When it comes to long-term growth, there are a few industries that provide not just stable growth, but exciting growth as well. And among these Canadian stocks, Canadian Pacific Kansas City (TSX:CP) remains one of the top choices that’s key to global trade growth.
Today, let’s get into what makes CPKC so exciting for investors, and why it remains a top buy on the TSX today.
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Why CPKC?
Let’s get right to it. CPKC is in a unique position when it comes to the railway system in Canada and indeed across North America. It’s one of just two railways, making a duopoly in Canada that pretty much no other company can edge in on. Yet it goes even further. After a merger with Kansas City Southern, CPKC is now the only rail network that connects Canada, the United States and Mexico, giving it a huge advantage.
This is especially true as supply chains reconfigure under the new trade dynamics. These include the U.S.-Mexico-Canada Agreement (USMCA) near-shoring, as well as the shift away from Asia for certain goods. Therefore, CPKC is directly aligned with growing trade flow in North America. Its reach to Mexico is incredibly important, as manufacturing investment accelerates in the country, allowing Canada to export faster into the heart of the U.S.
Into earnings
Yet amongst all these changes and challenges and growth, CPKC remains strong. The company recently reported its second-quarter earnings, showing that the stock remains unmatched in the sector. Earnings were up 36% year over year, with margins among the best in the sector. These included net profit of 28%, and 40% operating profit.
Furthermore, debt remains well in hand, despite the multi-billion-dollar merger a few years back. Its debt-to-equity (D/E) ratio sits at 47%, clearly reasonable for such a capital-intensive industry. This also leaves room to invest further in both capacity and infrastructure. Now, CPKC’s trailing revenue for the last year hit $14.92 billion, with operating cash flow of $5.5 billion and leveraged free cash flow of $2.3 billion. All that cash has to go somewhere, and it’s likely to end up, in large part, in the hands of investors.
Value and income
Granted, investors aren’t likely to buy CPKC for its dividend. This sits at a modest 0.88% as of writing. However, its low payout ratio of 17.8% shows the railway stock prioritizes investment in growing, showing the stock keeps its eye on the long-term trade-driven strategy. It also allows for having cash on hand in case of emergencies.
Yet now, the recent decline in share price allows investors some short-term growth. It’s a buying opportunity that likely won’t last long, given the company’s impressive fundamentals. If you’re an investor wondering when the right time is to get in on CPKC, that time could be right now!
Bottom line
CPKC is a strong stock that’s only getting stronger with the global trade issues continuing. Whether investors want to stick with home or buy abroad, this stock has connections to it all. It ships from coast to coast and across North America. So, if you’re looking for a strong stock that’s on the right track for more growth, CPKC is one stock to consider on the TSX today.
