Sometimes, adopting a contrarian mindset can pay off handsomely. Right now, however, I wouldn’t go near would-be polyhalite producer Sirius Minerals (LSE: SXX). And that’s coming from someone who once held its shares.
Sirius’s problems are hardly a secret. A lack of funds has forced the company to slow the development of its Woodsmith mine in North Yorkshire — a project that could revitalise the region if it actually gets completed. This has hit the share price hard. Indeed, the company’s value is almost 85% lower today than at this time last year.
Notwithstanding this, Sirius does have a plan. Last week, the company revealed that it would seek $600m from an investor to get it to the point that it’s capable of producing. By asking for far less than the £3bn it originally looked to raise, Sirius hopes it can then tap investors for more money further down the road.
Whether any of this funding will be secured is still up in the air, of course. That said, my Foolish colleague Manika Premsingh thinks the share price has now fallen so low that the risk/reward ratio is very attractive.
While I don’t disagree that it’s better to buy a high-risk stock at a low price, I’d be inclined to wait until the funding was secured before venturing near Sirius again. You might miss out on a big jump, but this is far preferable to losing your entire stake. If it really is that great an investment, there will be plenty of chances to make money later on.
Instead, I’d be more likely to put my money to work in established, profitable businesses, even those trading on traditionally expensive valuations. FTSE 100 life-saving technology firm Halma (LSE: HLMA) is one such example, especially after today’s record set of half-year results.
Following “good organic and acquired growth“, revenue moved 12% higher to a little under £654m over the six months to the end of September with all four of Halma’s sectors (Infrastructure Safety, Process Safety, Environmental & Analysis and Medical) recording sales growth and the company performing well in all major regions in which it operates. Adjusted pre-tax profit came in at almost £129m — a 14% increase on that achieved over the same period in 2018.
Unsurprisingly, Halma’s share price rocketed this morning. As I type, it’s well over 11% higher. That’s a mighty move for such a big company, but it does emphasise how confident investors are that recent growth rates will continue, even if the asking price before this morning (33 times earnings) was already high.
It looks like they’re right to be optimistic, however, with CEO Andrew Williams commenting that order intake “has continued to be ahead of revenue and order intake last year” since the end of the trading period. Considering the resilient markets in which Halma operates and the fact that it continues to acquire smaller players at a fair clip, I suspect the share price will push even higher over the medium-to-long-term.
It’s also worth remembering that, as well as being a great growth story, Halma has also been a very reliable source of income having raised its payouts by 5% or more every year for the last 40 years. The interim payout was raised by another 7% today to 6.54p per share. That’s the sort of consistency most dividend investors love.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019