Better Buy: Agnico Eagle Mines vs Nutrien Stock

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Written by Brian Paradza, CFA at The Motley Fool Canada

Legendary investor Warren Buffett once urged value investors “to be fearful when others are greedy and to be greedy only when others are fearful.” However, it’s sometimes easier to flow with the flow. Canadian investors looking to add new positions in some defensive Basic Materials sector stocks could get greedy and buy Nutrien (TSX:NTR) stock as it navigates a tough terrain, or jump into an easygoing Agnico Eagle Mines (TSX:AEM) stock as the good times roll.

This post aims to help investors decide on which stock to buy between Nutrien and Agnico Eagle Mines right now.

Should you buy Nutrien stock?

Nutrien is a $42.3 billion potash miner and leading fertilizer producer with massive cash flow generation capacity that’s coming out of a bounty year. It is the world’s largest fertilizer producer by capacity. Investors who wish to gain exposure to an essential global crop inputs value chain should check out Nutrien stock before proceeding with a new investment decision. The business has some best-in-class profitability metrics, is growing market share in key growth areas (South America), and looks undervalued at the time of writing in September 2023.

Despite its better-than-average operating and net profit margins in the Agricultural Inputs industry, Nutrien is currently plagued by impairment charges to its earnings as growth falters. The company recently recognized nearly US$700 million (C$945 million) in impairment and goodwill writedowns as retail earnings in South America continued to disappoint and phosphate margins remained volatile last quarter.

Growing impairments and goodwill write-downs are a reflection of deteriorating revenue and earnings generation capacity on the company’s assets. A weak fundamental outlook has reduced Nutrien stock’s current valuation and weakened investor spirits. Shares trade 25% lower over the past year.

That said, Nutrien’s non-cash charges may significantly improve future asset-based efficiency and valuation metrics on the stock by reducing its asset base (the denominator). Given cyclical commodity markets, Nutrien’s future operating results may look better than they otherwise would have without heavy impairment charges.

Nutrien stock is reasonably priced relative to industry peers in North America. Its trailing price-to-free cash flow (P/FCF) multiple of 7.9 is much lower than the industry average multiple of 11.4.

Agnico Eagle Mines

Agnico Eagle Mines is a defensive gold mining stock that investors may buy over Nutrien stock during the remainder of 2023. Following record gold production during the past quarter, Agnico Eagle is a growth stock that’s increasing its clout in the gold mining industry through aggressive acquisitions, and booking huge profits.

The gold mining house used to own a single mine in 2008. Fast forward to 2023 and Agnico owns and operates more than 12 operational projects, including a recent acquisition of a remaining interest in Canadian Malartic from Yamana Gold in 2023.

Agnico Eagle Mines could grow its annual production from 3.1 million ounces of gold in 2022 to an expected 3.44 million ounces in 2023 at all-in-sustaining-cost (AISC) ranging between US$1,140 and US$1,190 per ounce of gold. The miner’s growing profitability is supported by firmer gold prices so far this year. Gold prices hovered above US$1,926 per ounce at the time of writing, up 5.6% year to date.

In contrast to an overly cautious Nutrien that’s downgrading expectations, cutting back on investment plans, and impairing assets, Agnico Eagle Mines’ management team is currently bullish on future productivity, earnings, and free cash flow generation growth in the near future.

Agnico Eagle Mines stock looks cheap at a price-to-earnings (PE) multiple of 9.8, which is far lower than an industry average PE of 46.9. Firmer gold prices in 2023, contained production costs, and growing exploration budgets, including at investee White Gold Corp, make AEM stock a good buy right now.

Better Buy: Nutrien stock or Agnico Eagle Mines stock?

Short-term investors looking to hold stock into the next year may be drawn to Agnico Eagle Mines stock right now and ride a good tide into profit. The gold miner’s earnings fundamentals are going right, allowing management to focus on growth and boosting shareholder returns. Nutrien is struggling through some not-so-great market moments that may continue to drag on its stock price in the near term.

That said, Warren Buffett, the Oracle of Omaha’s advice on timing our greed and fear could imply that value-oriented investors with long investment horizons may load up on cash-cow Nutrien stock now – before the good times start rolling again.

Both dividend stocks offer 3.2% to 3.3% dividend yields to augment portfolio income and boost total investment returns.

The post Better Buy: Agnico Eagle Mines vs Nutrien Stock appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien. The Motley Fool has a disclosure policy.