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The Peril Of Holding Onto ARM Holdings Plc, Royal Mail plc & Antofagasta plc

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Søren Kierkegaard once said that to dare is to lose one’s footing momentarily, but to not dare is to lose oneself. 

With that in mind, considering that the FTSE 100 is badly hurt, and that the rainy days might be here to stay — in which case, should you buy ARM Holdings (LSE: ARM) and Antofagasta (LSE: ANTO) instead of Royal Mail (LSE: RMG)

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Real Life

Record sales at Apple are great news for ARM, whose current stock price of 919p reflects broader market volatility than any fundamental issue with the business. In fact, you could buy ARM stock now and pay about 36x and 30x its forward earnings for 2015 and 2106, respectively, but trading metrics drop by 30% once they are based on projections for its adjusted operating cash flow.

That is not a lot, really, while the net present value of future cash flows to equity yields my personal price target of 1,150p. 

Between 2015 and 2017, ARM is expected to add about £200m of revenue each year — trailing sales stand at £795m. On top of that, roughly £100m of operating income will be generated, which should yield a compound annual growth rate of between 25% and 28% for earnings per share and dividends per share.

There’s no debt on its books. 

If that’s not enough, you must either forget about equity investing or you must be looking for a riskier investment — if the latter is the case, then Antofagasta could be your top pick.

Mr Copper 

Mr Copper is giving sleepless nights to Antofagasta shareholders, but they should live in the knowledge that the value of their holdings, which is currently very close to their 52-week low of 476p, is destined to be more resilient than that of all other major miners given that Anto’s capital structure — how much debt/equity the miner holds on its books — is much more balanced than that of its rivals. 

That is not to say that their lower dividend yield is much safer, however. 

Still, you may well be prepared to stay put if you are invested or you could be brave and buy its shares, which are currently priced at forward earnings and adjusted operating cash flow multiples of 15x and 5.5x, respectively. Either way, to not dare is to lose oneself — remember that? 

Boring

I have a problem with Royal Mail’s strategy of late — I did not digest its venture with Amazon — and I also have an issue with the limited room of manoeuvre that the mail and express sector offers. It doesn’t look good out there, as recently proved by the performance of UK Mail.

And, based on most metrics, you can’t even say that RMG looks dirt cheap at its current price of 450p!

So, I’d probably end up being bored to death checking out its stock price over the next decade, just trying to figure out how get out of the investment at anywhere between 450p and 550p. That’s a possible scenario over the medium to long term, in my view, unless some brave buyer placed a bid and the UK governments was willing to accept it. 

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and owns shares in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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