The parabolic rally in shares of fertilizer producer Nutrien (TSX:NTR)(NYSE:NTR) has been nothing short of unprecedented. The agricultural commodity kingpin has been stuck in a rut for years before its big moment to shine. Now that it’s riding high on the tailwind of higher commodity prices, the real question is, should investors bet on the stock on the back of recent strength? The “buy high and sell higher” mindset may make sense for the miners of commodities. But is it too late, with shares of NTR up a staggering 42% year to date?
Can the momentum continue in the latter half of 2022?
Despite doubling in just over a year, the stock is anything but expensive. In fact, a strong case could be made that the stock is still incredibly undervalued, assuming commodity prices stay elevated through 2024. Given the ongoing Ukraine-Russia crisis, I think Nutrien could have more room to the upside over the coming months. The company was already generating a good amount of free cash flow before the windfall of high commodity prices. Now, Nutrien is becoming a cash cow, and I think it could be in a spot to reward its investors with huge dividend hikes.
Undoubtedly, it’s been quite a run from those 2020 bottoms. The stock surged from around $40 per share to as high as $140 per share in around two years. The recent spike came after a magnificent result that could be the first of many to come.
Nutrien stock still seems dirt cheap
At around $129 and change per share, Nutrien stock trades at 18.4 times trailing earnings, making it still one of the cheapest stocks out there. Just because there’s a bit of momentum behind the stock does not mean value hunters should shun it or deem that the easy money has already been made.
With a 0.8 beta, NTR stock is likely to continue moving higher, even as markets plunge towards bear market territory. The company is in the right spot at the right time and is less likely to be upset by concerns on the minds of most other investors.
The best part of the hot Nutrien story is that earnings could compress considerably from here. The company is making the most of the good hand it was dealt. And I still think there’s room to the upside, as investors fret over a potential blow-off top in potash, potassium, or nitrogen prices. I think such a near-term pullback is likely, but I do not expect it to represent curtains on the Nutrien trade. Strong secular tailwinds and industry conditions support this rally. And after the recent bout of volatility, I think NTR stock is ripe for buying.
The Foolish bottom line on Nutrien stock
Indeed, it’s hard to find a company with a juicy dividend (1.9% yield at writing), strong momentum, value, and a below-average beta. Nutrien fits the bill, and it’s a magnificent holding to have at a time like this. It’s been a long time coming, but Nutrien stock is a worthy holding again.
