MENU

Why the Incitec Pivot Ltd (ASX: IPL) share price is the best performer on the S&P/ASX 200

The Melbourne Cup hasn’t started but there’s already a winner on the market with the Incitec Pivot Ltd (ASX: IPL) share price racing higher today to become the best performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.

Shares in the chemical company surged 4.9% to $4.22 in lunch time trade with Bellamy’s Australia Ltd’s (ASX: BAL) share price, Syrah Resources Ltd’s (ASX: SYR) share price and Western Areas Ltd‘s (ASX: WSA) share price following close behind.

Incitec has taken pole position after Credit Suisse upgraded the stock to “outperform” from “neutral” ahead of the company’s full year results next Tuesday.

The broker believes Incitec can deliver a pleasant earnings surprise as the market isn’t fully appreciating rising fertilizer prices and growing explosives demand in eastern Australia.

The Iranian sanctions, Chinese reforms and project delays are factors behind a significantly tightening supply environment and the broker has upgraded its fertilizer price forecasts for the third and fourth quarter of 2018.

Problems at Orica Ltd’s (ASX: ORI) Burrup plant that will delay the plant returning to full production until 2020 is also good news for Incitec.

“The market may be underestimating the impact of Phosphate Hill returning to full production in FY19 –we estimate an incremental A$30mn to EBIT [earnings before interest and tax] and a reduction in gas cost from 1 January adds A$20mn to EBIT in FY19 (A$9mn in FY20),” said the broker.

“With IPL intent on maintaining its Bowen Basin dominance, the next major capital project appears likely to be an expansion of ammonia capacity at Moranbah to support additional AN production.”

But even with this investment, Credit Suisse believes the company has the capacity to continue returning capital to shareholders over the medium term.

The broker has lifted its price target on Incitec to $4.33 from $4.02. Given today’s sharp rally, there doesn’t seem to be much more upside to the stock.

This makes me think that Nufarm Limited (ASX: NUF) may be a more rewarding option for those looking for stocks exposed to agriculture.

Nufarm’s share price is down 30% since the start of 2018 as its earnings took a hit from the drought in New South Wales and parts of Queensland.

In contrast, the Incitec share price is up 9% and Orica’s share price is only 1% in the red.

This leaves Nufarm plenty of room to play catch up, particularly given its medium-term earnings outlook from its European expansion and the introduction of its omega-3 enriched canola product.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2019."

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.