The Canadian railway stocks have been lagging behind the TSX Index and S&P 500 in recent years. Undoubtedly, as Trump’s tariff war intensifies and fewer shipments circulate across the continent, the top rail players could stand to be weighed down further. Indeed, wide-sweeping tariffs and their impact may already be partially baked into today’s share price.
And while only time will tell just how bad the first round of tariffs will hurt, I think there’s a pretty strong case for value hunters to start nibbling into a position in a top rail play today, as investors throw in the towel amid tariffs and their potential to cause a bit of a trade drought of sorts.
At the end of the day, the top Canadian rail stocks are stellar firms with some of the widest moats around. And while they may be a tad too economically sensitive for most amid a tariff war, those with an investment horizon of at least 10 years ought to be viewing the latest correction in the top transports as more of a buying opportunity.
Though I’m not against putting $10,000 in a single name at one time, I do think building a position through the year could be the most prudent move, given it’s not at all certain how hard tariffs will hit earnings. With that in mind, I’d start with a $2,000 position and add to it on any further dips, perhaps those that follow underwhelming quarterly showings. But which rail stock is the better bet as they roll into a tariff summer?
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CN Rail
CN Rail (TSX:CNR) stock seems to have a lot of tariff risk priced in, with shares off close to 26% from their all-time highs. Indeed, this is one of the worst bear markets for CN in a long time. And while another “lost year” could be in the cards for the stock that’s fallen off the tracks, I am a fan of the fast-growing dividend.
At the time of this writing, shares yield just shy of 2.7%. That’s the most swollen I’ve seen the yield outside of crisis-level conditions. With a solid dividend-growth history and sudden upside if a trade deal were to be inked sooner rather than later, I’d be inclined to be a net buyer of the dip steadily accumulating through the year. Indeed, catching a bottom in a name that’s steadily declining will not be easy. That’s why I’d aim to take timing out of the game with a dollar-cost averaging (DCA) approach.
CP Rail
CP Rail (TSX:CP) or CPKC is the growthier of the two rail stocks, but it’s one that I believe also carries more risks as Trump’s tariff war heats up for the summer season. Indeed, management seems to be playing the long game, but many investors may not be willing to ride out the rough patch, especially given its heightened tariff risk.
With lots of cross-border freight and a heftier valuation, I think CP stock could be subject to more downside going into year’s end. Indeed, higher rewards (and growth) potential often accompany more risk. Now down 19.4%, shares of CP are just below $100 per share. And while there’s a robust support level up ahead at the $95–98 level, I wouldn’t be so quick to pounce on shares. Not at 24.9 times trailing P/E. That’s too rich a multiple for a mere 0.8%-yielder.
For now, I find CNR stock to be a better bet, given its lower multiple and much higher yield.
