We recently compiled a list of the 7 Best Organic Food and Farming Stocks to Buy. In this article, we are going to take a look at where Nutrien Ltd. (NYSE:NTR) stands against the other organic food and farming stocks.
The farming and organic food industry is essential in meeting global food demand while catering to the growing preference for healthier and sustainable options. Despite challenges like fluctuating costs and climate change, the sector benefits from trends such as increased organic food consumption and alternative proteins.
Sector Performance
The broader market had a strong performance in 2024, largely driven by technology stocks in the first half, resulting in a roughly 16% (year-to-date) YTD increase. However, future performance remains uncertain due to ongoing market volatility.
In 2022, inflationary pressures in the U.S. reached a peak, fueled by rising input costs for commodities, transportation, and labor. Since then, inflation has gradually decreased, providing relief for businesses across sectors. Inflation continues to ease as the annual inflation rate slowed for a fifth consecutive month to 2.5% in August 2024, the lowest since February 2021. This has led to lower feed costs, improving margins in the agriculture industry. The sector is also experiencing stable poultry production, slight gains in pork, and challenges in herd recovery due to constraints in the beef industry, resulting in higher retail beef prices.
While alternative proteins remain an essential, yet small component in meeting global demand, their sales have recently contracted. Despite this setback, reduced access to capital infusions has benefited the sector by filtering out weaker products, resulting in stronger business plans with a clear focus on profitability.
Overall, food and farming companies are still grappling with the lingering effects of high inflation, particularly elevated commodity prices, as the ‘Farm Products’ sector has underperformed with a 7.80% YTD decline. Although consumer spending has remained stable, households have shifted toward a “value-driven” mindset, prioritizing affordability in response to the rising cost of living.
Agriculture Market
According to the Business Research Company Report, the agricultural sector is poised for robust expansion in the coming years. Projections indicate the market will reach $19,286.79 billion by 2028, growing at a compound annual growth rate (CAGR) of 7.7%, according to The Business Research Company.
Even the agricultural sector hasn’t been able to escape the impact of the ongoing AI revolution as farmers in the US are increasingly adopting AI to address key challenges like labor shortages and climate unpredictability. Technologies such as drones, self-driving tractors, and AI-driven crop management tools are helping farmers maintain productivity and profitability in an industry facing workforce declines and increasing costs. These innovations not only improve productivity but also help reduce expenses by optimizing resource use and enhancing efficiency across farming operations. AI is poised to transform agriculture, helping farmers “do more with less” and meeting the world’s growing food needs.
Organic Food Market
Organic food sales in the United States in 2022 broke through the $60 billion mark for the first time, hitting another high-level mark for the resilient organic sector. Total organic sales – including organic non-food products – were a record $67.6 billion, according to the 2023 Survey by the Organic Trade Association.
However, this market is also facing challenges, such as the shorter shelf life of organic products due to the absence of preservatives. According to Lending Tree, inflation last year had a greater impact on organic food prices compared to conventional products. In that period, organic fruit and vegetable prices rose by 13.1%, while conventional counterparts saw a 9.9% increase. Similarly, organic chicken prices surged by 19.5%, compared to a 5.9% rise in conventional chicken prices.
The outlook for the organic food industry remains strong, fueled by rising consumer interest in sustainability and health. Organic sales have more than doubled in the past decade, surpassing $50 billion, with food sales reaching this mark in 2019. Despite challenges like economic fluctuations and supply chain disruptions, the industry’s focus on sustainability positions it for continued growth.
Methodology:
For this list, we scanned Insider Monkey’s database of Q2 2024 and selected companies involved in the organic food and farming industries, covering areas including but not limited to processing and distribution of agricultural, industrial, feed, and organic food products. From that group, we picked 7 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a farmer’s hands sowing a field of organic grains with crop inputs.
Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 35
Nutrien Ltd. (NYSE:NTR) is a leading crop nutrient company involved in the production and distribution of agricultural, industrial, and feed products. It operates through four main segments: Retail, Potash, Nitrogen, and Phosphate. The Retail segment supplies crop nutrients, crop protection products, seeds, and other merchandise. The Potash, Nitrogen, and Phosphate segments focus on producing specialized chemical nutrients for their respective products.
Nutrien Ltd. (NYSE:NTR) reported a 13% drop in net earnings in Q2 2024, and a 12% decline for the first half of 2024, mainly due to lower fertilizer prices and a loss on foreign currency derivatives. Adjusted EBITDA also fell, driven by weaker fertilizer prices but partly offset by stronger Retail and Potash segment performance.
Now focusing on the segment-wise performance, Potash operations saw a reduction in per-ton costs to $53, thanks to automation and higher production. The nitrogen segment generated $1.1 billion in EBITDA, benefiting from decreased natural gas costs. Retail operations, on the other hand, saw a 17% rise in adjusted EBITDA to $1.2 billion, driven by improved gross margins across product lines.
From a liquidity perspective, Nutrien Ltd. (NYSE:NTR)’s cash balance rose to over $1 billion in Q2 2024 from $941 million in December 2023. The company further strengthened its liquidity by issuing $1,000 million in senior notes and reducing investment spending. Looking ahead, Nutrien expects a robust crop input demand in North America and Southeast Asia, supported by favorable affordability for potash and nitrogen.
On November 14, 2024, CoteX Technologies, a Canadian agricultural technology startup, and Nutrien announced a MOU to jointly explore the commercialization of a coating technology. This innovation aims to deliver an affordable, sustainable nitrogen fertilizer solution.
However, it’s important to make a note of the recent stock movement, as the company experienced a 2.40% stock price decline over the past month and a 17.75% decrease year-to-date (YTD). This is attributed to ongoing market instability in Brazilian operations. As part of the margin improvement plan, the closure of 21 selling locations and three fertilizer blenders aims to reduce operating costs and optimize cash flow.
As of Q2 2024, 35 hedge funds have invested $386 million in the company, as per Insider Monkey’s database, earning Nutrien Ltd. (NYSE:NTR) a spot on our list of Best Organic Food and Farming Stocks to Buy.
Overall NTR ranks 6th on our list of the best organic food and farming stocks to buy. While we acknowledge the potential of NTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
