Once in a while, investors get a chance to buy top-quality stocks at a discount.
Let’s take a look at three Canadian companies that might be interesting picks right now to add to your self-directed RRSP portfolio.
The deal created a Saskatchewan-based fertilizer giant that is now the world’s largest supplier of potash and a major player in the production of phosphate and nitrogen. The company also has a retail division that provides farmers around the world with seed and crop protection products.
Nutrien recently announced shutdowns for up to eight weeks at its Allan, Lanigan, and Vanscoy potash facilities in response to a lull in the market. The company expects the maximum impact to be a production reduction for 2019 of 700,000 tonnes and drop in annual EBITDA of US$100-150 million.
A wet planting season in the United States and a dry monsoon season in India this year have combined with delayed buying from China due to impact 2019 demand. In the big picture, however, the outlook remains positive for Nutrien.
Urban expansion is eating valuable farmland just as farmers are trying to produce enough food to feed a growing global population. The trend is expected to continue for decades, and that should mean solid demand growth for crop nutrients.
Nutrien has state-of-the-art production facilities thanks to the completion of multi-year capital programs at both Agrium and Potash before the merger. As a result, investors shouldn’t have to worry about cash flow being diverted to major projects in the medium term.
Potash prices have improved after an extended slump and more gains would boost margins. Nitrogen is targeting earnings per share for 2019 that are at least in line with last year.
The board raised the dividend twice in the past 12 months, so the management team can’t be too concerned about the profit outlook. Investors can pick up a 3.6% yield.
The stock trades at $66 compared to its 12-month high near $76 per share.
The broader Canadian energy sector is out of favour with investors, and in the case of some of the pure-play producers with huge debt problems, it would be best to stay away.
However, Suncor’s integrated business structure provides a nice hedge against lower oil prices. The refining operations can benefit from lower input costs when the market is weak and, depending on the conditions, can generate strong margins when the finished products are sold.
Suncor has a strong balance sheet and takes advantage of the downturns to add strategic assets. It is also able to push through with major development projects, as it did with Fort Hills and Hebron during the oil rout. The downturn resulted in a drop in construction costs and now that the two facilities are completed, Suncor is enjoying the benefits of higher production.
Suncor has raised its dividend for 17 straight years. The current payout offers a yield of 4%.
Ongoing volatility should be expected in the oil market, but you get paid well to wait for the next rally.
The bottom line
Nutrien and Suncor are industry leaders with strong businesses that should deliver solid returns for buy-and-hold investors. If you have some cash sitting on the sidelines, these two stocks appear oversold today and deserve to be on your RRSP radar.