Shares in Nufarm Limited (ASX: NUF) have been caught up in the global market sell-off but the dip could present an opportunity if Credit Suisse is to be believed.
The broker had only upgrade the stock to "outperform" from "neutral" on Friday before the latest spike in US Treasury yields sent equities into a tailspin.
The share price of the chemical and fertilizer producer tumbled 1.4% to $8.25 in morning trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) retreated 1.2%.
This leaves around a 12% upside to Credit Suisse's share price target of $9.21 and investors can look forward to collecting another circa 2% in dividends.
While that may not sound like rich pickings to some, Nufarm's share price may be less at risk during a sharp market sell-off as it has not enjoyed a nice rally as there isn't that much good news priced into the stock as it has fallen over 2% over the past 12-months when the top 200 stock benchmark is up nearly 8%.
But it's not only Nufarm that has been struggling to gain traction. Its peers Orica Ltd (ASX: ORI) and Incitec Pivot Ltd (ASX: IPL) have also been lagging the market.
"While there is a deterioration in Australian crop conditions from late 2017 and rising glyphosate costs present some additional downside risk for 1H18, these seasonal/cyclical swings seem adequately compensated with Nufarm at 12x FY19 EPS [earnings per share]," said Credit Suisse.
The market probably thinks Nufarm is ex-growth as the benefits from its cost savings drive is about to run its course.
But Credit Suisse thinks the market is underappreciating the company's growth potential as Nufarm expands its presence in Europe through a recent acquisition, rebuilds its Australian market share and grows its seeds business.
There are also longer-term benefits from the company's transformation program that have not yet been realised.
However, don't expect a sharp re-rating in the stock anytime soon. Global conditions for crop chemicals remain mixed at best and most soft commodity prices are on the back foot as oil and hard commodities take-off.
On the other hand, the steady-as-she-goes characteristic of the stock may be just what investors need – particularly given the storm that is hitting the market today!
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