shelf with a bold red sticker reading, “12% off.” You don’t hesitate, knowing it’s the same top-tier product at a fraction of the original price.

Why wait for it to return to full price when you can grab it now? Investing in stocks when they’re down is similar. Only instead of a shiny new item, you’re potentially securing long-term financial growth. So today, let’s look at one offering just that.

A train passes Morant's curve in Banff National Park in the Canadian Rockies. — Source: Getty Images

CP stock

This brings us to Canadian Pacific Kansas City (TSX: CP). Recently, CP stock has dipped 12% from its 52-week high. To some, that drop might seem like a red flag. But for savvy investors, it screams “opportunity.” Why? Because the fundamentals of the company haven’t changed. CP stock remains a solid player in the transportation sector, uniquely positioned to capitalize on growth opportunities across North America. Short-term stock dips, often influenced by market fluctuations or transient events, rarely reflect the actual health or future potential of a well-managed company.

Let’s talk numbers. In its third-quarter 2024 earnings, CP stock reported revenue of $3.5 billion, reflecting a 6% year-over-year increase. Even better, diluted earnings per share (EPS) stood at $0.90, and the company achieved an adjusted combined diluted EPS of $0.99. These figures underscore its ability to generate strong profits, even amidst a challenging economic landscape.

Historically, CPKC has shown remarkable resilience. Following the groundbreaking merger of Canadian Pacific and Kansas City Southern, CP stock created a rail network spanning Canada, the U.S., and Mexico. This unique tri-country connection has revolutionized its ability to move goods across key trade routes efficiently. The merger wasn’t just a play for size. It was a strategic move to secure a dominant position in the transportation industry. One that sets CP stock apart from its competitors.

Looking ahead

CP stock’s future outlook makes the current dip even more enticing. CP stock is perfectly situated to benefit from the uptick in North American trade. Its expansive network serves as a backbone for increased cross-border commerce. A trend that’s expected to grow as global companies prioritize efficiency and shorter delivery timelines. This aligns seamlessly with CP stock’s long-term growth strategy.

Moreover, CP stock continues to prioritize shareholder value. It recently declared a quarterly dividend of $0.19 per share. While the yield may seem modest compared to high-dividend stocks, the payout ratio of just over 20% ensures stability and room for growth. Dividends, coupled with the stock’s long-term growth potential, make it a double win for investors seeking both income and appreciation.

While the stock’s 12% dip may cause hesitation among some investors, history has shown that long-term success often favours those willing to act during periods of undervaluation. When you purchase a strong company like CP stock during a downturn, you’re essentially buying into its future at a discount. Think of it as locking in a better return on your investment when the stock inevitably rebounds.

Foolish takeaway

It’s also worth considering CP stock’s broader market position. With a current market cap of $99.5 billion and a forward price-to-earnings (P/E) ratio of 21.23, the stock offers a balanced mix of growth and stability. Its beta of 0.79 also indicates less volatility compared to the broader market, which is an added bonus for long-term investors who prefer a smoother ride.

In the end, investing in CP stock when it’s 12% down is like snagging a luxury item on sale. You’re getting the same high-quality product but at a lower price. Between its strong earnings, historical resilience, forward-looking strategies, and commitment to sustainability, CP stock stands out as a top-tier choice for long-term investors. If you’re building a portfolio designed for growth and stability, this dip might just be your golden ticket.