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Forget Royal Mail and Sirius Minerals! I’d buy this FTSE 100 stock to aim for £1m

The more than 90% collapse in the Sirius Minerals (LSE: SXX) share price over the past 15 months has still left the firm looking over-valued, to me.

As I write, the stock sits at 3.4p and the market capitalisation is just below £250m. But what do shareholders today get for their quarter billion? Dreams of a world-class producing polyhalite mine with nothing between the realisation of that goal but a mine and infrastructure development project costing an estimated $3bn or so to complete – and that’s $3bn that the firm doesn’t have.

Cap in hand

The latest shot at getting a finance deal away involves securing $600m of capital to get the service shaft down to the polyhalite orebody, which when secured, the firm hopes will attract a strategic partner who’ll stump up the $2.5bn needed to get to production.

But will the plan work? Can SXX even raise the $600m in the first place? And what price will the eventual strategic partner demand for financing the project? I fear massive dilution for existing shareholders, so will keep SXX at arm’s length for now.

Meanwhile, Royal Mail (LSE: RMG) saw its shares plunge more than 15% last Thursday on the release of its half-year results report. The figures are dire. Although revenue rose in the period by just over 5% compared to the equivalent period the year before, the adjusted numbers show that operating profit dropped just over 13% and earnings per share slid by more than 18%. The directors trimmed the interim dividend by 6.25%.

Dogged by poor industrial relations

The firm is engaged in a struggle trying to balance its declining letters business against better opportunities in the area of parcel post. But even the parcel post business seems like an anaemic sector to operate in, to me.

There’s a pressing need for change within the culture and operating practices of the company but progress is being held back by poor industrial relations. I’d categorise this stock as a loser, so will be avoiding the shares – probably always.

What would I prefer to buy? In an update in September, premium alcoholic drinks provider Diageo (LSE: DGR) said trading in the full year to June 2020 had “started well.” The firm’s focus is on “delivering quality sustainable growth,” and judging by the multi-year trading record, the company has been succeeding with that aim.

Good financial progress

Over the past five years, revenue has risen by almost 30%, operating cash flow around 80%, and earnings nearly 60%. The directors have pushed up the dividend almost 30% over that period and the share price around 65% higher. I reckon the success comes down to the firm’s strong brands, its strategy for growth and the general, defensive, cash-generating nature of the sector.

Right now, with the shares at about 3,100p, the price is almost 10% down from its August peak. Meanwhile, the forward-looking earnings multiple stands just above 20 for the trading year to June 2021 and the anticipated dividend yield is around 2.5%. The valuation’s not cheap, but it never is. I’d be a buyer on pull-backs like this because I think the FTSE 100 stock is a decent investment vehicle to help me compound my way to a million.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Diageo. 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.