The wider TSX Index may seem a bit expensive after one of the best years many investors have ever enjoyed. You undoubtedly have to look back a long way to see when the last time the Canadian market rose nearly 30%. And while many may be tempted to look for hot stocks in hopes of a continuation of this hot rally, I’d say it’s wiser to err on the side of caution and stick with good, old-fashioned value.
Perhaps being a little more cautious by insisting on a greater margin of safety on every stock one buys in the new year could be a plan. There is a lot of risk as talk of AI bubbles continues, even as markets continue to rise on both sides of the border.
Of course, just because the market is a bit on the overheated side doesn’t mean there’s a lack of value. In this piece, we look at a Canadian stock that largely survived the big market rally of 2025. And while it’s hard to say when stocks will join the big Canadian stock wave, I wouldn’t be afraid to step in, especially if you think the markets are overdue for a small correction.
CN Rail shares look like a bargain
Consider shares of battered railroads CN track (TSX:CNR), which are currently down about 8% this year. After doing nothing for the past five years (other than a pullback just above 3%), I think it’s time to return to the long-forgotten railroad giant as it appears it’s no longer riding the wave of the TSX index. No doubt the tariffs have weighed heavily, but on the other hand they have been a headwind for many Canadian companies, including those that have managed to move up.
While rates are a bigger problem for the railroads, I think 2025’s underperformance could set the stage for a much better 2026. But as always, a bad situation can get much worse, especially if that elusive recession suddenly materializes and the broad TSX index looks to be having a bad year after one of its record years.
In any case, CN Rail is taking steps to capitalize on the automation gains, which could certainly use improvement after another year of disruption. While future disruptions (particularly strikes) are difficult to predict, I think CN Rail and the rest of the railroads have already seen the worst of it.
Either way, expectations appear relatively muted for the new year, and that alone could be the main reason to stick with stocks. It’s easy to give up on CN Rail stock given its lack of performance.
But with a price-to-earnings ratio of 18.3 times, rail is absurdly cheap, especially in a market environment that is becoming on the expensive side. If M&A is the name of the game for Rail (I think Rail could consolidate a bit), look for CN Rail to explore its options. The company has a strong balance sheet and plenty of room to expand its already incredible network.
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