Forget the IAG share price. I’d rather buy this FTSE 100 stock to retire early

The International Consolidated Airlines Group (LON:IAG) share price is up, but Paul Summers thinks this FTSE 100 (INDEXFTSE:UKX) stock’s a better buy.

| 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.

The IAG (LSE: IAG) share price has been in fine form over November, buoyed by positive news on coronavirus vaccines. Anyone with the skill or courage to buy a slice of the British Airways owner at the beginning of the month would be sitting on a gain of around 60%. That’s penny stock territory

As a long-term investor however, it’s vital to keep things in perspective. Anyone buying IAG five years ago would still be underwater. Back in 2015, the shares were changing hands around the 230p mark. Today, they’re at 156p. No wonder top UK fund managers like Terry Smith avoid the airline sector like the plague.

Now compare this derisory performance to FTSE 100 peer and life-saving technology specialist Halma (LSE: HLMA). Over the same five-year period, its share price has soared almost 190%!

Regardless of today’s initially underwhelming half-year numbers, I still think Halma is the better investment for anyone looking to retire early.

“Resilient performance”

Revenue fell 5% to £618.4m over the six months to the end of September with sales at the firm’s Safety sectors (Process and Infrastructure) declining.

On a more positive note, Halma did see revenue growth in its Environmental & Analysis and Medical sectors. Sales in the US were also stronger, making up for tricky trading in the UK, Mainland Europe and the Asia Pacific region.  

All told, adjusted pre-tax profit fell by 5% over the period to £122m. Given just how tough 2020 has been, this was regarded as a “resilient performance” by management.

I agree. What’s more, I think the company’s ‘essential’ line of work should mean things get back on track quicker than many more cyclical FTSE 100 shares, including IAG.

Encouraging outlook 

According to CEO Andrew Williams, Halma has had a “good start” to the second half of its financial year. While the near-time economic outlook is uncertain, orders and revenue have already been better than in 2019.

As a result of this, the £9bn-cap now expects adjusted pre-tax profit for the full year will come in “around 5% below FY 2019/20.” That’s actually an improvement on its previous prediction of somewhere between 5% and 10% down.

Unsurprisingly, this news has been lapped up by the market. Halma’s share price rose 4% in early trading. But the good news doesn’t end there. 

Dividend delight

Halma’s appeal goes beyond capital gains. Although not a stock I’d buy just for the income, it remains one of the most consistent dividend hikers on the market. Despite recent events, the interim dividend was raised another 5% to 6.87p per share today. 

By sharp contrast, IAG no longer pays a dividend. Due to its battered balance sheet, I can’t help but think it’ll be a long time before it does. Halma, by contrast, had just £315m in net debt at the end of September — around 4% of the company’s entire value.

Better value than the IAG share price?

It’s certainly possible the IAG share price will move a lot higher over the next few weeks and months now that we seem to be turning a corner on the vaccine front. Then again, the recovery is unlikely to be free of turbulence, given the logistical challenge of distributing it to so many people.

As a Foolish investor, I’m therefore asking myself which business I’d rather own for years. Despite its eye-watering valuation (44 times earnings), the answer continues to be Halma.

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.

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.

More on Investing Articles

Investing Articles

This 9.75% yielding FTSE 100 share is a total no-brainer for second income

This FTSE 100 insurance company is an absolutely brilliant source of second income and Harvey Jones reckons it will be…

Read more »

Dividend Shares

I could make £14.2k of passive income from £99 a week with this secret sauce

Jon Smith explains why sacrificing the immediate reward of dividends today can boost his long-term passive income prospects.

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Which looks the better bank buy right now: Lloyds or NatWest shares?

Lloyds shares are a very popular pick among FTSE 100 investors, but I think there are several better choices overall,…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d target a £14,616 annual passive income with M&G shares!

Big passive income can be generated over time with 9.5%-yielding M&G shares, especially if the dividends paid are used to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

If I’d put £1k in this FTSE 100 stock five years ago, here’s how much I’d have now!

Mark David Hartley works out what sort of profit he’d have made by investing in this FTSE 100 pick pre-pandemic.…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: July’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Is this one of the FTSE 100’s best-value growth shares?

Looking for great-value recovery shares to buy today? Based on City forecasts, this could be one of the best that…

Read more »