Andrew Willis: You know how wages, energy and just about everything else is getting expensive? The market does, and amidst recent volatility, it’s been pricing in both pricing power, and business cyclicality. And CN Rail’s been enjoying attention on the former, at least.
The ability of this business to pass along rising costs, in fuel, for example, seems to be getting the attention of inflation-focused investors. When you cover three coasts, run key connections to other countries and the rest of the world, and do it at the lowest cost of all land-based shippers, you can add a fuel surchage…
Equity analyst Matthew Young says over the long run, he expects CN’s pricing power will prove sound, as will its ability to neutralize diesel price shocks via surcharges. What’s more, this company has some of the best margins around, with solid double-digit cash flow – and they have a new CEO, and she brings experience in the energy sector which could help with business development efforts in that area. All great elements for a business to have.
But alongside the benefits of being a long-term industrial stalwart, comes risk and exposure to the health of economies around you. What good is pricing power when fewer goods ship? As a long term investor, just keep the possibility of a downturn in mind with these stocks – so that when it happens, you can stay focused on the recovery.
For Morningstar, I’m Andrew Willis.