CANADIAN NATIONAL RAILWAY CO. (Toronto symbol CNR; www.cn.ca) operates the largest freight rail network in Canada. It also serves 16 U.S. states. Ottawa nationalized CNR in 1918 because of the vital role the company played in Canada’s early growth. CNR became a publicly traded company in 1995.

The company is upgrading its Alberta rail networks to take advantage of expanding oil sands development. These investments are helping drillers in remote areas without pipelines ship their heavy oil to refineries and other destinations.

CNR also continues to benefit from the expansion of the container-handling facilities in Prince Rupert, B.C., which is the closest North American port to Asia. The port’s container volumes rose 10.0% in the first nine months of 2011. CNR is the only railway that serves Prince Rupert.

CNR’s sound balance sheet will let it keep growing. Its long-term debt of $5.9 billion is just 1.8 times its annual cash flow of $3.3 billion.

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Blue chip stocks: CNR’s operating ratio improves even with higher fuel costs

A big part of CNR’s recent success is its focus on efficiency. For example, the company has been investing in fuel-efficient locomotives and working closely with customers to speed up the transfer of goods from trains to trucks and ships.

CNR is now one of the most efficient railways in North America. Even with a 41% jump in fuel costs, its operating ratio improved to 59.3% in the third quarter of 2011 from 60.7% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

This stock’s share price is up 23.4% in the past three months.

In the latest edition of The Successful Investor, we examine the competition CNR may face from proposed pipelines to B.C. ports. We also look at whether its share price can continue to move up. We conclude with our clear buy-sell-hold advice on CNR.

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