Why this large cap stock could be a star performer even amid a potential May sell-off

The month of May is typically a bad period for shares but Nufarm Limited (ASX: NUF) could find fortune next month as investors catch on to the upside from its omega-3 opportunity.

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Star Performer

We are heading into the stock killin’ season of May – a month that has traditionally marked the start of a weak, if not dismal, period for global equities.

Hang on Fools! The backdrop of rising volatility and increased trepidation towards the upcoming bank profit reporting season could make next month a stomach-churning event compared to this time last year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) crashed by nearly 4%.

However, there is one stock that looks well placed to outperform the broader market next month regardless of whether the “sell in May, go away” market adage comes to pass.

I am referring to Nufarm Limited (ASX: NUF) as the seed and crop protection products supplier gears up for its Investor Day on May 10.

Analysts are coming to the view that this event could be a catalyst for Nufarm’s share price, particularly around its new Omega-3 enriched seed product.

Calling this product line a “game changer” is probably too strong a term but I don’t think the market has fully appreciated the upside potential from this new offering.

I believe that omega-3 is to Nufarm as the A2 milk protein is to A2 Milk Company Ltd (ASX: A2M) – except there is more science backing the health benefits of omega-3 than A2 milk protein but that’s a story for another time.

Supply of omega-3 has come from fish and Morgan Stanley believes there is a big global shortage of fish oil emerging.

“Demand for fish and therefore fish oil remains underpinned by a growing population with increasing health consciousness. We forecast ~4% growth p.a. in fish oil demand over the next 10 years,” said Morgan Stanley.

“Against a backdrop of stagnant supply, we see a global deficit of ~440kt emerging over this time frame (~50% of current supply).”

This is why the broker is bullish about the medium to longer-term outlook for Nufarm as its land-based solution to the looming omega-3 deficit is not only sustainable and scalable, but Nufarm’s first mover advantage could see it become a major global supplier of omega-3 over the coming years.

Morgan Stanley has an “overweight” recommendation on the stock with a price target of $11.75 a share.

That leaves a decent upside to the stock even as it gained another 0.8% to $9.12 this morning.

What’s more, Nufarm is a laggard with the stock wallowing 7% in the red over the past 12-months when its peers Incitec Pivot Ltd (ASX: IPL) and Orica Ltd (ASX: ORI) are at breakeven and 5.4% ahead, respectively.

This could be about to change in May.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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