There are some Canadian stocks out there that continue to trade far below fair value. And in some cases, that value is all but ignored because of past volatility. Yet the big question becomes, was that volatility due to factors in or out of the company’s control?
That’s why today I’m going to put my focus on Nutrien (TSX:NTR), a stock on the TSX today that continues to trade in value territory. And although it went through past volatility, that was totally out of the company’s control. It therefore is now a great option for investors looking for a strong rebound in the next year and beyond.
Short-term problems could mean long-term rewards
After shares of Nutrien stock climbed a year ago when Russia invaded Ukraine, those shares soon plummeted as the economy dropped. Now, inflation and interest rates have led to a difficult period for the company.
The agriculture stock has since had a “weak” first quarter, and missed earnings estimates the last two quarters in a row. Yet the main issue, say analysts, is that the weakness is already factored into the current share price.
This could lead to a rally in the near future, analysts argue, with the fertilizer market improving and a bump in potash plans. Even so, guidance by analysts decreased significantly, with the consensus estimate on the Street now at US$1.7 billion for the quarter’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Furthermore, analysts don’t believe the company will reach full-year guidance for EBITDA of between US$8.4 billion and US$10 billion.
So why the recommendation?
It does seem that Nutrien stock is struggling right now. However, analysts were also quick to point out there is strong cash generation for the future. Furthermore, with the weak share price, it’s now undervalued and should outperform, according to analysts.
So with potash weakness on the line, it could be a difficult year when it comes to earnings. However, long-term shareholders are definitely receiving at least a fairly valued stock at the moment. One that could certainly climb in the years to come.
Nutrien stock remains the world’s largest crop nutrient company by capacity. It’s the largest agricultural retailer in North America, as well as Australia, and continues to grow in Brazil. That growth is supported by an acquisition strategy that continues to work well for the company. Furthermore, Nutrien stock proved its benefits during the pandemic, with farmers increasingly purchasing items online.
Why I’ll buy until I’m blue
With all this taken into consideration, and a rough year on the way, why would I be buying this stock? It comes down to the basics for me. Nutrien stock offers long-term rewards as it takes up 20% of the potash market, and is the world’s largest producer of crop nutrients. These facts are important in a world that continues to see arable land declining.
This will drive growth for companies like Nutrien stock, which still even have a leg above large countries such as China and India. Of course, in the meantime, volatile pricing and demand for crop nutrients could create a cyclical position in terms of cash flow. This could lead to Nutrien stock falling from time to time as fertilizer prices hit highs and then correct.
But again, holding for a decade or more will likely prove beneficial. Shares are already up 59% in the last five years alone, trading at 4.9 times earnings as of writing, with shares down 25% in the last year. It also provides a 3.01% dividend yield that should certainly help with any short-term stings. So I’ll look forward to years of growth from this stable stock which continues to expand around the world.
