Canadian National Railway shares have sold off on recession worries but it’s a compelling play because it’s a profitable business that’s essential to the growth of the economy, Mr. Simpson says.
The Montreal-based railroad, which operates as a duopoly in Canada, has tracks connecting to the Pacific and Atlantic coasts and to the Gulf of Mexico. Rail veteran Tracy Robinson, who became chief executive officer this year, appears to be “doing well” to make the railroad more efficient, he says. CN Rail should also benefit from a more normal harvest season after last year’s weaker crop.
Although a recession is a risk, the railroad can still pass on higher fuel prices to customers, he notes. Its shares trade at about 18 times forward earnings, but that is reasonable given its strong moat, he says.