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

ARM Holdings Plc (LON:ARM), Royal Mail plc (LON:RMG) & Antofagasta plc (LON:ANTO) are under the spotlight.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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)? 

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. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »