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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