2 Top Canadian Commodities Stocks to Grab At the Bottom of This Cycle

Here’s why investors looking for top-notch commodities stocks should consider Nutrien (TSX:NTR)(NYSE:NTR) and West Fraser Timber (TSX:WFG).

| More on:
question marks written reminders tickets

Image source: Getty Images

Commodities are a fickle asset class to trade. Indeed, picking the right commodities stocks, at the right time, barring any sort of economic shock is a difficult task.

The cycles commodities tend to go on typically provide investors with long boom-bust cycles. However, sometimes — as we’ve seen this year — these cycles can be rather short.

For those who believe commodities may be forming a bottom, Canada happens to have some great commodities stocks to consider. Near the top of my list are these two gems.

Top commodities stocks: Nutrien

We all need to eat. Indeed, the agricultural component of most economies is often ignored by investors and economists for that matter. (Non-farm payrolls, anyone?)

Companies like Nutrien (TSX:NTR)(NYSE:NTR) provide agricultural inputs that are absolutely necessary. I mean that in the truest sense: they’re necessary for humanity.

As the world’s largest potash supplier, Nutrien provides a range of minerals farmers need to produce optimal crops. With demand for crop nutrients rising drastically, Nutrien stands to benefit from a very long-term growth trajectory over time.

However, supply has been the main concern for investors in Nutrien in recent years. This has been a relatively over-supplied market, with a tremendous amount of fertilizer coming out of emerging markets such as Kazakstan at low prices.

That said, Nutrien has among the lowest-cost production in the market. Accordingly, this company’s margins are sky-high compared to its peers. Additionally, due to the company’s merger with Agrium, Nutrien has a network of retail stores juicing the margins further. This has allowed the company to pay a healthy yield for a very long time. I expect this to continue and view Nutrien as one of the safest commodities stocks in the market right now.

West Fraser Timber

One of the largest lumber players in Canada, West Fraser Timber (TSX:WFG) has certainly benefited from rising commodities prices of late. Those who have watched lumber prices soar this year know what I mean.

However, since lumber prices fell back to earth in recent weeks, West Fraser’s stock price hasn’t. In fact, this stock remains within spitting distance of its all-time high.

What gives?

Well, West Fraser has done a good job of consolidating supply in the core markets it operates in. This allows for greater margins than peers operating in other markets. That’s bullish for investors.

Indeed, this strategy has translated well to its bottom line. Juiced by higher commodities prices, the Vancouver-based forestry company harvested $2.1 billion in adjusted EBITDA this past quarter. That’s 100% more than the same quarter last year. Additionally, that’s one-fifth of the company’s existing valuation.

Accordingly, many investors still think this stock is cheap, even given where lumber prices are today. Sure, lumber prices could continue to fall. However, that appears to be one risk that investors are willing to take 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 stocks mentioned. The Motley Fool recommends Nutrien Ltd.

More on Investing

top TSX stocks to buy
Tech Stocks

2 Top Stocks That Could Turn $10,000 Into $50,000 by 2030

TSX investors can buy shares of quality growth stocks, such as Snowflake, allowing them to generate exponential gains in 2023…

Read more »

A worker uses a laptop inside a restaurant.
Stocks for Beginners

Stubborn Interest Rates: 2 TSX Stocks That Can Play Along (and Even Win)

Higher interest rates are actually good for these stocks. They trade at good valuations and provide nice dividends.

Read more »

Tech Stocks

Don’t Wait for a Market Bottom: These 2 Stocks Are on Sale

Two of the best Canadian growth stocks could keep soaring in 2023 and beyond.

Read more »

A colourful firework display

3 Explosive Growth Stocks I’d Buy in February 2023

These growth stocks have done the absolute best in the last month, but what should you do in February 2023?

Read more »

question marks written reminders tickets
Bank Stocks

Is CIBC Stock a Buy in February 2023?

CIBC stock is down 25% in the past 12 months. Is now the time to buy?

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »