Canadian National Railway Co. (TSX:CNR) is one of Canada's two railways enjoying the benefits of their position in a duopoly. The competition is limited, barriers to entry are high, and business is all but guaranteed as long as there's an economy. CNR's stock price, however, is down almost 8% so far this year and 14% from its highs.

Is this a good buying opportunity?

CNR: Standing the test of time

As the pulse of economic activity, Canadian National Railway has been the beneficiary of strong economic growth over the long run. In fact, in the last 20 years, Canadian National Railway (CNR) stock has increased 758%. This is a reflection of the growth and efficiencies that the company has achieved over the years. And it was complemented by a steady and growing dividend.

Today, CNR is at a crossroads. The macro-economic environment is weakening and volumes have therefore been lower than expected. In the company's latest quarterly result (Q3/2024), volumes increased by 2% and revenue increased by 3%. This was a reflection of lower-than-expected industrial production and manufacturing activity. It was also due to a weakening consumer.

On the bright side, CNR's operating performance has rebounded after the negative effects of the forest fires and labour shutdown. In fact, this can be seen in the company's car velocity performance, which measures how many miles a railcar moves per day. CNR achieved car velocity of 223 miles per day in October, which compares very favourably to historical numbers.

What does the future hold for CNR stock?

As a reminder, Canadian National Railway is really at the heart of the Canadian economy. The Canadian railways such as CN transport more than $250 billion of goods annually. These goods come from a diversified list of sectors. This includes the resource sector (grain crops), crude oil, manufactured products, and consumer goods.

Right now, grain volumes are at record levels. Also, CN Rail is benefitting from the rapidly growing propane export business. Over the next five years, this is expected to remain a growing business. CN Rail is increasing its capacity and efficiencies to continue to participate in this growth.

So, is the stock a buy for 2025?

The current weakness in CNR's stock price only serves to strengthen my conviction in it. As the company continues to benefit from its position in the economy and industry, the stock will likely outperform.

Management continues to focus on its strategy, which has brought excellent results so far. The focus is on volume growth, pricing ahead of inflation, and incremental margin improvement to deliver a three-year compound annual growth rate in earnings per share (EPS) in the high single digit range.

For 2024, management's outlook is calling for adjusted EPS growth in the low single digit range, a return on invested capital in the range of 13% to 15%, and 7% plus dividend growth. CNR stock is trading below 20 times next year's expected EPS, which is expected to increase by 12%.

The bottom line

Canadian National's business is a relatively low-risk one that's highly diversified, with consistent and steady cash flows and market share. Therefore, it is deserving of a high multiple that reflects this. Yet, Canadian National Railway (CNR) stock remains attractively valued, in my view, and a good buy for 2025.