3 Commodity Stocks Are Safety Nets and Inflation Hedges  

Canadian investors can seek safety in three TSX commodity stocks that are classic inflation hedges.

| More on:
edit Safety First illustration

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

There’s no denying that commodity stocks are still in overdrive entering June 2022. The energy sector is ahead by a commanding 67.6% year to date. Because of surging inflation and supply-chain disruptions brought by the war in Eastern Europe, people are in constant search of safety nets.

Vermilion Energy (TSX:VET)(NYSE:VET) is a top pick because of its unstoppable climb. However, investors can’t limit their choices to oil players. Nutrien (TSX:NTR)(NYSE:NTR) and Wesdome Gold Mines (TSX:WDO), along with Vermilion, are among the volume leaders these days. Any one of these stocks could be your inflation hedge.

Top price performer

Vermilion Energy plunged to as low as $2.39 on March 18, 2020, but is now a top price performer. At the current share price is $28.71, the trailing one-year price return is 207.42%, while the year-to-date gain is 80.97%. Had you invested $6,000 on June 1, 2021, your money would have grown to $17,704.01 today.

The $4.74 billion oil & gas exploration & production company benefits greatly from higher commodity prices. Lorenzo Donadeo and Dion Hatcher, Vermilion’s executive chairman and president, respectively, said the company is off to a strong start in 2022.

Management reported a 43% drop in net earnings in Q1 2022 versus Q1 2021 but saw its free cash flow (FCF) soar 287% year over year to $304.5 million. Vermilion hedges to manage commodity price exposures and increase the stability of its cash flows. Because of the healthy cash flows, the company reinstated the quarterly dividends during the quarter. If you invest today, the dividend offer is 0.42%.

Global food security

Nutrien’s spectacular run this year is ongoing. Investors enjoy a 26.38% gain in addition to the decent 2.06% dividend. Also, at $119.59 per share, the trailing one-year price return is 64.99%. In 3.01 years, the total return is 102.51% (26.46% CAGR).

The $65.93 billion company provides crop inputs and services globally. Nutrien’s interim president and CEO Ken Seitz said, “Global agriculture and crop input markets are being impacted by a number of unprecedented supply disruptions that have contributed to higher commodity prices and escalated concerns for global food security.”

In Q1 2022, sales and net earnings increased 64% and 941% versus Q1 2021. Management also reported FCF of US$1.81 million — a 281% year-over-year jump. Seitz expects Nutrien to generate higher earnings and cash flows in 2022. The company will accelerate its strategic initiatives and create long-term shareholder value.

Growth stock

Wesdome is up by only 4.69% year to date ($12.05 per share), but it’s a solid pick for growth investors. The gold stock is one of only four names that made in all three years of TMX Group’s flagship program for growth stocks. It ranked 19th, seventh, 10th in 2019, 2020, and 2021, respectively.

Despite the challenging environment in Q1 2022 due to the unpredictable supply chain, Wesdome’s operating cash flow and cash margin increased 36% and 39% versus Q1 2021. Net income, however, declined slightly by 1%. The $1.71 billion company has two producing underground gold mines and expects to return to positive FCF status in the second half of 2022.   

Logical strategy

Market analysts believe that moving to commodities is the logical approach, given the bull run of oil and fertilizer producers plus miners. Vermilion, Nutrien, and Wesdome are classic inflation hedges, to name a few.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd, TMX GROUP INC. / GROUPE TMX INC., and VERMILION ENERGY INC.

More on Investing

Target. Stand out from the crowd
Energy Stocks

3 Oversold TSX Stocks I’d Buy in Bulk

Recession fears impact oil prices, although three oversold stocks should remain resilient and generate substantial free funds flow throughout 2022.

Read more »

Stocks for Beginners

New Investors: 3 Top Dividend Stocks to Start a Simple Portfolio

These quality dividend stocks are worthy for new investors to consider for a simple passive-income portfolio.

Read more »

Dollar symbol and Canadian flag on keyboard
Tech Stocks

3 Top Canadian Growth Stocks to Buy in July

Here are three growth stocks you might want to add to your buy list in July.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

CIBC Stock Could Be a Top TFSA Buy for a Rocky 2nd Half of 2022

CIBC (TSX:CM)(NYSE:CM) stock is a great dividend top pick to stash in a TFSA after the first-half market correction.

Read more »

exchange-traded funds
Dividend Stocks

2 Dividend ETFs With Significant Exposure to the TSX’s Top 2 Sectors

Two dividend ETFs offer ideal diversification because of their exposure to the TSX’s two strongest sectors.

Read more »

sale discount best price
Investing

RRSP Investors: Top Stock Pick on Sale After the Stock Market Correction

Quebecor (TSX:QBR.B) looks like a terrific dividend stock for RRSP investors to buy, as recession risks rise amid a market…

Read more »

edit Colleagues chat over ketchup chips
Investing

The Alternative Way to Look at Any Recession

Market down? Instead of losses, look for potential gains. This alternative way to look at any recession exposes a market…

Read more »

Arrow descending on a graph
Energy Stocks

Why Did Oil Stocks Crash so Suddenly?

Oil stocks like Cenovus Energy (TSX:CVE)(NYSE:CVE) crashed dramatically last week. Here's why.

Read more »