Ridiculously cheap is not a term I get to use often for stocks these days. A lot of stocks have run up in the past year, and I reckon could continue to do so as the stock markets stay strong. So when I do come across one that is not just really cheap but has also posted a decent trading update, I cannot but write about it.
Ferrexpo’s price rises on update
The stock in question is the Switzerland headquartered FTSE 250 iron ore miner Ferrexpo (LSE: FXPO). It is up almost 5% in today’s trading as I write following its upbeat production and trading update. For the final quarter of 2021, the company reports an 18% increase in production of iron pellets compared to the quarter before. It has also seen an impressive improvement in its cash position to $117m, up from $4m at the end of 2020!
The report is not all positive, though. For the full-year 2021, there is little change in production compared to the year before. Also, in the final quarter of 2021, the company actually reported a fall in production compared to the same quarter in 2020.
Why has the FTSE 250 stock fallen so much?
I do believe, however, that there is still much upside to the stock. And that it could continue to rise from the current low levels. In the last six months, Ferrexpo’s share price has crashed by 30%. Even over the past year, it has fallen by some 9%. There is a reason for the fall, of course. The outlook for industrial metals is not quite as bullish now as it was a the same time last year.
China’s stimulus was a big reason for the run up in metal prices. But at least partly to curb rising inflation, the country’s authorities decided to pull back on this spending, resulting in a relatively muted outlook for commodity stocks for 2022. They could have still had strong prospects if the US government had been able to get a go ahead on the Build Back Better bill. But that is facing delays too. At the same time, the economic recovery is still relatively muted as the pandemic drags on and also because of rising inflation. This could further hold them back.
Why I think it could rise
Despite all this, I think the FTSE 250 stock has fallen a little too much. Its current price-to-earnings (P/E) ratio is a ridiculously low 2.3 times. I do not think I know of any other profitable, dividend paying stock that has this low a ratio. And its dividend is not small either. It has a a huge current dividend yield of 14.4%! Of course this could drop next year if its earnings fall this year. Nevertheless, I think it could continue to pay dividends, like it was doing even before the pandemic.
I bought the stock a few months ago for both its dividends and capital growth. Needless to say, I have lost capital so far. But I think it is only a matter of time before its share price starts rising again. In fact, my back of the envelope estimates indicate that it could even double in 2022. So yes, it could be a winning investment for me this year. I am considering loading up on the stock now.