Canadian National Railway (TSX:CNR) is down nearly 12% in 2024 compared to a big gain for the TSX. Contrarian investors are wondering if CNR stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Canadian National Railway share price

CN trades for close to $147 at the time of writing. The stock was as high as $181 earlier this year before going into an extended pullback.

It has been a challenging year for the Canadian railways. The companies have faced labour disputes and port closures due to strikes. Bad weather and wildfires have also disrupted operations. In recent weeks, investors have turned their attention to the possible impact on demand for CN's services if Donald Trump follows through on plans to implement widespread tariffs on goods entering the United States from Canada.

CN operates a railway network that stretches from the Pacific to the Atlantic in Canada and down through the United States to the Gulf Coast. The company moves roughly 300 million tons of product annually, playing a key role in the smooth operation of the Canadian and U.S. economies.

CN transports coal, crude oil, cars, fertilizer, forestry products, and finished goods. It connects global suppliers with buyers in Canada and the U.S. and serves as a vital link for North American companies to get their products to ports to ship to international clients.

CNR earnings

CN reported steady Q3 2024 results despite the various challenges the company has faced. Operating income and free cash flow were largely in line with the same period last year.

Adjusted diluted earnings per share (EPS) growth is expected to be modest in 2024. Adjusted return on invested capital (ROIC) is expected to be 13% to 15%.

Looking ahead, management expects a better return in the next two years. Compound annual adjusted diluted EPS growth is forecast to be in the upper single-digit range through 2026.

Upside potential

CN is basing its outlook on the assumption that West Texas Intermediate (WTI) oil will average US$80 per barrel. Fuel charges are a big part of the operating expenses. WTI currently trades near US$70 per barrel. Analysts broadly expect oil prices to remain under pressure through 2025 and 2026 due to weak demand from China and rising production from non-OPEC members, including Canada and the United States.

CN generates significant revenue in the United States. When the American dollar strengthens against the Canadian dollar, there can be a boost in profits from conversion. CN's assumptions for the next two years put the Canadian dollar at an average value of US$0.75. At the time of writing, the CAD-to-USD exchange rate was only about US$0.70.

Risks

Widespread tariffs on goods entering the United States could derail the Canadian and U.S. economies. An extended trade battle between the two countries would likely exasperate the impact on rail volumes.

Is CN stock a buy today?

Near-term volatility should be expected until there is clarity on whether or not the U.S. will actually implement proposed tariffs on products coming from Canada. At the same time, the broader market is due for a correction after the large rally this year.

That being said, investors might want to start nibbling on CN stock at this level and look to add to the position on additional weakness. Buying CN on big dips has historically proven to be a savvy move for patient investors.