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Best shares to buy now: here’s my top pick

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When it comes to investing, I’m a firm believer that we need to be selective. In my opinion, the best shares to buy are those companies that are profitable, growing and undervalued. It’s an added bonus if what the company does actually interests me. It helps make reading the company accounts and following the latest news more enjoyable. So, when I find companies that meet my investment criteria and at the same time interest me, my curiosity is piqued.

My best share to buy now

One company that achieves this is Ferrexpo (LSE: FXPO). The company is one of the world’s largest miners of iron ore pellets, operating primarily out of Ukraine. Its high-grade pellets are used by steel producers the world over. In the last four years, revenues have increased by over 50%, to £1.1 bn last year. Over the same timeframe, after-tax profits have more than doubled.

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The group is looking to increase its capacity from the 10m tonnes that it produced last year, to 12m tonnes by 2021. In the medium term, the plan is to ramp up to 20m tonnes. With impressive net profit margins of well over 20%, this extra production should feed through to the bottom line.

A Ukrainian base has its advantages. It allows the group to sell to customers in both Europe and Asia, with China accounting for 60% of global steel production. Ferrexpo looks set to benefit from Chinese economic growth and increased demand for higher-quality inputs. High-grade pellets are deemed to be more environmentally friendly than the alternatives. As emissions regulations tighten in China and the rest of the world, this should boost demand for pellets. Meanwhile, iron ore supply disruptions in Brazil look set to continue, supporting prices.

As well as being a growing and profitable company, it also looks considerably undervalued to me. The shares trade at just three times last year’s earnings and at a 20% discount to net assets. There’s also a huge cash balance of £130m and very low net debt. To top it off, this year’s dividend yields a very generous 8%.

Resilient and agile

So far, the group has been unaffected by Covid-19. Ferrexpo even managed to increase production in the first half of the year. While there was some impact to its end markets, revenue fell just 1%. This was in large part due to the group’s ability to pivot its sales from Europe to China, where the recovery from Covid was both swifter and longer-lasting. In fact, sales to China made up 66% of total sales in the first half, up from 30% in 2019.

All in all, this looks to me like one of the best shares to buy now. But I must first sound a warning. The company is in an ongoing legal tussle with the Ukrainian courts. Such UK-listed Eastern European mining companies have in the recent past been plagued with corporate governance issues. We actually need to beware of investing in something that seems so interesting. Sometimes, it can cloud our judgement. Often, the best investments are the most boring ones.

With that in mind, I’d only buy this share as part of a wider portfolio. As always, diversification is crucial.

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Thomas 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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