The Motley Fool

Investors are buying Helium One Global (HE1) shares. Should I?

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.

Businessman looking at a red arrow crashing through the floor
Image source: Getty Images.

Shares in Helium One Global (LSE: HE1) were the most popular buy on investment platform Hargreaves Lansdown last week. When a £56m-cap minnow is being bought more than heavyweights such as Rolls Royce, Scottish Mortgage Investment Trust, Aviva and Lloyds Bank, I immediately get interested.

Why are investors buying Helium One?

So why such interest? It’s a good question, particularly given the recent performance of the shares.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

On 23 August, Helium One’s stock traded for just under 17p. By the end of play on 27 August (last Friday), the share price had tumbled to just over 9p. At one point during the week, the stock was down as low as 6p. That’s only marginally above what Helium One’s shares traded at when they first arrived on the market at the end of 2020. 

As is often the case with junior stocks in this sector, with the collapse in price often attributed to a disappointing exploration update. My Foolish colleague Roland Head covered the less-than-ideal news on the firm’s Rukwa project last Thursday

A fall of 46% in such a short space of time is sobering. So is there anything that attracts me to Helium One shares? Actually, yes.

In short supply

Right now, helium supplies are running low. Yes, that means fewer birthday balloons. However, a far more important use of the element is for cooling magnetic resonance imaging (MRI) machines. These use radio waves and magnetic fields to create internal images of body parts. Through this, medical staff are able to diagnose and monitor conditions. This is clearly vital work. Moreover, the reduction in helium supply couldn’t come at a worse time given the delays caused by Covid-19.  

There’s another problem. Helium’s status as an inert gas means it’s also used in the manufacture of semiconductors, helping to prevent any unwanted chemical reactions. Unfortunately, the pandemic has accelerated a shortage of these chips which are now ubiquitous in everyday tech.

And these are just the near-term headwinds. Put it all together and the helium price should remain strong. This could leave HE1 in a sweet spot if it can find and extract enough gas. 

Dilution likely

Despite all this, it seems clear to me that the stock will likely remain a risky pick as drilling continues. All it takes is a bit of poor weather to halt progress.

On top of this, drilling campaigns are rarely cheap. HE1 has £10m in cash, at least according to management, but I suspect the need for more funding is pretty much nailed on. And capital raises would only serve to dilute any stake I owned.  

I also feel the need to question whether all this is, to borrow an expression from billionaire Warren Buffett, beyond “my circle of competence.” Do I possess sufficient knowledge of this (unprofitable) company to give me an edge over other investors?

If not, buying some Helium One shares today would be a speculative punt. That’s fine and it could pay off brilliantly. But it’s not investing.  

Better buy

Helium One has likely made some of its early owners wealthy. There’s a possibility it could still make great money for those investors buying in last week. For me however, there’s simply too much risk involved.

If I were to buy a penny stock, it would almost certainly be more of this one.  

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Hargreaves Lansdown and Lloyds Banking Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.