1 Top TSX Stock That Could Be on Warren Buffett’s Radar

Here’s why I think Nutrien Ltd. (TSX:NTR)(NYSE:NTR) could be on Warren Buffett’s watch list right now.

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett is one of the greatest investors of all time. Accordingly, many investors (me included) follow how the Oracle of Omaha manages his portfolio.

Buffett has stayed away from most commodities over the years. However, Buffet has made numerous investments in the energy sector and a number of other niche investments as well over the years.

Here’s why I think Nutrien (TSX:NTR)(NYSE:NTR) could be a stock on Buffett’s radar right now.

Commodities super cycle likely to continue

A consensus is starting to build that the commodities super cycle we’re in now may have a lot of room to run.

Specifically, agricultural commodities are starting to take off. Commodity staples such as corn and soybeans are taking off once again. The commodities asset class is generally viewed as a portfolio hedge inasmuch as these staples tend to be negatively correlated to the U.S. dollar. Commodities tend to also be low beta. This means these assets tend to do less poorly in down markets. The inverse is also true, as commodities companies like Nutrien tend to lag in bull markets.

With the potential for some prolonged pain on the horizon, many investors seem to be content to let some money ride on commodities. Buffett has dabbled in some trades recently that may suggest he’s more open to defensive plays like Nutrien right now. That said, Buffett tends to be bullish on the long-term growth prospects of the American economy, so whether or not an investment in a company like Nutrien may materialize remains to be seen.

Difficult-to-find commodities players with a moat

As I’ve discussed in the past, Nutrien is one of those rare companies that have a wider moat (or durable competitive advantage) than most may think. I derive Nutrien’s moat from two key differentiating factors.

First, the company’s robust network of retail assets provides a level of cash flow stability its peers don’t have. Nutrien is a vertically integrated player in this space. This business model provides investors with a much better long-term growth profile in the agricultural inputs market. In my view, Nutrien’s assets are best-in-class, and the company deserves its current valuation multiple. At first glance, a price-to-earnings multiple of 85 might seem ridiculously high for such a company. However, I think the market is pricing in the aforementioned effects a commodities super cycle could have on the earnings of this sector.

Secondly, Nutrien is a leader in digital agriculture.  The company provides a range of tools for farmers to manage planting and harvesting cycles. Indeed, this is expected to be a key growth driver for Nutrien long term. I think technology will transform this sector over time. And the fact that Nutrien is on the cutting edge of providing this technology? That’s just another reason to own this stock right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »