As I’ve discussed previously, I think any stock that has Bill Gates as its largest shareholder is one to consider. Indeed, Canadian National Railway’s (TSX:CNR)(NYSE:CNI) position as one of the best railroads in North America could make this a top pick for Warren Buffett as well at some point.
Here are some other great reasons I think CN is a stock that could continue to do well for long-term investors.
Business model iron-clad In general, railroads have been historically one of the best assets from a risk-adjusted perspective over the past century. These stocks tend to benefit from economic growth over time. Additionally, railroads are a great beneficiary of long-term market forces. Barriers to entry will always be high, and the amount of track laid is likely to be all that’s there for decades to come. The fact that CN operates in a duopoly environment in Canada
Furthermore, I think CN’s strong operating metrics and potential for further margin expansion on the horizon make are extremely bullish. This is a long-term company one ought to hold for a very long period of time. CN’s business model is one I think has stood the test of time, and will continue to do so. Indeed, this is a company I’d put in my “forever” bucket for investors with a long-term investing time horizon.
Fundamentals look good The recently reported earnings from CN were better than I expected. After reporting two sequential drops in revenue in Q1 and Q2, CN got back on track (had to do it) this past quarter. The company posted revenue growth of 2%, alongside total carload volume increases of 7%. I think these volume and revenue increases could continue for some time, particularly if we see the post-pandemic recovery the market is expecting.
It does seem that some price pressures continue to exist in the railroad space. However, it also appears CN is doing a good job of managing its costs and keeping margins high. The company’s adjusted operating ration improved to more than 61%. From an operations standpoint, CN stands out to me as one of the best railroads in North America right now.
Bottom line CN is a company that has a rock-solid business model, with a number of factors that make this a top pick of mine.
However, this is also a company that isn’t cheap and is trading at a valuation multiple that would likely discourage value investors like Warren Buffett from entering the fray right now. I think CN is a great company to own long-term, so wouldn’t caution investors on trimming positions, ever. I’d just encourage those who may not have purchased shares in this “forever” stock to be patient and buy on dips.
After all, the economy will always go through valleys as well as peaks. Right now, we may be approaching the peak in terms of equity valuations. Accordingly, staying on the sidelines and watching where high-quality stocks like CN trade is a Buffett-esque thing to do.
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