This article first appeared on GuruFocus.

Nutrien Ltd (NYSE:NTR) is one of these stocks you don't come along too often. The cyclical nature of the industry might deter a lot of people which is understandable. But this is what gets me going as an investor. The volatility, seeing how the company performs during this. NTR has performed excellently and margins in all areas have improved on top of higher volumes too. It's great to see a company play on the market demand this well. The tariffs that have been placed on other countries from the US have made for a really dynamic environment now for fertilizer companies. Seeing the track record it has had I have a lot of conviction it can be a long-term compounder.

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The first order of business today will be to look at the volumes and pricing for the last quarter (Q2 - 2025). Before I forget, the third quarter report will come out on November 6. Across the three main commodities that NTR exports pricing has been steadily rising and volumes too. It's surprising the pricing has been so similar YoY but I think it points to a general market consolidation.

NTR reports in four segments which are Nutrien AG Solutions, Potash, Nitrogen and Phosphate. Combined the volumes grew by 8.5% YoY for the exported commodities. This marks a clear acceleration. Normally the second quarter is the best one of the year since it's right in the middle of harvest season in both North and South America. Farmers are looking to stock up as well as they gauge how well the next year might be. Along with the volume growth gross margins followed along too reaching 31% during the quarter. This is inline with its 5Y-median.

Moving over to selling prices we can see another strong uptrend forming. Just so you are aware, in the reporting of NTR it provides a net average selling price for each of the three segments, which is what I've used. Within each segment there are roughly 3 - 4 individual chemicals or products that it exports. Ammonia, urea or liquid fertilizer just to name a few. During Q2 2024 the combined average was 1,222 per tonne, this year it grew to 1,349 marking a 10,3% increase. After we've just gone over volumes and selling prices I think it sets the tone as to why the last quarter was such a big success.

The market has clearly rallied behind NTR and many of its peers too: MOS 32,8% 12months, CF 7,09% 12months and YARA 28,7% 12months. It hasn't just been because of price improvement in most commodities, it's deeper than that. It's about tariffs and how other nations now need to import from the US since it's the largest producer of fertilizers globally. Close behind is India followed by Russia. Seeing as most nations don't trade with Russia since its invasion, this leaves out a large void that the US can fill. But it comes at a cost and that has been rising commodity prices.

YoY NTR reported more sales in international markets and it now makes up a larger portion of sales. The most important remains to be the US still however. The US farmer market has historically been very strong in several areas like grains and feeds, oilseeds and products and lastly horticultural products like fruit and vegetables. It has a diverse export base but there's been a divergence in 2023 that still continues to widen.

Exports plunged and imports rose sharply in 2023. During this year the difference between importers and exports was $21 billion. Rising consumer demand, favourable rates as the US dollar rose attributed the most to this. The rise came mostly as the US imported more fruits and vegetables, rather than things like corn and soybeans. For NTR the good news would be if US farmers produce more and we go from having a deficit to a surplus.

Similar to what we saw between 2006 and 2018, over a decade of surplus and a strong farming industry. This was the golden age for NTR as EBITDA margins never fell below 20% and peaked at 55% in 2012. So I'd say that is where I want the market to go in the coming years, decade. It would be hugely beneficial. And just to throw some numbers out, at todays revenues and 2012 EBITDA margins NTR would generate over $8 billion nearly the same as its current market cap.

The latest data for US farmers suggest the deficit widening even further which is opposite of what I want to see of course. Seeing domestic use increase is not a bad thing if its offset exports, but its not the only contributor as the US largest trading partner China has shifted over to importing from Brazil instead. This hurts US farmers and there have been many calling out the administration to bring China back to the negotiating table. Personally I would like to see this very much. US farmers trading with Europe instead just won't happen, not the degree they did with China. I can speak personally on this since I live here. In Europe, and I'm speaking broadly now, we tend to favour local imports in almost everything. We also don't use soybeans or corn as much as the US or China does so there isn't really a market for that here either.

Guidance for 2025 remains the same for NTR as it did in the first quarter more or less. The one area would be potash sales which got an incremental increase to 13.9 - 14.5 million tonnes.Much of NTR production occurs in Canada and US farmers rely on this supply. Last year 50% of Canadian potassium chloride entered the US. Most people and me included believe that these products will be covered under the US-Mexico-Canada trade agreement, e.g. not face any tariffs. NTR has the bargaining power so I see them easily being able to offset the costs to farmers should they have too so in any case the impact would be negligible.

In the quarterly presentation NTR points to stocks/use being at historical lows and that we might be in for a reversal soon. Having the ratio at 15% from 20% indicates a significantly tighter market. NTR is right to point out that farmers need to have better yields on the crops when the grain stocks are getting to these levels. One or two bad harvests in a row and we could see armageddon. It's no joke. Just look at what happened with the price of coffee or chocolate the past few years when the harvest was bad in South American and West Africa. Prices skyrocket.

Take the nitrogen segment for example as well. NTR sells ammonia, urea and UAN here. Ammonia inventory is over 30% below 2023 levels, 200,000 tonnes lower. Same for the other two. So going into the second half and 2026 there are historically low levels and a massive need for farmers to increase yields to improve stocks/use ratios. This could create a catalyst where we see prices surge again, similar to what happened in 2022. With China slowing down its exports to ensure it has high domestic inventories leaves another gap that needs to be filled. All in all this all speaks for a cyclical uptrend forming in the fertilizer market. I wouldn't pay too much attention to which specific commodity will rise the most. Seeing as NTR is well diversified you'd get solid exposure to any upside.

Here we'll be comparing NTR to two of its close peers, MOS and YARIY.

In core earnings, meaning EBITDA NTR pulls ahead nearly topping 20%. There is a slight divergence in the FCF margin here for NTR. I've used the TTM for all as it seems the most fair. But what skews the margin for the worse for NTR is a large debt repayment this year of $1.2 billion. This included both current and long-term debt. Excluding the long-term debt margins would have been closer to 20% beating out the rest by a large margin. By comparison like this I don't think NTR is underperforming the rest, nor do I think its drastically outperforming either. In a few areas yes, but overall most companies I've followed in this industry are very well run and often perform similarly.

Next we move over to valuation. NTR pulls ahead in most metrics except for P/FCF. Here I've only used FWD assumptions since that is how all these should be made. TTM figures are irrelevant when it comes to valuation like this. Personal preference really. I like the diversification NTR has in its segments. I like that it has great access to the US market which I think will be the biggest growth market for fertilizers specifically in the next few years. So I think market position is what pushes it over the edge for me here.

With cyclical companies you are not necessarily investing based on an exact multiple like tech stocks for example. Here we are investing based on an identified trend. This is the whole essence of cyclical investment strategies. I am a sweetspot for these types.But seeing as NTR trades very close to its 5Y-median right now in all four metrics I believe its fair to say shares are moderately valued. Neither over or under.

But if you are bullish on the sector like me I'd consider it a good entry point. I don't care about getting a 3% better entry or something like that when I'm chasing returns in the 40 - 50% over the next 3 - 4 years.

Since NTR derives revenues from selling commodities, each quarter's results depend heavily on what the price is. Inherently this makes NTR subject to market volatility which is a risk. Most companies use hedges here to even out the results somewhat. NTR doesn't have a particularly well established hedge book. This could be a disadvantage to the company if we see more volatility in the next few years.

Its debt pile is an issue. Based on the FY25 EBITDA forecast NTR runs on a 5.98 leverage ratio. This is quite high but then again I think we are at the low end of the cycle and I don't see prices going much lower. NTR also holding $1.3 billion in cash further offsets a lot of the leverage.

NTR is a well-rounded business with a wide exposure to several commodity markets globally. There are several factors that point to a secular uptrend for fertilizers. Like low stocks/use rations which tightens inventory levels meaning farmers need to ensure high yields on crops. Turbulent market conditions with tariffs being thrown around like nothing makes farmers hesitant and this tends to hedging against prices by buying up fertilizers whilst prices are still moderate. I see all the signs of a large uptrend in the next half a decade.