Nutrien Ltd. (NTR.TO)

Most people will concede that the agricultural commodities market is in a state of oversupply right now. Most evident in potash. This is the combination of Potash and Agrium. The merge will create value as synergies is in the order of 500 million dollars. Commodities prices will come back up and valuation is very attractive at these levels. (Analysts’ price target is $73)

Synergies with the merger surpassing 500 million. Fertilizer prices continue to rise. He models 25% earnings growth. 7% dividend growth. Trades at a reasonable 15.6 times 2019 earnings. Could be a double in the next two years. (Analysts’ price target is $72.52)

He is looking at getting back into it. They are generating excessive significant cash flow. A lot of cash is going to go back into dividend growth and share buybacks. This is THE defecto play on nutrient fertilizers in Canada.

One of the interesting things to think about is that you have a commodity producer (Potash) together with a retail business (Agrium), and the combined entities are around $50 billion, a sizable player from a commodity company point of view. We are in a relatively low pricing cycle for potash, but looking forward, global demands are going to push the stock higher further on. There is some merit in looking at the story.

He used to be an Agrium shareholder, but when the proposed merger came up with Potash, he decided to Sell. Now that the 2 of them are together, they are a more formidable global competitor, but the price looks fairly expensive. Also, there has been a lot of surplus in harvests, etc., and that may mean less of a demand for fertilizers in the short period.

An analyst at Scotia has this as a Top pick, and thinks it should be owned and part of a portfolio. However, he is a little shy on the cyclicals commodity complex, but while doing his reading, this stock was popping up everywhere. He is now considering adding this.

Corn can be used to make oil or feed cattle, so corn prices are not what they used to be. It was as high as $8, but with oil prices coming back it has dropped. There is less incentive for farmers to lay nitrogen to increase production. Also, there is excess capacity in potash. He worries about this, because you can't forecast in the longer sense.

This was an Agrium (AGU-T) and Potash (POT-T) merger. Together it is a much better business than either of them on their own. Agrium has a great retail business. The combined entity is still a little expensive, and he would like to get it cheaper.

This is the merger of Agrium and Potash. If the population is continually growing, someone has to feed them. The industry has been hurt recently, because China, Ukraine and Russia are cutting prices just to get rid of supply. When that supply disappears and demand catches up, they then have pricing power. In the meantime, it is just a matter of sitting back. $50 would be a good entry point. Earnings are going to be choppy over the next little while.

There is a long-term secular theme of population growth. Currently the population is 7.5 billion, and is forecast to be 10 billion by 2050. This pick is a result of a merger of Potash and Agrium. As we have more people and as consumers in the emerging markets get wealthier, there is an increasing demand for food. This merger is taking place when nutrients are near their lows. For the merged company to grow earnings and cash flow, they don't necessarily need an improvement in nutrient prices. The company has indicated they can realize $500 million in synergies for the next couple of years. Also, as an outcome of the merger, they are required to make some asset sales, which can generate about $5 billion in cash. They can redeploy that cash by buying back stock and increasing the dividend. They also want to increase their retail agriculture business. (Analysts' price target is $59.51.)

A fairly new company – POT-T and AGU-T merged. The global growth picture has been improving substantially. There is a lot of positive global demand but we have not seen the pricing pressures come through. He would hold and not buy a ton right here. US farmers’ incomes have bottomed and could turn around. He wants to see a few quarters go through.