One ASX 200 dog stock of 2023 tipped to rebound in 2024

A fund manager has picked this stock as a fertile opportunity.

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The S&P/ASX 200 Index (ASX: XJO) stock Incitec Pivot Ltd (ASX: IPL) has been identified as an opportunity that could rebound strongly in 2024.

As we can see on the chart below, 2023 was a barren year for the chemicals and fertiliser business. It provides explosives for resource businesses and fertilisers for farmers.

Created with Highcharts 11.4.3Dyno Nobel PriceZoom1M3M6MYTD1Y5Y10YALL31 Dec 202211 Jan 2024Zoom ▾Jan '23Mar '23May '23Jul '23Sep '23Nov '23Jan '24Jan '23Jan '23Apr '23Apr '23Jul '23Jul '23Oct '23Oct '23Jan '24Ja…Jan '24Ja…www.fool.com.au

The fund manager Atlas Funds Management has picked the ASX 200 stock as one that has potential to recover.

Atlas points to a very simple reason for the Incitec Pivot share price falling 20% in 2023 – lower fertiliser prices.

Why the ASX 200 stock is an opportunity

The fund manager points out that investors could do well by looking at large businesses, which it calls dog stocks, that have fallen heavily but are still paying dividends.

The thought process for that is a large business improves the chance that the unloved company can have the financial strength to recover over time. If it's paying a dividend, it may suggest the business model is less likely to be permanently broken – a company's directors are "unlikely to authorise a dividend if insolvency is imminent."

Incitec Pivot could benefit after the ASX 200 stock sold its Waggaman Ammonia Plant in Louisiana in 2024.

Why does that help shareholders? It's because the company is expected to conduct a 26-cent capital return as well as a $900 million on-market share buyback.

If it does this, it would lead to a 15% reduction in the number of Incitec Pivot shares available and will "mathematically boost the company's share price", according to Atlas.

The fund manager also said additional capital returns could result from selling the Australian fertiliser operations if the company becomes a pure-play explosives company.

At the company's annual general meeting (AGM), it said its premium technology will provide a competitive edge in a market that is placing more focus on value over cost. It's also expecting profitability to grow due to "continued commercial discipline and a sharper focus on managing costs."

So far in FY24, the ASX 200 stock has also seen "solid results and reliable operations" across all of its manufacturing plants, apart from Phosphate Hill. The ammonia plant restarted on 2 December 2023, with plans for the plant to reach full production by mid-January 2024.

The distribution side of the fertilisers business is "targeting accretive market share gains, backed by strategic customer offerings."

Management said the company is in a strong position, and the business has "good momentum."

Incitec Pivot share price snapshot

Over the past two years, it's down by just under 20%.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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