If a stock has fallen in value recently, it can create a buying opportunity for investors. And one way to identify struggling stocks is via a momentum indicator, such as the Relative Strength Index, or RSI. RSI works on a scale of 0 to 100, and once it falls below 30, that indicates momentum has been very low and that the stock is oversold.
Last week, shares of Canadian National Railway Company (NYSE:CNI)(TSX:CNR) fell below that threshold, to an RSI of around 27. In the past three months, the railway operator has seen its shares decline by approximately 10%.
The stock began to fall shortly after the Bank of Canada decreased interest rates in early June, which coincides with a slowing economy and concerns of a possible recession. If the economy slows down, then that can have a negative impact on demand for Canadian National Railway.
The company is already seeing a bit of a slowdown as it is. During the first three months of 2024, Canadian National Railway reported revenue of $4.2 billion, which was down 1% year over year. Its earnings also fell by 9% to $1.1 billion.
The decline in price means that investors can buy the stock for around $117, which puts it at a price-to-earnings ratio of 19. The stock is also trading at more than five times its book value.
Overall, Canadian National Railway makes for a cheap stock to own but it does come with a bit of near-term risk, especially if economic conditions cool further in future quarters. If you’re willing to hang on for the long term, this can, however, still be a good stock to buy right now.
