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Forget the IAG share price. I’d rather buy this FTSE 100 stock to retire early

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British Airways
Image source: British Airways

The IAG (LSE: IAG) share price has been in fine form over November, buoyed by positive news on coronavirus vaccines. Anyone with the skill or courage to buy a slice of the British Airways owner at the beginning of the month would be sitting on a gain of around 60%. That’s penny stock territory

As a long-term investor however, it’s vital to keep things in perspective. Anyone buying IAG five years ago would still be underwater. Back in 2015, the shares were changing hands around the 230p mark. Today, they’re at 156p. No wonder top UK fund managers like Terry Smith avoid the airline sector like the plague.

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Now compare this derisory performance to FTSE 100 peer and life-saving technology specialist Halma (LSE: HLMA). Over the same five-year period, its share price has soared almost 190%!

Regardless of today’s initially underwhelming half-year numbers, I still think Halma is the better investment for anyone looking to retire early.

“Resilient performance”

Revenue fell 5% to £618.4m over the six months to the end of September with sales at the firm’s Safety sectors (Process and Infrastructure) declining.

On a more positive note, Halma did see revenue growth in its Environmental & Analysis and Medical sectors. Sales in the US were also stronger, making up for tricky trading in the UK, Mainland Europe and the Asia Pacific region.  

All told, adjusted pre-tax profit fell by 5% over the period to £122m. Given just how tough 2020 has been, this was regarded as a “resilient performance” by management.

I agree. What’s more, I think the company’s ‘essential’ line of work should mean things get back on track quicker than many more cyclical FTSE 100 shares, including IAG.

Encouraging outlook 

According to CEO Andrew Williams, Halma has had a “good start” to the second half of its financial year. While the near-time economic outlook is uncertain, orders and revenue have already been better than in 2019.

As a result of this, the £9bn-cap now expects adjusted pre-tax profit for the full year will come in “around 5% below FY 2019/20.” That’s actually an improvement on its previous prediction of somewhere between 5% and 10% down.

Unsurprisingly, this news has been lapped up by the market. Halma’s share price rose 4% in early trading. But the good news doesn’t end there. 

Dividend delight

Halma’s appeal goes beyond capital gains. Although not a stock I’d buy just for the income, it remains one of the most consistent dividend hikers on the market. Despite recent events, the interim dividend was raised another 5% to 6.87p per share today. 

By sharp contrast, IAG no longer pays a dividend. Due to its battered balance sheet, I can’t help but think it’ll be a long time before it does. Halma, by contrast, had just £315m in net debt at the end of September — around 4% of the company’s entire value.

Better value than the IAG share price?

It’s certainly possible the IAG share price will move a lot higher over the next few weeks and months now that we seem to be turning a corner on the vaccine front. Then again, the recovery is unlikely to be free of turbulence, given the logistical challenge of distributing it to so many people.

As a Foolish investor, I’m therefore asking myself which business I’d rather own for years. Despite its eye-watering valuation (44 times earnings), the answer continues to be Halma.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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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