As I write this on Friday afternoon, the Helium One (LSE:HE1) share price is up by an eye watering 15%! And this is on a day when the broad markets are sluggish. So what is going on here?
Positives for the Helium One share price
On Thursday, the company, which explores and develops Helium used in scientific research and technologies, said it was starting drilling at a well in Tanzania. Its share price rose by 25% following this, and continues to do so.
Can the Helium One share price rise more, though?
On paper, there is a lot going for it. The gas has proven uses. Its share has been lapped up by investors since its listing on the AIM exchange last year. This suggests confidence in it. It reached a high of 28p earlier this month, up almost seven times from its listing price.
But there is another side to the story, too. By earlier this week, its share price had lost more than half the value from its early-August highs. This followed disappointing results from exploration. It has started rallying again now as hope builds on its next round of exploration.
And that is my problem with the stock. There is just too much volatility here. This to me, smacks of speculative trading activity. Far more than I care for among stocks I hold. As a pre-revenue company that is still looking for viable reserves, Helium One is particularly susceptible to it.
Natural resource exploration can be difficult business, and a story that starts with great promise may not always end well. Does anyone remember what happened to Sirius Minerals? It was exploring a different resource with an as yet unproven market, but there may appear parallels with its slow-moving case, if the helium explorer is unable to become financially viable in time.
Consider Anglo American instead
Speaking of Sirius Minerals, though, I think a good investment in the natural resources business is its acquiring company, Anglo American (LSE:AAL). Unlike Helium One, it is an established FTSE 100 stock that looks like a steal right now. Yesterday, its share price dropped by a huge 10% as it went ex-dividend.
This is a great time to be a natural resource producer. From oil and gas companies to industrial metal miners, the rising prices of commodities have made them even more financially robust than they already were. In the last year alone, Anglo American’s share price almost doubled. The owner of De Beers, the biggest diamond company in the world, can continue to gain as the world economy gathers pace.
There is some risk that industrial metals’ prices can fall as China withdraws its fiscal stimulus. But whether that happens remains to be seen. Besides, the US government’s spending and a pickup in global growth can still keep them elevated, positively impacting the likes of Anglo American.
I reckon I am better off sticking to its likes than venturing into investing adventures like Helium One. The ride may be exhilarating but I am not sure the end will be positive. At least, not yet.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.