The broader TSX Index may seem a bit expensive after one of the best up years that many investors have ever enjoyed. Undoubtedly, you’d have to look back a very long time to see the last time the Canadian market was up close to 30%. And while many may be inclined to chase hot stocks in the hopes of a continuation of this hot rally, I’d argue that it’s wiser to be prudent and insist on good, old-fashioned value.
Perhaps being a tad more cautious by insisting on a wider margin of safety with every stock one buys in the new year could be a game plan. There’s plenty of risk out there, as AI bubble talks continue, even as the markets on both sides of the border keep moving higher.
Of course, just because the market is a tad on the overheated side doesn’t mean there’s a lack of value. In this piece, we’ll have a look at one Canadian stock that has mostly sat out the great market rally of 2025. And while it’s hard to tell when shares will join in on the great Canadian stock surge, I’d not be afraid to step in, especially if you believe markets are overdue for a bit of a correction.
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CN Rail stock looks like a bargain
Consider shares of battered railway CN Rail (TSX: CNR), which are currently sitting down around 8% year to date. After having done nothing in the past five years (other than retreat just north of 3%), I think it might be time to get back into the long-forgotten railway giant as it looks to stop sitting out on the great ascent of the TSX Index. Undoubtedly, tariffs have weighed heavily, but, then again, they have been a bit of a headwind for many Canadian companies, including those that have managed to proceed higher.
Though tariffs are a bigger deal for the rails, I do think that 2025’s underperformance could set the stage for a much better 2026. As always, though, a bad situation could become a heck of a lot worse, especially if that elusive recession suddenly does appear and the broad TSX Index looks to have an off year to follow one of its record years.
In any case, CN Rail is taking steps to unlock automation gains, which could certainly use improvement after another year filled with disruptions. Though future disruptions (most notably strikes) are difficult to predict, I do think that CN Rail and the rest of the rails have already been through the worst.
In any case, expectations seem relatively muted going into the new year, and that alone might be the top reason to stick with shares. It’s easy to give up on CN Rail stock given its lack of performance.
But with an 18.3 times trailing price-to-earnings (P/E) multiple, the railway is absurdly cheap, especially in a market environment that’s getting on the expensive side. If M&A is the name of the game for the rails (I do think the rails could consolidate a bit), look for CN Rail to explore its options. The firm has a strong balance sheet and plenty of room to expand its already incredible network.
