New Trade for May 10th, 2023

Stocks ticked higher this morning, buoyed by the release of tamer-than-expected inflation data.   April’s consumer price index (CPI) report, released before the opening bell, showed an increase of 4.9% year-over-year, which was less than the 5% annual increase expected by economists.  

With roughly 85% of S&P companies having reported first quarter earnings, key metrics this earnings season have come in better than their one-year averages, according to FactSet.  Against this backdrop, our trade recommendation for today focuses on a company that recently delivered impressive quarterly results and has raised its guidance for both the second quarter and the full year. 

Canadian National Railway (CNI)

There’s nothing new or flashy about the transport industry. That said, transportation stocks remain integral to the economy, contributing more than 5% of the country’s gross domestic product (GDP) annually, or about $1.3 trillion.  Transportation stocks tend to be mature and established companies with a track record of delivering strong earnings growth and returns to shareholders.  

Canadian National Railway is one such name.   The railway operator serves all of Canada and the midwestern U.S. and reported record first-quarter revenue of $4.31 billion due largely to strong grain shipments and elevated oil prices.  Earnings per share also grew 38% in Q1 to $1.82 from $1.32 a year earlier, and beat the $1.72 consensus forecast of analysts surveyed by Refinitiv.

Also encouraging was the fact that the company raised its full-year 2023 guidance, forecasting EPS growth in the mid-single digits. CNI also raised its quarterly dividend nearly 10% to 79 cents per share, equating to a current yield of around 2%. CNI stock price has been flat over the past year, offering a nice entry point.  Over the past five years, the company’s share price is up 52%.

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