Canadian investors already likely know that they should be seeking out value stocks. Fair enough, but which ones? The market is down, making it impossible to figure out which are valuable and which are just a low price.
Today, I’m going to dig into a company that has a lot more growth on the way as well as stable income. That’s despite earnings coming below estimates for several quarters in a row.
Let’s get into why I still believe Nutrien (TSX:NTR) is a value stock all Canadian investors should consider.
We need to eat
I’m not sure if you know this already, but the global population has now surpassed eight billion. That’s eight billion mouths to feed. What’s more, all of these people need a place to live. So, with more homes being necessary, that means less land for cultivation.
That’s why a company like Nutrien is so important. The value stock provides crop nutrients around the world; it’s currently the world’s largest producer of potash. Nutiren continues to grow, as the company has become an acquisition machine, merging the fractured sector of the crop nutrient industry.
It also proved its worth during times of trouble. Nutrien stock brought the sector into the 21st century, with its e-commerce arm proving quite successful. Farmers were able to make online orders during periods of drought, flooding, and even during the pandemic.
So, why are shares not doing well?
As mentioned, Nutrien stock reported several earnings reports that came in below analyst estimates. The value stock saw falling prices and lower sales during its latest earnings report, leading to a slow down of its plan to increase its potash production.
Nutrien stock also coupled this with another blow, lower its earnings guidance to between $6.4 billion and $8 billion, down from between $8.4 and $10 billion. Net earnings were down 58% year over year, with sales down 20% as well.
It’s a shocking report after achieving record earnings on the back of the invasion of Ukraine by Russia. Fertilizer prices spiked, leading to an increase in earnings for the value stock. Nutrien stock stated it would also ramp up potash production to meet demand, but this has since been postponed, if not scrapped. It’s now targeting 2026 for its expansion plans instead of 2025 to reach 18 million tonnes of potash.
Shares have come down since these reports, with a drop of Nutrien stock at 37% in the last year. Yet it now offers a 3.38% dividend yield, so is it worth considering? In the opinion of analysts, yes.
The value stock now trades at just 4.67 times earnings. While potash prices are down, the company’s adjustment is a smart one. It still has a strong long-term outlook. Further, the rise in potash prices came from outside sources last year. Now that this has come back down to earth, the company can move forward. A year from now, it could hit record results once more. So, I would certainly consider the value stock today.