Both the FTSE 100 and the FTSE 250 indexes are down this year. As a result, I’m looking at UK stocks at bargain prices to buy for my portfolio.
I’m also conscious of Warren Buffett’s advice, though. According to the Oracle of Omaha, any business can be a bad investment at a high price, but not every business can be a good investment at a low price.
With that in mind, here’s one FTSE 100 stock down 36% that I’m looking to buy for my portfolio and one FTSE 250 stock down 82% that I’m avoiding at all costs.
Halma
I think that Halma is one of the best stocks in the FTSE 100. The company is consistently profitable and has a strong balance sheet.
Over the last 12 months, Halma generated £279m in operating income. And with only £194m of tangible assets to maintain, around 71% of that operating income became free cash.
The company also has its debt well under control. Interest payments on Halma’s debt account for around 3% of its operating income.
Net income has grown at around 13% per year over the last few years, which is good but not great. That means that there’s a risk that Halma’s best days might be behind it.
I wouldn’t count this one out yet, though. One way that Halma grows is by buying other businesses, and with interest rates rising, I think that it should get some opportunities to do this at attractive prices.
With the stock down 36% since the beginning of the year, I think that shares are a bargain right now. The share price is currently £19.59 and I’m expecting to buy more shares in the near future for my own portfolio.
Aston Martin Lagonda
Shares in Aston Martin Lagonda (LSE:AML) have fallen by 82% since the beginning of the year. But I still don’t think that it’s a bargain.
Halma is a consistently profitable business with a strong balance sheet. Aston Martin is neither of those things.
The company is currently unprofitable and funded by a combination of debt and equity. To me, this looks like a big problem.
Since 2018, the amount of debt has increased from £704m to £1.4bn. As a result, where Halma spends 3% of its operating income on interest payments, this accounts for around 15% of Aston Martin’s revenue.
When it’s not raising money by taking on debt, Aston Martin raises money by issuing shares. The number of shares outstanding has gone from 85m to 311m over the last four years.
That’s an increase of 265%. In other words, if I owned 10% of Aston Martin at the end of 2018, my ownership stake would have decreased to around 2.7%.
Aston Martin did turn a profit in 2017, so it can be done. But I don’t see how it can become a viable investment proposition, so I’m staying well away from this stock.