Shares of Nutrien (TSX:NTR)(NYSE:NTR) have been one of the hottest in the entire TSX Index over the past year. Year to date, the stock is up over 36%, even with the recent correction off all-time highs. Now up around 210% from its March 2020 lows, it seems like Nutrien stock is overdue for a painful slip — perhaps one that could see the stock surrender a great deal of its 2020-21 gains.
Agricultural commodities remain robust, and they could stay elevated for a longer duration as Russia’s invasion of Ukraine continues. Indeed, many nations will be turning away Russian exports. With such a prominent potash exporter taken out of the equation, Nutrien faces a generational windfall. The company is a potash kingpin. But it’s not just fertilizer production where the firm shines. The company has a resilient retail business that’s helped steady the sails in the years when potash and other agricultural commodities were trading on the floor.
Undoubtedly, Nutrien is one of the world’s best fertilizer plays, making it one of few places to hide from broader market volatility.
Nutrien stock’s rally in jeopardy?
Of late, the momentum has come to a “correcting” halt, with NTR stock slipping around 14% from around $140 per share to $124 and change per share, where the stock currently sits today. Many technicians and momentum traders may view recent action in shares as a reason to get out. Broader market volatility seems to have spread to almost everything these days.
Though it seems like a great time to take profits, I still view Nutrien’s fundamentals as incredibly strong. The stock has become slightly cheaper amid its recent rally. If the stock continues to grind lower, the stock could get a heck of a lot cheaper fast, as the firm continues raking in exorbitant amounts of cash flow.
At writing, the stock trades at 12.4 times trailing earnings. It’s hardly an expensive stock, even after its massive rally. Though I’d prefer to scoop up the stock with a yield closer to the 2-2.5% mark (shares yield 1.92% today), I wouldn’t hesitate to initiate a small position here and now before Nutrien has a chance to fuel another leg higher.
Nutrien’s ambitious plans could improve its ESG rating
Pending a fertilizer price implosion (unlikely given the trajectory of the Ukraine-Russia crisis), Nutrien is a cash cow with the means to raise the bar on its dividend over time. Earlier this month, Nutrien clocked in very strong numbers, yet investors weren’t as enthused as they should have been. With plans to build the world’s largest clean ammonia production facility, Nutrien is a firm that could become more ESG-friendly with time.
Currently, Nutrien sports a “B” CDP score (a gauge of environmental friendliness). The $68.7 billion fertilizer behemoth is on the right track, and for that reason, I wouldn’t look to cash in at these levels, as shares still represent a considerable value.
Bottom line
Nutrien stock is starting to show signs of weakness. However, the fundamentals are still strong, and the stock is slated to get cheaper with time, as long as fertilizer prices hold up. For investors lacking commodities exposure, Nutrien’s latest slide seems like a great entry point. Yes, it’s discouraging to miss the 2021 rally, but there are drivers that could help reignite the rally in the second half of 2022.
