We recently compiled a list of the 10 Best Low Beta Stocks To Buy. In this article, we are going to take a look at where Canadian National Railway Company (NYSE:CNI) stands against the other low beta stocks.
After a rough few years, the market is coming together and is on a healthy trajectory. The recent Fed rate cuts triggered a lot of bullish sentiment toward the broader market. For example, on September 20, Business Insider reported that Brian Belski from BMO raised his S&P 500 price target for 2024 to 6,100 from 5,600, followed by the Fed’s recent rate cut and strong seasonal market data.
Moreover, Belski talked about broadening stock market gains and the increased likelihood of a soft landing for the U.S. economy. He finds current elevated valuations justified as he compared the situation to the mid-1990s when the market sustained high multiples.
In addition, Tom Lee of Fundstrat is bullish on the market for several upcoming years and expects the broader market to nearly triple to 15,000 by 2030. His bullish sentiment is driven by demographic shifts, millennial spending, and technology advancements. He mentioned the prime earning years of millennials and Gen Z, which mirror previous periods of high stock market returns. Furthermore, he also highlighted the role of technology in addressing global labor shortages and projects significant spending on AI and tech solutions.
Broadening Market Participation and the Outlook for Recession Risks
On September 24, Prashant Bhayani of BNP Paribas Wealth Management joined CNBC to discuss the current market conditions. He discussed the improving liquidity and noted the tight credit spreads, near-record equities, and steady lending. While U.S. hiring is slowing, he explained that rising unemployment is partly due to labor force growth, not just layoffs, which makes it different from past cycles. Bhayani stressed that employment data, like jobless claims, will be important in determining market outlooks.
On market valuations, Bhayani acknowledged some sectors are overvalued but sees broader market participation beyond AI-related stocks. He suggested that stocks could outperform bonds if a soft landing or no recession occurs.
Addressing concerns about potential triggers for volatility, Bhayani said that a credit event, similar to those seen in 2000 or 2007, could lead to significant market declines. However, current credit spreads and a healthy banking system support the soft landing view.
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 30 mid to mega-cap stocks with a 5-year beta (monthly) between 0.2 to 0.8. Next, we narrowed the list to 10 stocks most widely held by institutional investors. The 10 best low-beta stocks to buy are listed in ascending order of their hedge fund sentiment and we used the beta as a tie-breaker as well.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A driverless train traversing vast countryside, illustrating the companies long-distance rail transport services.
Canadian National Railway Company (NYSE:CNI)
5-year Beta (monthly): 0.65
Number of Hedge Fund Holders: 42
One of the best low beta stocks, Canadian National Railway Company (NYSE:CNI) is a well-known player in the transportation and logistics sector, operating an extensive network that connects Canada and the United States.
The company offers a comprehensive range of services, including rail transport, intermodal logistics, trucking, and marine shipping. With approximately 20,000 route miles of track, it serves diverse industries such as automotive, coal, agriculture, and chemicals, providing essential supply chain solutions for its customers.
In Q2, 42 hedge funds had investments in Canadian National (NYSE:CNI), with positions worth $11.938 billion. Bill & Melinda Gates Foundation Trust is the top investor in the company as of Q2 and has a stake worth $6.476 billion.
Despite some recent challenges, the company remains focused on long-term growth. The company has adjusted its expectations for diluted EPS growth, now projecting low single-digit increases. Additionally, it expects a return on invested capital in the range of 13% to 15%.
Analysts have adjusted their price targets for Canadian National (NYSE:CNI). In September, Raymond James analyst Steve Hansen, BMO Capital analyst Fadi Chamoun, Scotiabank, and National Bank analyst Cameron Doerksen maintained an Outperform rating with a price target of C$180, C$178, C$180, and C$181, respectively. It indicates confidence in the company’s future performance despite short-term setbacks.
The recent guidance reductions have been attributed to various factors, including a labor work stoppage, wildfires in Alberta, and weaker demand in key sectors like forest products and metals. However, some analysts note that these challenges were largely expected, suggesting that the company has a strong foundation to weather these fluctuations.
BMO Capital also mentioned that currently, the stock trades at a 9% discount to its five-year historical average, which points to potential upside for investors.
Furthermore, the company’s diversified service offerings and extensive operational capabilities position it well to capitalize on recovering market demands. While analysts have lowered price targets slightly, the overall sentiment remains positive regarding its resilience and ability to navigate through these temporary hurdles.
Overall CNI ranks 9th on our list of the best low beta stocks to buy. While we acknowledge the potential of CNI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.