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Why I’d avoid Sirius Minerals plc and buy this superstock instead

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Shares in Sirius Minerals (LSE: SXX) have risen around 26% over the past month. As a short-term speculation, that’s a decent return and I’d be taking profits now if I held the stock.

However, many investors are in this one for the long haul. After all, the company signs off its promotional video saying “Sirius Minerals. The future of fertilizer,” which is a mighty prediction to make, inspired no doubt, by the estimated 2.6bn tonne high-quality polyhalite potash resource that the company owns in Yorkshire.

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Volatility ahead

But before Sirius can start mining and shipping its Poly4 multi-nutrient fertilizer product from Teesside to eager, pre-committed customers around the world, there’s the ‘small’ matter of building the mine and transportation systems, which is a massive and expensive construction project fraught with uncertainty. Long-term shareholders should hunker down ready for more volatility in the stock over the coming years – the share price is up over the past month, but my prediction is that it will fall again, then rise, then fall over and over again for some considerable time to come mirroring the ups and downs of the firm’s operational progress. So, I’m in no hurry to make a long-term commitment to the stock.

Highlights in the recent full-year report confirm that the construction project started during 2017 and that the firm has signed incremental supply agreements with customers for 4.4m tonnes per annum. Chief executive Chris Fraser said in the report: “Our world-class project based in North Yorkshire has the potential to disrupt the global fertilizer market and contribute substantially to the UK economy.” The story here is an exciting one, but with Sirius only just having entered into a design-and-build agreement with Canadian firm DMC Mining Services to sink the four shafts required for the project, there’s a long and winding road ahead before we see first profits.

Boring but good

Meanwhile, boring-but-already-profitable manufactured masonry products provider Forterra (LSE: FORT) delivered rather decent-looking full-year results today with revenue more than 12% higher than a year ago, adjusted earnings per share almost 17% up and adjusted operating cash flow rising more than 29%.

The strong cash flow performance enabled the firm to reduce its net debt by around 34% to £60.8m at 31 December 2017, which is a comfortable-looking 0.8 times the value of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). The directors expressed their confidence in the company’s financial strength and the trading outlook by pushing up the total dividend for the year by 10.5% — nice!

Chief executive Stephen Harrison told us in the report that the main driver of revenue growth in 2017 was the new-build residential market together with the “strategically important” acquisition of Bison, which “has given us a leadership position in the precast concrete products market.” City analysts following the firm expect earnings to grow 6% in 2018 and 8% in 2019, which looks like steady progress. You can pick up the shares on a forward P/E rating a little over 109 for 2009 at today’s share price around 294p and there’s a 3.8% forward dividend yield. I think the firm is well worth your further research time.

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Kevin Godbold 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.

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