1. Canadian National Railway Company (NYSE:CNI)
Forward P/E as of April 4: ~17.3x
Number of Hedge Fund Holders: 56
Headquartered in Montreal, Canada, Canadian National Railway Company (NYSE:CNI) is engaged in the rail, intermodal, trucking, and related transportation businesses. The company’s strategic position in North American trade corridors offers it ample opportunities to benefit from dynamic trade patterns. With businesses continuing to reassess the supply chains, potentially supporting nearshoring or friendshoring strategies, Canadian National Railway Company (NYSE:CNI)’s cross-border capabilities can be increasingly valuable. Also, the strong focus on sustainability and environmental concerns can bolster its strengths.
Notably, rail transportation tends to be generally more fuel-efficient and environmentally friendly versus the long-haul trucking. With companies and governments prioritizing to reduce carbon footprints, the company can see improved demand for its services as a more sustainable option. Moving forward, Canadian National Railway Company (NYSE:CNI)’s key strengths are likely to fuel its performance. These include its advantaged three-coast network with port optionality and unrivaled bypass capability around Chicago, and technology deployments (which remains a strategic value driver), among others. Also, the potential for economic recovery and growth in critical sectors, including automotive, energy, and consumer goods, can fuel increased freight volumes. Canadian National Railway Company (NYSE:CNI)’s diverse portfolio of services, together with its broad geographic coverage, places it well to tap growth opportunities.
Appalaches Capital, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“During the quarter, we established core positions in two railroads: Canadian National Railway Company (NYSE:CNI) and CSX Corporation (CSX). The investment thesis is simple. Domestic railroads have not seen volume growth over the last 20 years despite being the cheapest, cleanest, and safest form of freight transportation.4 The lack of volume growth and related share losses to trucking is due to the poor reliability of the networks. However, there is strong evidence to believe that this may not be the case going forward. It seems that investors are overweighting historical characteristics of the industry and not giving credit to recent and sustainable improvements in service metrics. If the rails are able to show any sign of sustained volume growth, our investment should perform very well.
The Canadian railroads have more or less operated at full capacity over the last two decades, while the U.S. networks have not. Why is that? There are a few reasons for the anemic volume growth domestically, but only one of which is not shared by the Canadian railroads: service. In 2017, had you shipped goods by rail in Canada, the odds that your shipment would arrive on time, or the “trip plan compliance” rate, was around 90% or higher. In the U.S., these levels were closer to 50%.5 Maybe you have a different opinion, but I am not particularly excited about using a shipping service that only has a coin flip’s chance of arriving on time, even if it may be more economical…” (Click here to read the full text)
While we acknowledge the potential of CNI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for a deeply undervalued AI stock that is more promising than CNI but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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