“Price is what you pay, value is what you get.” One of Warren Buffett’s famous sayings holds in every market condition. The value of a business is derived from its potential to earn profits. Every business uses different means to earn profits, and these means might fluctuate due to macro and industry headwinds or weakness in the company’s operations.
A value investor looks at the long-term profit potential of the company and uses share price dips from short-term headwinds to buy the long-term value of that company.
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Two value stocks everyone else is selling
Other advice from Warren Buffett is “buy when everyone is selling and sell when everyone is buying”. But it holds only for value stocks, as not every stock everyone is selling is a buy. How will you know which value stock everyone is selling? Look for the Relative Strength Index (RSI), a technical indicator that measures the magnitude of price change to determine if the stock is overbought or oversold.
Canadian National Railway
Canadian National Railway (TSX: CNR) offers freight services, transporting goods within and outside Canada through rail routes. It transmits goods like Petroleum & Chemicals, Metals & Minerals, Forest products, Coal, Grain & Fertilizers, and automotive. The stock does well when trade volumes are high and the product mix is favourable. The railway earns an operating margin of around 36%—40%.
Canadian National Railway’s share price has slipped 15% in the last three months and is trading near its four-year low. The dip comes as US tariffs have significantly affected the international trade volumes and reduced the company’s second-quarter revenue by 1%. CNR has reduced its 2025 guidance for adjusted diluted earnings per share (EPS) growth from 10%–15% to mid-to-high single-digits. However, the company adjusted its expenses to align them with the volumes.
Finding value in Canadian National Railway
Canadian National Railway is focused on improving operating efficiency, and the stock price dips are due to matters beyond its control. This tariff war is unsustainable. Countries will negotiate or shift their supply chain to pump up trade. When trade normalizes and volumes increase, the company will benefit from higher revenue, pushing the stock price up 15–20%.
Now is a good time to buy the stock, as it is closer to being oversold, with an RSI of 37. At an $129 price point, you could get value through a $3.55 annual dividend per share, which the company grows by 5–20%, and a 20% appreciation in the share price if you sell the stock. Since the stock is trading at a discount, the downside risk is low and the upside potential is high.
Descartes Systems
Descartes Systems (TSX: DSG) is another volume-driven business. Its stock price has dipped 15% since June 4 and has an RSI of 37, hinting at selling pressure. Investors are selling the stock as the tariff uncertainty is encouraging many businesses to stall their trade. Lower trading volumes affect Descartes. Its flexible business allows companies to opt for a single service or an end-to-end service for a single or regular consignment. At present, the increasing demand for Global Trade Intelligence and customs compliance services is driving revenue amidst low trade activity. Demand for last-mile delivery from e-commerce could increase as the holiday season approaches.
Finding value in Descartes’ stock
Descartes Systems resorted to cost-cutting to maintain its profit margin amid low trading volumes. In the meantime, it is using its cash reserves to improve its offerings through acquisitions. Once the trade volumes pick up, the supply chain solutions provider could see a surge in revenue. It has the potential to scale efficiently.
Even if tariffs alter the global supply chain, Descartes’s Global Logistics Network can help companies set up their new supply chain by bringing all parties on a single platform.
Final thoughts
It is difficult to say when this turnaround will happen, as timing the market is impossible. However, you know that the turnaround will happen, and the above two companies will be prepared to tap the opportunity it brings.
