There are some timely-looking stocks out there for Canadian investors looking for appreciation potential over the next two years or so. And while it’d be ideal to have an investment horizon of at least three years or longer, I think that there is a class of value names out there that could be worth looking at, provided you’re a long-term thinker who’s looking for more front-loaded gains, so to speak, going through 2027.
Of course, the AI trade is continuing to stay resilient, even as some big-name bears bet against some of this market’s highest flyers. The tricky thing about bubbles is that the bursting is so hard, if not impossible, to time. Additionally, there’s also added uncertainty as to whether or not we’re actually in a bubble.
Some stocks might be a tad overextended going into year-end, others might still be dirt-cheap, but, for the most part, I think the market-wide bubble argument isn’t a conclusive one when you consider the S&P 500 has gained just over 41% from its 2021 year-end lows.
I don’t know about you, but that’s a modest, albeit respectable gain in four years, not a bubbly one! If stocks were to double in a year or two from here, I’d be willing to change my tune, but at this juncture, the pricey market doesn’t seem nearly as excessive as the one investors experienced in 1999, right before the dot-com internet bubble bust.
For new investors, I’d say the rules are the same as always! Stay the course and buy the stocks on your watchlist that seem undervalued. And if there’s a shortage of opportunities flying by on your radar, feel free to wait or buy some of the fairly valued plays.
In this piece, we’ll check out one oversold, dirt-cheap name that could have a nice run in the next two years.
Source: Getty Images
CN Rail
For such a wide economic moat, like the one surrounding the business of CN Rail (TSX: CNR), you should expect to pay a hefty premium. That said, today, the railway juggernaut trades at 18.0 times trailing price-to-earnings (P/E), making it one of the TSX Index’s biggest bargain bets. Add the 2.66% dividend yield and the slightly lower beta of 0.91 into the equation, and CNR shares may actually have the means to move higher without the TSX Index. Shares of the railway firm have certainly not been able to sustain a rally, even though the TSX Index is having one of its best years in a while.
Either way, I think we’ll see a reversion to the mean at some point where the TSX Index slows down and shares of CNR come flying back.
Also, as the AI revolution comes to the rail business, I think there’s an opportunity for margin gains as automation and optimization themes play out. Now, I have no idea when we’ll have self-driving trains, agents that can take care of scheduling, and robots capable of repairing the track. However, I think that such a sci-fi scenario will eventually come. And that could really help CN Rail thrive over the extremely long term.
We might not have that much guidance on the path forward, but that doesn’t mean there’s more pain on the horizon. Freight could rebound, tariffs could be eliminated, and maybe CN Rail might be able to keep expanding its way to greater growth.
Shares have been off around 14% in the past two years. My bet is that the next two years will be much better as the rail looks to surprise against some pretty low expectations now in place.
