Canadian National Railway Shares Drop 23%: Is It Time to Buy?

Investors are eyeing potential opportunities in the Canadian market as shares of Canadian National Railway (TSX:CNR) have recently fallen by 23%, trading around $137 per share compared to $179 at the beginning of 2024. This decline presents a possible buying opportunity for those focused on long-term dividends and total returns within a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Several factors have contributed to the recent pullback in CNR’s stock price. In 2024, the company faced significant service disruptions due to labour strikes affecting both its operations and the Canadian ports it relies on. These challenges forced customers to seek alternative routes for cargo, leading to a notable decline in shipments. Furthermore, wildfires in Alberta during the summer of 2024 exacerbated the situation, causing delays and increasing operational costs. As a result, CNR reported a decrease in earnings compared to the previous year.

The outlook for 2025 was initially optimistic; however, the imposition of tariffs by the United States raised concerns about disruptions in shipments from critical Canadian sectors such as steel, aluminum, and lumber. Consequently, CNR revised its guidance for 2025, which has introduced further uncertainty. The ongoing negotiations regarding the Canada-U.S.-Mexico Agreement (CUSMA), set to be reviewed before July 1, 2024, have added to the volatility surrounding the company.

Market Dynamics and Opportunities

Despite these challenges, there is potential for recovery. Once the trade agreements are finalized, businesses could gain clarity on tariffs, which may encourage them to invest and place orders for raw materials and finished goods. This renewed confidence could provide a boost to CNR’s stock, which operates approximately 20,000 route miles of track connecting Canadian ports on the Pacific and Atlantic Coasts with the Gulf Coast in the United States. The efficiency of these networks is crucial for the economies of both nations.

CNR remains a profitable entity, having increased its dividend annually for 25 years. The company is also buying back shares, taking advantage of the current market conditions to enhance shareholder value.

Risks and Considerations

Investors should remain aware of the risks involved. There is the possibility that the U.S. may opt to dismantle CUSMA and negotiate separate agreements with each of its neighbours. Should this occur, any significant changes to the current trade deal could adversely affect the flow of goods along CNR’s routes.

Another concern stems from a proposed merger between Union Pacific and Norfolk Southern, which could create the first seamless east-west railway in the United States. Although CNR’s routes primarily run north-south, analysts suggest that the merger could lead to competitive disruptions, potentially causing some clients to shift to the new combined railway.

In summary, while the uncertain trade outlook presents risks, much of this uncertainty may already be factored into CNR’s stock price. For investors employing a buy-and-hold strategy, this may be an opportune time to consider purchasing shares during this period of weakness.

As the situation evolves, it will be crucial for investors to stay informed on developments regarding trade agreements and industry dynamics that could impact Canadian National Railway’s performance in the months ahead.