Bruce Murray Canadian National R.R. CNR-T HOLD Aug 07, 2025

Sold in September. We've been in a freight recession for 3 years, longest anyone can remember. Came out with a mixed quarter. 

Look at the numbers first, story second. Numbers explain why stock's down. Revenue growth over the last 4 quarters hasn't been inspirational; very little growth, averages out to about zero. Margins are OK, but ROC is slipping a bit. For the long term, buy it and forget it, you'll be fine. 

He wouldn't enter now. Wants to see the ROC move back up, which would need 5-8% revenue growth. He's had more success investing after results for the quarter are in; you might miss the first day where it gets a little pop, but the stock could also go down for the next 3 months.

Not a space he favours right now. Seeing softness in Canadian economy. Given that we're mid-cycle, might be a bit late to be in the industrial space. 

If he were forced to choose, he likes the technical makeup of CP right now. Likes that it has a bit more scale than CNR.

He was asked to pick his choice of the two rail companies. Even though there is a freight recession CP has better growth going forward and is a turn-around type of story. It has the best management and real estate. Its merger offers service to a different market. With rail, products can go all the way from the east coast to the west coast and with CP all the way from Canada to Mexico. Changing freight from one train to another by truck is very inefficient.

The Union Pacific-Norfolk merger in the US more likely to happen under this administration than the last and will create more competition among all railroads, including CN. The industry is attractive, because there are few companies, but the downside is the lack of growth and the rails are economically sensitive. They sold off this year under Trump's tariffs. Sit tight, if you own it. Trades at a reasonably 17x PE. He prefers CP for its network across the US and Canada, but it will take time to return to favour.

In general, he's avoiding transportation; an obvious place to get impacted by tariffs. Majority of traffic is north-south, so that's a question mark. Analyst estimates coming down and not flattening out. If you have unlimited time and patience, you'll be fine because it's a good company. But there are better uses for your capital in the near term.

US and Canada are logical and natural long-standing historic trading partners, with tightly integrated supply chains. We need to get back to some semblance of normal. Hopefully, most things will be exempt under USMCA and we can get rid of the tit-for-tat tariffs.

If that happens, you'd expect to see trade flows pick up. That would advantage the transportation sector across the board. So both rails would probably be advantaged. Freight recession has gone on for almost 3 years, but stirrings of that changing. Big spike in manufacturing survey; if this is followed by ISM survey, then should be game on for the whole transportation sector. Sector's suffered from overcapacity, lack of pricing power, and tepid volumes.

Between the two, he'd pick CNR. It has the better network. Wildcard is massive east-west merger proposed in the US. See his Top Picks.

The transportation sector has been depressed this year and she sold in January. CN is the leading North American freight railroad. It is starting to look better with volatility stabilizing. The big story in on the operating levels and it is starting to look more efficient even without top-line growth, so there is potential upside. Analysts see 20% upside.

Rails are extremely capital-intensive businesses. Always lots of maintenance capex on the network and its equipment. Over many years, does generate FCF but it's not huge. Recession resistant. Duopoly. Not going away. Not the type of business or valuation (too high) his team goes for. Small dividend.