Are you looking for quality stocks to buy while they’re down?
If so, you’ve picked a good market to go fishing in.
Stocks that have been badly beaten down often rise dramatically when they recover. This is doubly the case when they are down due to cyclical factors. Stocks in this category often deliver excellent returns when bought at the lows of a cycle. In this article, I will explore one stock down 18% from its all-time high that appears to have been beaten down due to cyclical factors rather than long-term problems.
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CN Railway
The Canadian National Railway (TSX: CNR), better known as CN Railway, is Canada’s second-largest railway by market capitalization. Shipping $250 billion worth of goods per year, it is a vital component of North America’s economy.
A rough three years
When you look at a Canadian stock down 18% from an all-time high set early in 2024, your natural instinct is to wonder what’s wrong. The last two years have been very good ones for Canadian stocks, and there has been no shortage of economic activity.
What appears to have happened in the case of CN Railway was related to cyclicality. In this case, “cyclicality” refers to volume cycles for specific products, not the overall economy (which was in a growth phase in the last two years).
In 2024 and 2025, the supply of manufactured products and demand for coal were both low across North America. This led to lower shipments in these categories – both of which are among rail companies’ bread and butter. Likewise, there was cyclical strength in other categories of goods, which are costs for railroads. For example, labour and materials both became considerably more expensive over the last two years than at any time before. This fact weighed on railroad earnings nationwide, and CN Railway was no exception: over the last three years, the company’s earnings compounded at just 0.58% CAGR.
Signs of recovery
Despite broad weakness observed in the last three years, CN Railway has been showing signs of recovery in recent months. These include:
- A well-received fourth quarter earnings release, which beat expectations on revenue, adjusted earnings, and GAAP earnings.
- Revenue and earnings growth accelerating from the prior period.
- Consistent dividend growth, despite a low payout ratio.
These factors argue that CNR’s recent 18% dip is the result of a cyclical downturn rather than structural weakness.
Foolish takeaway on CN Railway
CN Railway stock appears to have lost its lustre in the last three years. In the prior two decades, the company grew at a steady clip, while rising by leaps and bounds in the market. The performance from 2023 to the first quarter of 2026 was not quite as good, to put it mildly.
Still, the company has a lot to recommend it. It is economically indispensable. It has a wide economic moat. And its performance is enjoying an uptick lately. Overall, I would be very comfortable holding CN Railway stock over the long term. CNR has a lot to recommend it.
