Investing in beaten-down blue-chip stocks trading at a low valuation is a proven strategy for delivering outsized gains over time. In this article, I have identified one top-tier TSX stock that is down 18% from all-time highs to buy and hold forever.
Valued at a market cap of $91 billion, Canadian Pacific Kansas City (TSX:CP) is among the largest companies trading on the TSX. Despite the ongoing drawdown, the TSX stock returned close to 180% to shareholders over the past decade.
Is this TSX stock a good buy right now?
Canadian Pacific Kansas City operates a transcontinental freight railway network spanning approximately 20,000 miles across Canada, the United States, and Mexico.
The company transports bulk commodities, merchandise freight, and intermodal containers, providing comprehensive rail and intermodal transportation services to business centres throughout North America.
Canadian Pacific Kansas City continues to deliver impressive results two and a half years after completing its transformational merger with Kansas City Southern.
The combined entity has led the industry in volume growth, posting a 5% increase in revenue ton-miles this year, while competitors struggle through a prolonged freight recession. Management expects to finish 2025 with double-digit earnings-per-share growth for the second consecutive year, demonstrating the ability to convert volume gains into bottom-line results.
The merger thesis centered on growth, and the company is executing that vision through multiple channels. Its revenue synergies in 2025 should exceed $1.1 billion, ahead of initial projections. Moreover, this number could be closer to $1.4 billion in 2026.
According to the railroad giant, these synergies extend beyond traditional cost savings into strategic real estate plays and innovative customer partnerships.
Recent examples include Americold cold storage facilities at intermodal terminals, which create new service offerings between Chicago, Mexico City, and back into the United States.
Management believes synergy opportunities will continue through 2027 and 2028 as trade agreements stabilize and delayed customer investment projects resume.
Capital allocation demonstrates management’s confidence in the business model and current valuation. CP recently completed a share buyback program, repurchasing 4% of outstanding shares, and increased its dividend by 20% earlier this year.
Management emphasized that it will continue to focus on buybacks rather than dividends in the near term, given the current share price relative to intrinsic value. The stock’s valuation multiple has compressed despite two years of double-digit growth, creating a compelling opportunity for shareholders.
What is the TSX stock price target?
CP expects to allocate $2.8 billion towards capital expenditures in 2026, down from $2.9 billion in 2025. The Canadian heavyweight is shifting spending from base network infrastructure to rolling stock, including 100 new Tier 4 locomotives acquired in 2025 and another 70 planned for 2026, to improve fuel efficiency.
Analysts tracking the TSX stock forecast adjusted earnings to grow from $4.25 per share in 2024 to $7.40 per share in 2029. In this period, free cash flow (FCF) is projected to grow from $2.4 billion in 2024 to $5.3 billion.
If the TSX stock is priced at 25 times forward FCF, which is lower than its 10-year average, it could gain 46% over the next three years.
Management maintains a cautious macroeconomic outlook for 2026, expecting modest conditions. However, self-help initiatives, including market share gains; intermodal conversion from trucks; ongoing synergies; and strength in bulk commodities like potash, metallurgical coal, and grain provide confidence in continued volume growth and margin expansion regardless of broader economic trends.
