Fear of an impending market crash is starting to build in the market. Today, new inflation numbers are expected to be released. These will come alongside a much-anticipated Fed dot-plot, which will be watched closely by economists and investors.
Accordingly, investors may be looking for a place to hide if inflation numbers turn out to be higher than expected. In such a situation, commodities have the potential to add a great deal of defensiveness and diversification to investor portfolios.
Those looking for a dependable Canadian commodities play could consider Nutrien (TSX:NTR)(NYSE:NTR). Of late, this potash and fertilizer producer has impressed shareholders with its stock price performance.
Here’s why I think this top TSX play could be an ideal pick for investors looking to diversify their portfolio.
Surging commodity prices bullish for this top TSX commodities play
For commodity producers like Nutrien, the underlying prices of said commodities are of major importance to the analysis of whether or not to hold a given stock. Indeed, where prices are today matters. However, where prices are headed over the medium term is just as important.
Nutrien has benefited from increasing prices in the agricultural commodities business for some time. Indeed, Nutrien is one of the biggest names in global agri-business and is one of the biggest global players in the wholesale potash, phosphates, and nitrogen businesses. Now, with the prices for cash crops like wheat, corn, and soybeans rising, the demand and pricing of fertilizers have also increased.
Indeed, this surge in commodity prices has provided Nutrien with an important growth catalyst. Needless to say, if commodities prices continue to remain elevated for an extended period of time, Nutrien could see absolutely incredible cash flow growth over the medium-term.
These rising commodities prices are just one catalyst investors have their eye on right now. Another key catalyst of late has been Nutrien’s expansion of its retail network globally. A series of acquisitions has bosted Nutrien’s footprint not only in North America but also in South America and Australia.
This geographic diversification helps to cushion the impact of cyclical commodity pressures. Having exposure to southern hemisphere agricultural centres also smooths out the harvest cycle, providing year-round growth for this major agri-business player.
Nutrien is a long-term winner no matter how one looks at it.
Sure, commodities prices are finally on the move higher. However, this stock has always been a defensive gem, even at lower commodities prices. That said, given the recent boost, Nutrien’s results are becoming hard to ignore by the market. Nutrien posted EBITDA growth of 60% this past quarter. Its retail operations saw 12% year-over-year growth. And this comes as the company currently trades around 1.6-times book value.
Given the momentum Nutrien has at its back, I’d expect to see greater outperformance over the long run. This is a stock every investor should consider for diversification today.
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 stocks mentioned in this article. The Motley Fool recommends Nutrien Ltd.