December can be a rewarding time of year to be invested in shares. In a majority of years there’s a Santa Rally, where share prices rise. According to Fidelity International, it has happened in 25 of the past 30 years. While investing only in December is not much of a strategy as any rally can make December share buys expensive, nonetheless, if I had £500 to invest in the stock market now, here’s what I’d do.
Will the election and Brexit ruin a Santa Rally?
Last December wasn’t great for investors as the stock market plunged. This year is likely to be nervy as well with an election and the subsequent fears of either a hard Brexit or the uncertainty of a second referendum hitting confidence. It’s hard to know what might happen to the market overall from this point until Christmas, but for investors looking into 2020 and beyond, there are plenty of profitable companies to invest in. And to paraphrase Warren Buffett: it’s best to be greedy when others are fearful.
How I’d invest my £500
Right now, any money I would invest in the stock market (rather than on Christmas presents) would go into undervalued, profitable companies. There’s a massive range of potential companies that fit the bill, from Aviva to Imperial Brands to TUI. However, if I only had £500 to invest, I’d look at a company facing fewer challenges but where the share price is still cheap.
One such business is the FTSE 100 paper and packaging specialist Mondi (LSE: MNDI), whose share price has struggled over the past 12 months but performed far better over the last five years.
Short-term problem
At the moment, the group is struggling to raise prices, which is not the news investors want to hear. The company has pointed out that this may continue into its fourth quarter, which covers the period until the end of this year. Overall though, the demand for paper and packaging is likely to outstrip supply. Prices and volumes will rise again, I believe, making this a short-term problem and one that is not limited to just Mondi.
Why invest
The company’s capital spending is high, and while this isn’t always ideal for investors looking for high cash conversion from asset-light companies (like Just Eat), over the long-term, it should help the firm keep growing. And the manufacturer has a return on capital employed (ROCE) of 23.6%, which makes it very efficient.
Operating profit from 2014 to 2018 increased from €767m to €1,318m and underpinning the growth of the group is the demand for packaging from e-commerce in particular.
As an international FTSE 100 company, Mondi provides an attractive place to stash away a small sum of money that can grow over time.
The shares trade on a P/E of just 10 and have a dividend yield of 4%, so there’s both value and income potential in the shares and this is a combination I think could be very profitable over the long term. This is why if I had £500 to spend before Christmas I’d buy shares in Mondi.