Iron-ore miner Ferrexpo (LSE: FXPO) was my top stock for this month, and so far it looks like I made the right call. The FTSE 250 stock is up 4% since the start of the month. And compared to the same time last year, it is up a whole 185%!
I think there are plenty of reasons why the Ferrexpo share price is up. If I take a top-down approach to understanding them, at the top is the stock market rally.
Stock market rally
The FTSE 100 index zoomed past the 7,000 mark after over a year last week. The FTSE 250 index, of which Ferrexpo is a constituent, breached 22,000 even earlier in April. It has stayed above these levels through the month, making it FTSE 250’s best-ever month.
Trends in the broad market reflect investor bullishness, which is driving share prices up as a whole. Ferrexpo is no exception.
Commodities find favour
Next, sectorally speaking, commodities are in favour as public spending focuses on infrastructure creation. The commodity bull run has been underway since last year and according to leading forecasters, we are in for a commodity supercycle.
In line with this, miners’ share prices have risen across the board and that includes Ferrexpo.
But they have not just risen in anticipation of better times ahead. In the case of Ferrexpo, and others, improved commodity demand is showing up as healthy financials too.
Financially healthy
In 2020, the company’s revenues grew by 13%, while its earnings grew by a huge 46%. Its net cash flows from operating activities grew by 45% and its dividends are up a massive 267% from 2019, boosted by its hefty interim dividend.
Ferrexpo now has a 3.8% dividend yield, which is fairly healthy, especially for a growth stock.
Surprisingly dirt cheap
But this is what takes the cake. The company’s price-to-earnings (P/E), which allows comparison with peers, is at sub-5 times. This is way below the price for any other miner that I have come across.
What is next for the FTSE 250 stock
Based on this reasoning for the Ferrexpo stock price rally, I reckon that it is quite likely to continue. As more investors look for cheap stocks, it should rally even higher. Even though it has run up quite a bit, the Ferrexpo stock is still below all-time highs. In other words, even by past standards, the share price has room to rise.
What I’d watch out for
But there are two cases where I think things can go wrong.
One, if the pandemic decides to make a comeback. A fresh new Indian variant has just been found in the UK. These variants could be immune to vaccines.
Two, just two months ago the stock market rally appeared to have stalled. It could happen again, leaving the Ferrexpo share price in limbo.
Takeaway for Ferrexpo
Like many other investors, though, I am bullish that things will go right. Or at least they will go more right than wrong. And that is enough reason for me to buy this ridiculously cheap FTSE 250 stock.
