When we look into a stock’s long-term relevance and viability, its business model and what it’s built around are among the first things we should consider. Things like power (utility), medicine, and water will always remain relevant. Even though it’s a valid assessment on an elementary level, it’s an oversimplification of something far more complicated.
So, when looking for top stocks, even in a sector/industry as important and relevant as food and agriculture, look beyond this simple association. Factors like the business model, financial health, differentiating characteristics, geographic diversity, and market share of a business can help you choose the winners.
Source: Getty Images
An agriculture infrastructure and engineering solutions company
Winnipeg-based Ag Growth International (TSX:AFN) is an industrial company that caters exclusively to the agricultural sector through a wide range of products and services. Most of its products, services, and solutions (including end-to-end solutions) can be divided into five platforms: seed, fertilizer, grain, feed, and food.
This diversified focus makes its business model far more comprehensive than most agricultural companies specializing in just one market segment. Its product portfolio includes everything from storage and initial conditioning of agricultural products to processing elements and infrastructure of various farm operations.
The company also offers technological solutions like controllers and monitoring and automation systems developed exclusively for agricultural operations.
The company has experienced decent financial growth over the years and is currently very reasonably priced. It does have a lot of debt weighing it down (quite close to its current market cap), but that’s its only major weakness.
Performance-wise, the last 12 months have been quite decent for the company, and it rose by about 54% over that period, but it doesn’t reflect the stock’s long-term growth potential. It also pays a dividend at a yield of about 1.1%.
A fertilizer giant
Nutrien (TSX:NTR) is a giant in more dimensions than one. It’s the largest agricultural company in Canada by market capitalization by a massive margin and the second-largest fertilizer company in the world.
It’s the largest provider of crop inputs in the world and ranks first and third among the largest potash and nitrogen producers worldwide. While its production operations are concentrated in Canada, it has a massive retail footprint of over 2,000 locations.
Considering the world population is expected to increase steadily for the next five to seven decades, and we are expected to get close to 12 billion (as per the current estimates), the world will need a lot of food.
Adding to the existing agricultural land is not a viable possibility for most countries (at least by a substantial margin), so the goal would be to increase the yield from the current land. This is why fertilizer giants like Nutrien are expected to not just survive and thrive for the foreseeable future.
It stands out, even among the blue-chip stocks in Canada, because of its global leadership status in the agricultural or at least fertilizer industry. It’s not a consistent grower and has only returned about 19% to its investors in the last five years through price appreciation. But it offers healthy dividends at a reasonable yield of 3.4% and is currently quite attractively valued.
- We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Nutrien made the list!
Foolish takeaway
Canada’s two top agricultural stocks are worth looking into for their long-term potential and the discounts they are trading at. Ag Growth International is down 14% from its last peak, and Nutrien has lost over 40% of its market value from its April 2022 peak.
