Canadian National Railway (TSX:CNR) is down more than 20% in the past year. Contrarian investors are wondering if CNR stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
CNR share price
Canadian National Railway trades for $139 at the time of writing. The stock is up from the recent low of around $130 but is way off the $178 it fetched a year ago.
The extended slide over the past year is due to several factors. Much of the 2024 decline can be attributed to bad luck rather than any major company-specific issues. Wildfires and weather interrupted CN’s rail network in Canada last year. Labour strikes at Canadian ports added to the challenges. These interruptions impacted volumes, drove up costs, and hurt operating efficiency. In addition, international and domestic customers had to find alternative routes to get their products to their customers. Some of that business might not return, depending on how disruptive the issues had been and whether clients are concerned about repeat problems.
CN’s 2024 earnings report highlighted the challenges for the year. Revenue increased just 1% compared to 2023. Operating income slipped 5% due to elevated expenses.
In recent months, the decline in the share price can be blamed on uncertainty around the tariff policies of the U.S. administration. CN operates roughly 19,000 route miles of train tracks that connect the Atlantic and Pacific coasts in Canada to the Gulf Coast in the United States. The network is strategically important to the smooth operation of the Canadian and U.S. economies.
A lack of clarity on tariff rates and their duration is forcing companies and their customers to reduce or cancel orders for raw materials and finished goods. This could slow demand for CN’s services. The company moves everything from cars, coal, grain, fertilizer, forestry products, and finished goods.
If the economy slips into a recession, delayed orders could simply disappear as demand for goods would decline. Low fuel prices will help ease CN’s expenses, but they will also make trucking companies more competitive for some routes. That could eat into some of CN’s business.
In the fourth-quarter 2024 earnings report CN painted a bright picture for 2025. The company said it expected to deliver 10-15% growth in adjusted diluted earnings per share and raised the dividend by 5% for this year.
If tariff negotiations with the United States get settled soon, the impact on the overall economy through the end of the year might not be that bad. This could help CN hit its 2025 targets and set the business up for a solid 2026. In that scenario, the stock is probably oversold at this point.
Time to buy CN stock?
Near-term volatility is expected, so I wouldn’t back up the truck. That being said, contrarian investors might want to start nibbling at this level and look to add to the position on any additional downside. Buying CN stock on big pullbacks has historically proven to be a savvy move for patient investors.
