Investing in Agriculture Stocks: Nutrien vs. Deere?

Nutrien and Deere are wonderful businesses to play the future of agriculture.

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Agriculture stocks have cooled off in a massive way over the past several quarters. Undoubtedly, various commodities have come well off their highs after their impressive rise relative to stocks last year. Now it seems like the tables have turned. Tech stocks are in the driver’s seat, while nobody seems to want to talk about the commodity plays anymore.

For certain, agricultural commodities aren’t everyone’s cup of tea. Even though the global population is rising, it’s just so tough to tell where fertilizer or crop prices are headed next. Like with any commodity, there are way too many variables to consider. And oftentimes, unforeseen variables can cause such commodity prices to soar or tank.

Indeed, commodities tend to be a choppy ride. But I still believe they’re worth owning, provided you get in at a historically good price. Farming will have its ups and downs. The farming cycle has had a run. But it isn’t quite over with yet, with no signs of a downcycle in sight.

In any case, I still think there’s value to be had in agriculture names as they pullback further from their highs. And in this piece, we’ll check out two of the most intriguing names in the space with fertilizer kingpin Nutrien (TSX:NTR) and American farming equipment maker Deere (NYSE:DE).

Nutrien

Nutrien is a Canadian agricultural commodity play that really boomed in early 2022, only to plunge and shed more of the gains from the top. Indeed, the stock has reversed course in a hurry, with shares off 44% from the all-time high of $141 and change per share.

In 2022, the hype got extended. And right now, I think the reverse is true. Sure, the sky-high days of high fertilizer prices may be in the rearview, but that doesn’t mean Nutrien still can’t do well from here. It’s never easy to bite on a single-digit price-to-earnings (P/E) ratio as future quarters stack up against phenomenal ones from last year. That makes for ugly year-over-year comparisons. Still, muted expectations seem baked into the stock at under $80 per share.

With a 3.56% dividend yield, NTR is a great value, even if potash prices are down. They won’t be forever. And if you’re looking for a high-income way to diversify, NTR stock seems like a good bet.

Deere

Deere is a profoundly popular tractor maker that seems to have a bit of a moat built into its brand. Nothing runs quite like a Deere, as they say! Apart from its impressive industry standing, Deere stands to benefit when farmers do well. Though many farmers have already upgraded their farming equipment fleets, I do see a secular tailwind behind Deere, as it looks to new tech to spruce up those much-loved green tractors.

Deere stock trades at a reasonable 13.9 times trailing price-to-earnings, and is off just shy of 8% from its all-time high. I do think the highs are within striking distance, especially as old-fashioned farming equipment makes a big splash in precision agriculture. Call it agro-tech, if you will!

Bottom line

I like Deere much more than Nutrien at these levels. Sure, Nutrien’s dividend is fatter, but I just think there’s more of a moat to be had with Deere. Also, I don’t think the P/E is indicative of a tech company.

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 Joey Frenette owns shares in Deere. The Motley Fool recommends Deere and Nutrien. The Motley Fool has a disclosure policy.

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