Nutrien (TSX:NTR) and Barrick Gold (TSX:ABX) are two of Canada’s best known materials stocks. One is a fertilizer maker that supplies vital inputs to farmers across Canada and the US, while the other is a mining stock that extracts and mines gold and copper. Each company has its strengths and weaknesses.
Nutrien’s business is quite stable due to the relatively minor volatility of potash and fertilizer prices, while Barrick has the potential to earn windfall profits during the occasional gold bull markets we see from time to time. There are reasons for investors to consider either one of these stocks, or even hold both of them. In this article, I will explore Nutrien and Barrick Gold side by side, so you can decide which is the better fit for your portfolio.
Source: Getty Images
The case for Nutrien
The case for holding Nutrien instead of Barrick Gold rests on the fact that the former is a much more “stable” company than the latter. Although Nutrien is exposed to commodity price risk just like Barrick is (potash is used in making fertilizer), the relevant commodity for Nutrien is generally not as volatile in price as Barrick’s commodities are.
This can be tested by looking at Nutrien and Barrick’s income statements side by side. With Nutrien, you see revenue making a slow and steady climb upward, going from $7.5 billion in 2014 to $35.6 billion in the TTM period, interrupted only once by a spike in revenue in 2022 after which sales came down. That year, fertilizer prices rocketed due to the war in Ukraine, which resulted in NTR’s sales briefly touching $50 billion. After the supply chain disruptions ended, Nutrien’s revenue came back down to earth. Nevertheless, the company’s 2023 revenue came in comfortably above the 2021 amount, at $37 billion (an increase of 9.5% over two years).
It’s quite a different story with Barrick. Gold and copper prices are volatile, and Barrick’s revenue is volatile along with them. In the last 10 years, the company had two separate periods in which revenue declined – one starting in 2020, and the other starting in 2015. This is a pretty typical pattern for gold companies, which are very exposed to commodity price risk. If gold prices go down, then ABX’s revenue will go down with them – dramatically.
The case for Barrick Gold
The case for Barrick Gold over Nutrien rests on the fact that Barrick is much more profitable than Nutrien in the best of times. Although speaking about a company’s performance in “the best of times” might seem to be unjustifiably assuming that a best-case scenario will play out, that’s not really what I’m getting at here. Gold prices have been very strong over the last few years and the world continues being geopolitically unstable. So, there is a case to be made that gold prices – and Barrick’s margins – will remain high.
Speaking of which, Barrick Gold was quite profitable in the trailing 12-month period, boasting the following margins and returns:
- A 34% gross profit margin.
- A 25% EBIT (operating income) margin.
- A 13.2% net margin.
- A 7.7% free cash flow margin.
- A 7% return on equity (ROE).
The same profitability metrics are much worse for Nutrien, which is why I consider Barrick to be the overall better buy between these two. Just remember the cyclicality in gold prices.
