Following a strong rally on the Toronto Stock Exchange, Canadian National Railway (TSX: CNR) and Canadian Natural Resources (TSX: CNQ) have become rare discounted targets. These blue-chip stocks, each boasting over 25 years of dividend growth records, are currently down approximately 14% and 10% from their previous highs, respectively, presenting a unique allocation opportunity for long-term investors.
Canadian National Railway: Short-Term Pressures Won’t Dim Long-Term Value
Canadian National Railway’s stock is currently hovering around $136, significantly down from its 2024 high of $180. This decline stems mainly from three pressures:
Operational Disruptions: Labor strikes in 2024 and wildfires in Alberta led to a loss of business volume.
Economic Uncertainty: Fluctuating tariff policies forced management to lower its 2025 adjusted EPS growth forecast from 10%-15% to below 10%.
Industry Volatility: The proposed merger between Union Pacific and Norfolk Southern has sparked concerns about a reshaping of the North American rail landscape.
Despite these short-term pressures, the company maintains a 29-year streak of consecutive dividend increases, with a current dividend yield of 2.6%. Its rail network spanning North American coasts is irreplicable. Once trade agreements between the US, Canada, and Mexico become clearer, pent-up freight demand is expected to be released quickly. Historical data shows that every significant pullback has been a long-term buying opportunity.
Canadian Natural Resources: A Value Play in the Energy Cycle
Canadian Natural Resources’ stock is currently around $43, down nearly 20% from its 2024 high of $55. Although WTI crude prices are hovering around $58 per barrel, significantly lower than last year’s $80 level, the company, through scaled production and technological upgrades, has maintained a breakeven price between $40-$45 per barrel, preserving considerable profitability even at current oil prices.
The stock offers clear long-term catalysts, including potential pipeline expansion. The Canadian government is actively promoting new pipeline construction, which would break transportation bottlenecks and improve international pricing premiums. Additionally, the operation of LNG export facilities in British Columbia will open up Asian markets for its natural gas business. The company has raised its dividend for 25 consecutive years, with a current high yield of 5.4%, significantly above the industry average.
Institutional Views and Market Expectations
UBS analysts point out that CNR’s EV/EBITDA ratio has fallen to 11x, below its 5-year average of 13x, while CNQ’s free cash flow yield exceeds 8%. Both metrics indicate these stocks are at historically low valuation levels. Even if the energy market surplus persists until 2026, Canadian quality producers’ cost advantages will position them to benefit first during a cyclical recovery. The short-term weakness in the rail sector precisely offers a window for contrarian investors to build positions.
For long-term investors with TFSA or RRSP accounts, CNR is suitable for those seeking stable cash flow and with higher tolerance for short-term volatility, as its dividend growth history and industry monopoly provide downside protection. CNQ is better suited for investors who can withstand energy cycle fluctuations and pursue high cash returns, with its 5.4% yield being highly attractive in the current low-interest-rate environment. A combined allocation offers both defensive qualities and exposure to cyclical rebound potential.
Overall, amidst the market’s fervent pursuit of AI and tech innovation, these two Canadian traditional industry giants are undervalued due to short-term headwinds. However, their solid asset bases, consistent dividend growth records, and impending industry inflection points are building a significant risk-reward profile. For contrarian investors who firmly believe in “buying when there’s blood in the streets,” the current price levels may present a strategic opportunity.
