Picking the best UK share to buy in September is a challenge. Markets imploded in March, and now are running wild even as economies enter recession and the coronavirus still plagues us. Some stocks are continue to lag behind, and these are the ones that I think could have value.
However, some will be value traps. Like many of my colleagues, I am not confident in the prospects for the leisure travel industry. Despite cheap-looking valuations, I will be not be buying shares in the likes of Carnival and TUI in September. I am not convinced the cruise industry will ever recover in full. Travel restrictions are being phased in and out, and there is still a reluctance to travel at all, making things difficult for a package holiday and travel agent outfit.
But there is value to be found out there. I have picked Mondi (LSE: MNDI) as my best UK share to buy this September.
A UK share for September
Few gold miners strike gold, so in a gold rush, you want to be the one selling the picks and shovels. In the e-commerce boom, it’s not tools but packaging that is demanded by all order-online-for-delivery businesses and not just the eventual winners. Buying shares in Mondi this September looks like a classic picks and shovels trade for the modern era.
Mondi makes paper and packaging. I grant you this is not an exciting stock, as some of the online businesses no doubt are. But, Mondi has managed to creep its revenues higher from €6,819m in 2015 to €7,268 in 2019. At the same time, net income has gone from €600m to €812m. This is a consistently profitable company that should be getting a boost as the trend to ordering online continues.
Timberland has always been an inviting investment for me. You get capital gains from the land and income from felling the trees and selling them. If prices are low, trees can be left standing, and they keep on growing by about 5% a year. In addition, you also get risk diversification against unexpected inflation because it should drive up the price of lumber and land. Buying acres of prime woodland costs a fortune making a direct investment difficult. But Mondi manages forests to feed its operations, and so its shares offer indirect exposure to timberland, which I like.
Mondi did suspend its dividend as the coronavirus crisis intensified, but it has recently given shareholders a special dividend. The total dividend payment of €0.57 for this year is covered more than three times by earnings, so it looks safe. In pence, the dividend is around 50 per share, which at the moment cost 1,488p. The dividend yield on a trailing 12-month basis is about 3.4%, which is not bad. Mondi’s share price did fall in March’s market crash and had not yet recovered in full. This helps the yield. It also keeps the trailing price-to-earnings ratio below 12.
Add in a strong balance sheet with debt under control and good liquidity and Mondi looks like a great value share to buy in September.
James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.