There are two falling FTSE 100 shares that are catching my eye at the moment. One of them looks like a buying opportunity to me, the other is one I’m staying well away from.
The first company looks to me like it’s in great shape. It has a strong advantage over its competitors and its share price looks to me like a bargain, down 6% over the last month.
The second has a business model that seems to me to be deteriorating. As its revenues decrease, the company’s share price doesn’t look to me like much of an opportunity, even down 38% since January.
I’m buying: Endeavour Mining
The stock that’s catching my eye is Endeavour Mining (LSE:EDV). The basics of the business are easy enough to understand – it makes its money by mining gold and selling it.
Since gold is a commodity, Endeavour doesn’t directly control how much to sell its product for. Like other gold miners, it sells the gold it extracts at whatever the prevailing price is.
Endeavour thus lacks a pricing advantage over its competitors, but I think it has a cost advantage. The company extracts gold at an average cost of around $1,000 per ounce.
This should allow the company’s operations to remain profitable even when gold prices are low. At the moment, despite the recent declines, the price of gold is around $1,700 per ounce – comfortably above Endeavour’s cost basis.
With the stock down around 11% since the start of the month, I’m seeing this as a great opportunity to buy shares for my portfolio.
I’m avoiding: Hargreaves Lansdown
Shares in Hargreaves Lansdown (LSE:HL) have also been falling lately. Over the past six months, the HL share price is down 40%.
Hargreaves Lansdown is an investment platform. It makes its money through custody and transaction fees that it charges its retail investors.
The company has a number of attractive features. It has a strong balance sheet, with more cash than debt, and it uses little in the way of fixed assets to generate its income.
Nonetheless, it’s a stock that I’m staying well away from. The main reason is that I think the underlying business is vulnerable to disruption.
One of HL’s main sources of income is the commission it charges customers for buying and selling stocks. And I think that this part of the business is in significant danger.
The rise of brokerages with lower costs and/or no commission for trades seems to me to be poised to steal market share from HL. In fact, I think it might well be happening already.
Last year, HL’s revenues came in lower than they were a year ago. This is worrying and part of a trend that I think is likely to continue.
In my view, HL needs to try and find a new revenue stream. Retail investors recently have become reluctant to put up with commission fees on trading and this threatens the company’s primary revenue stream.
I therefore think that Hargreaves Lansdown’s has a real problem with the competition it faces. And since I’m dubious of its ability to fend off this threat, HL shares don’t have a place in my portfolio right now.
