You can understand my intrigue, then, when I discovered Ferrexpo (LSE: FXPO) was offering a dividend yield of 35.6%. The company is primarily involved in the mining and processing of iron ore, selling its pellets to the steel industry. It has struggled over the last year, down 54.4% in 2022, following a very strong 2020 and the first half of 2021.

Should first impressions count?

At first glance, the company looks to be a potentially excellent income opportunity. It has consistently paid a dividend for the last 15 years, and can comfortably cover its yield by current earnings. Furthermore, Ferrexpo has significant levels of cash generation and high-profit margins, whilst maintaining low levels of debt.

In addition to this, the company’s share-price falls have resulted in a forecast price-to-earnings (P/E) ratio of just 2.6. This appears to be extremely discounted compared to the sector. In fact, this discount can be further highlighted when compared to assets. The company has a price-to-net asset value ratio of 0.4, indicating that the current market capitalisation is less than half of its net assets. These metrics can at times represent a significant value investment opportunity, or instead indicate that something is wrong.

What lies beneath

In this particular case, as with many tempting high-yield investments, things may be too good to be true. The company’s dividend is forecast to fall by a massive 50% in the next year, resulting from a forecast decline in earnings.

Furthermore, significant headwinds from the Ukraine-Russia conflict continue to impact the share price. The price of iron ore is far below its record highs in 2021. If these factors persist, earnings are likely to suffer, and the dividend yield will continue to reduce. This lack of future dividend stability leads me to question whether this truly is a brilliant opportunity, or maybe a share best avoided.

The company’s P/E ratio is now sitting at 1.0, following the significant fall in share price over the last year. In addition to the aforementioned fall since the beginning of 2022, the share price has collapsed by over 70% since the summer of 2021. These falls have artificially boosted the company’s dividend yield and similarly reduced the P/E ratio.

Therefore, I am not tempted to add Ferrexpo to my portfolio as an income-generating investment. The massive dividend is certainly intriguing for a UK share and is considerably above the index average. However, I believe this is sadly too good to be true. As a result, I would not add this company to my portfolio.

Time to invest?

First, Watches of Switzerland Group (LSE:WOSG) shares have not moved all that much compared to the wider market. In the past three months, they’re down 7%. At the time of writing, they’re trading at 869.5p.

For the 12 months to 1 May, the luxury watch retailer produced sparkling results. In that time, pre-tax profit surged 98%, coming in at £126m. Additionally, revenue grew by 40%.

This is an indication that there’s more traffic moving through stores. It’s also a sign that demand is beginning to increase again as the world continues to emerge from pandemic shutdowns. This could soon lead to a rising share price.

However, there’s the real possibility that a recession may be on the way. This could be bad news for the firm, given that the retail sector usually gets hit hard during a recession. Demand for luxury items may decline as less-affluent-but-aspirational shoppers are forced to rein-in their spending.

Despite this, Shore Capital issued a ‘buy’ rating for the stock, citing its quality and historical relationships with luxury watch brands. It placed a price target of 1,200p on the shares, which is still significantly higher than the current share price. 

Steely determination

Second, Ferrexpo (LSE:FXPO) has seen its share price moving in every direction over recent months. Currently, the shares are trading at 161p, having been above 300p this time last year.

It’s clear that the firm – an iron ore pellet producer based in Ukraine – has been badly impacted by the ongoing conflict. 

For the six months to 30 June, revenue fell by 31%. In addition, pre-tax profit declined by 88%, coming in at $82m. While this may seem disappointing, it’s worth noting that the company is still managing to post a profit, despite the war.

Furthermore, the business has cash of $172m and little debt. This suggests that it could manage its way through any continued difficulties in the short term. 

Ferrexpo is also planning the implementation of its Wave 1 Expansion Project. This could yield around 3m additional tonnes of iron ore pellets per annum. And while the conflict is continuing to make it difficult to export, the company is achieving more exports from ports and by rail into Europe. 

Overall, these two businesses have faced difficulties in the recent past. However, both are trading at low levels and may be positioned to grow in the long term. This could lead to climbing share prices in the near future. To that end, I’ll add both businesses to my portfolio soon.

So let’s take a closer look at why this stock has collapsed, today’s earnings update, and whether it could be right for my portfolio.

A tough year

Ferrexpo stock collapsed this year following Russia’s invasion of Ukraine. The Switzerland-headquartered firm immediately highlighted the impact of “operational and logistical constraints” in the weeks after the invasion.

The firm said logistics routes to markets in Europe via rail and barge remained open, while the Black Sea routes were immediately closed. Pivdennyi, the port used for sea-based exports, remains closed despite Ukraine maintaining control over the commercial facility near Odesa.

To make issues worse, the iron ore price has fallen significantly. Fresh Covid-19 outbreaks in China clouded demand prospects in the world’s top steel producer. PMI data from China this week highlighted the continuing production challenges.

But China is also threatening to centralise its procurement of iron. This isn’t the first time China has been poised to do this, but it’s certainly being seen as a real issue this year. The price of iron ore hit record highs of more than $210/tonne in June 2021, but fell as low as $100/tonne last month. It jumped above $120/tonne earlier this week.

H1 performance

On Wednesday, Ferrexpo published its financial report for the past six months, and the above challenges were clearly reflected on its performance. Revenues declined 31% to $936m as a result of lower production and tighter market conditions.

H1 post-tax profit declined 88% to $82m, reflecting an impairment of $254m during the period. The firm highlighted the impact of higher costs, lower production volumes, rising global inflation and energy prices.

However, there were some positives. Ferrexpo remains in a net cash position with $177m of cash and cash equivalents, with minimal debt (around $5m).

It’s also worth noting that the fall in production was perhaps less than might be expected for a company operating in a war zone. Total pellet production fell 14% year-on-year while sales fell 21%.

Would I buy Ferrexpo shares?

Until today’s update, Ferrexpo had a price-to-earnings ratio of around 1.1. That’s very cheap, but clearly a sign that something isn’t right.

But it all comes down to the conflict in Ukraine. If the war appeared to be nearing an end, it might be worth taking a risk on this stock. It certainly tempted me earlier on as I had assumed it might be over relatively quickly.

However, I can’t see it coming to an end any time soon. And therefore, I’m not buying this stock right now.

Clearer skies ahead

Wizz Air’s (LSE:WIZZ) share price has plummeted in the past year. In that time, it’s fallen 57%, while over the last three months it’s down 40%. The shares are currently trading at 1,911p.

The short-haul airline suffered badly during the pandemic when virtually all planes were grounded. However, passenger numbers for June were 4.3m, up 179% year on year. This was at a load factor of 86.1%. 

Whatever way I look at these figures, they tell me that more planes are flying, and more passengers are on board. This can only be good news for the shares.

Furthermore, the firm also reinstated its jet fuel hedging policy, meaning it will be protected to some extent from surging oil prices.

However, for the three months to 30 June, the business swung to a €285m operating loss. While this may seem disappointing, it’s important to note that this could be short-term in nature. In recent months, many flights were cancelled as airlines across the world struggled to meet demand.

As the company recruits more cabin crew, I suspect financial results may continue to improve. Also, the easing of international restrictions mean that demand for travel will likely rise in the coming months. 

Citi recently upgraded the firm from ‘sell’ to ‘neutral’, citing its expectation that Wizz Air will surpass pre-pandemic profit levels in the coming years.

Steely determination

Shares in Ferrexpo (LSE:FXPO) took a hit when Russia invaded Ukraine. This is chiefly because it’s a mining and iron ore pellet manufacturer operating in Ukraine. However, in the past week the share price is up 24%, currently trading at 145p.

Barclays recently upgraded the company to ‘equalweight’ and stated that it thought the shares may be cheap at current levels. Indeed, it increased its price target from 215p to 265p.

However, the firm lowered its production schedule due to the ongoing war. For the three months to 30 June, production fell 27%. On the other hand, Ferrexpo is working to resume sales through other seaports.

Moreover, Ukraine and Russia signed a deal last week to resume grain exports and this could be an early signal that hostilities are potentially moving towards some type of conclusion. This would only be good news for Ferrexpo, although there are no guarantees.

Overall, both of these companies have been battered for different reasons. However, financial results and geopolitical developments mean that both could see their share prices soon soar. Accordingly, I’ll be adding both businesses to my portfolio soon.

The price-to-sales (P/S) metric indicates a company’s revenue against its value. The ratio is calculated by taking a company’s market capitalisation and dividing it by the firm’s revenue over the past year.

The metric is normally used when a company isn’t making a profit. For example, I may use this more often when I’m looking at growth stocks. Tesla is one of the few companies making a profit in the EV industry, so using the P/S ratio, I can easily compared Tesla’s valuation against its peers.

Meanwhile, the price-to-earnings (P/E) ratio is more frequently used and is calculated by dividing the market value by the company’s earnings.

So, let’s take a look at the cheapest UK-listed shares using these metrics.

Polymetal

Polymetal (LSE:POLY) is an Anglo-Russian mining stock and its share price tanked after the Russian invasion of Ukraine. Sanctions have made it hard for the company to continue operating as normal.

The mining group has highlighted uncertainty around funding as a result of sanctions placed on Russian banks and the state as a whole.

It may also struggle to sell its main product, gold. Fellow Russian Petropavlovsk said that its sales fell after its main customer, Gazprombank, was placed on the European sanctions list. 

It’s fair to say that gold mining stocks should be doing pretty well this year, but Polymetal isn’t. It’s down 89% over the past 12 months.

Following a solid showing in 2021, the company now trades with a P/E ratio of 1.1. Meanwhile it has a P/S ratio of 0.3. Both of these figures are exceptionally low, correctly suggesting that something is wrong.

On the plus side, Polymetal expects to produce 1.7m ounces of gold this year — 1.2m oz in Russia and 500,000 oz in non-sanctioned Kazakhstan.

Ferrexpo

Ferrexpo (LSE:FXPO) is a Swiss-based miner with operations in Ukraine. The stock also collapsed following Russia’s invasion of Ukraine. It’s down 76% over the past 12 months.

Some 70% of Ferrexpo’s mines are in Ukraine. Last week, the firm announced that total iron ore pellet production fell 27% on the year to 2.1m tonnes during the second quarter. First-half sales were down 21% on the year to 4.4m tonnes.

The fall is production was naturally attributed to the war. However, the company vowed to continue its operations despite a very difficult operating environment.

Iron ore prices have been pretty strong throughout most of the year, so I’d expect Ferrexpo to be doing pretty well if it wasn’t for the war.

Currently Ferrexpo is trading with a P/E ratio of 0.85. It has a P/S ratio of 0.25. Once again, these are exceptionally low figures that correctly indicate that something isn’t right.

Would I buy either of these stocks?

I actually owned Polymetal shares before the war, and I bought some more when the stock collapsed as a very speculative investment.

Based on the same logic, of a speculative approach, I’d also put a limited amount of money into Ferrexpo shares too.

But it would be a huge gamble. It’s not so much about the assessing the fundamentals of these companies. Instead it’s about predicting or guessing when the war will be over and when sanctions may be removed. That’s a tough call.

Muddling through the war

The share price of Ferrexpo – an iron ore pellet company operating in Ukraine – is almost directly correlated to how the war is progressing. With an iron ore plant in the centre of the country, it is always possible that shelling or missile strikes could impact operations.

The shares in the business are currently trading at 147p, down 50% in just the past six months.

Many potential investors, including myself, are wondering if the war might affect production, or the existence of the company itself.

Just last week, the firm announced that it is scaling back summer production. This is partially because ports on the Black Sea remain closed. 

Furthermore, there was damage to some barging operations in the southwest part of the country. In 2021, barges transported around 800,000 tonnes of the company’s iron ore pellets, so this damage is a blow for the firm.

With rail now the main option, Ferrexpo has turned to Ukraine’s vast network to shunt its produce across the country and into Europe.

Where are things going next?

There was some recent good news, however. In an update for the three months to 31 March, the business stated that iron ore pellet production was level compared with the same period in 2021.

What’s more, sales for the period amounted to 2.6m tonnes. Ferrexpo is able to maintain both production and sales in the middle of a warzone. This may be an indication that it can muddle through this crisis.

This leads to the overall question of where the war itself is going, because it directly influences the shares in Ferrexpo. It is clear that fighting is hurting both sides. This is not just on the battlefield, but in rising energy costs and sanctions.

Oil and gas prices throughout Europe have surged as a result of the war. This means that people have less and less disposable income as they are forced to spend more to fill up their vehicle with petrol, for instance.

On the other side of the fence, sanctions are hurting Russia, with many businesses having pulled out of the country. 

For me, I think a prolonged conflict is in nobody’s interest, so I’m expecting the war to end sooner rather than later. This could have a massive bearing on the direction of the Ferrexpo share price. 

Overall, this is a company that is doing its best to maintain operations in the middle of a war. Although it is scaling back production in the coming months, an end to the war, or even a ceasefire, could have a positive impact on the firm. I will be purchasing shares soon. 

However, now is a good time for me to think about buying stocks, I feel. I’ve found three potential companies to purchase shares in, so let’s take a closer look.

Hochschild

Hochschild (LSE:HOC) is a silver and gold mining firm operating in Peru, Argentina, and Chile. With increased market volatility, precious metals may become increasingly attractive as ‘safe-haven’ investments.

The business may benefit as its output becomes more valuable and, therefore, its share price may rise. 

During the early days of the war in Ukraine, for instance, shares in Hochschild rose about 50% as investors panicked. 

The investment bank Berenberg recently increased its target price from 130p to 160p on account of higher metal prices.

So with the shares currently trading at 111p, down 35% in the past year, I feel they could have higher to climb.

However, there is always the risk of further pandemic variants impacting day-to-day mining operations.

Carnival

Carnival (LSE:CCL) is a global operator of cruises. In the past month, the shares are down 31.5% and trade at 691p. The company has quite simply been battered during the pandemic, reporting pre-tax losses of throughout 2020 and 2021.

The firm also reported an adjusted net loss of $1.9bn for the first quarter of 2022 and this trend of losses is something I would like to see reversed soon.

For the first three months of 2022, however, revenue per passenger had grown around 7.5% compared to the same period in 2019. 

With a cash balance $7.2bn at the end of March 2022, this should be enough for the business to deal with any further difficulties future pandemic variants could bring. 

Ferrexpo

Finally, Ferrexpo (LSE:FXPO) is a producer of iron ore pellets. It operates in Ukraine and the shares are down 48% in the past six months, currently trading at 147.8p.

There were concerns over whether the company could still operate during the war. So far, it has maintained production. For the first three months of 2022, it produced 2.7m tonnes of pellets, roughly the same amount as the first quarter of 2021. 

Furthermore, rail and barge connections to Europe are still open, meaning that sales and shipments can continue uninterrupted. 

There’s always the risk of a prolonged conflict eventually taking its toll on the business though. With a cash balance of $159m at the end of March, however, I think the company has the resources to navigate any difficulties it encounters.

Overall, the share prices of each of these three firms have fallen sharply at times in the recent past. As part of a wider market correction, I think I’ll buy the shares at knockdown prices to hold for the long term.  

Iron curtain

The silver lining in the ongoing war for Ferrexpo is that it’s located in central Ukraine. Despite being stationed east of the Dnieper River, Ferrexpo’s facilities haven’t suffered any direct damage from Russian forces, allowing it to continue running its operations.

Having said that, logistical disruptions have impacted the company’s exports. In its most recent operations update, Ferrexpo mentioned that it decreased its commercial production. Ukraine’s Black Sea ports remain closed due to Russian presence in the south. As a result, the FTSE 250 firm has had to divert all its European shipments via Ukraine’s railway network and barging operations.

However, recent Russian airstrikes have damaged Ukraine’s railway and infrastructure in the south west. This has reduced Ferrexpo’s ability to utilise its barging operations to serve its European customers. Nevertheless, the group is in advanced discussions with additional port operators in central Europe for seaborne exports.

As flexible as wrought iron

Due to supply chain disruptions, the iron pellet producer reported a 0.4m tonne increase in iron ore inventories in May. Although the downturn in production hasn’t resonated well with shareholders, I believe this to be a masterclass in operating efficiency, as Ferrexpo is protecting its bottom line from unnecessary costs.

Management have also reiterated that production is expected to resume at peak capacity once damaged infrastructure is reopened, an alternative logistics route is agreed, and Ukraine’s Black Sea ports resume activities.

On track to £3.30?

I have no doubt that Ferrexpo has a long and treacherous road ahead. Analysts have set a price target of £3.30, but the firm faces strong political and economic headwinds. Apart from the ongoing war, a recession in Europe and America is within the realms of possibility. If this were to happen, it would negatively impact industrial production, affecting Ferrexpo’s top line.

On the flip side, there are also a couple of catalysts that could send the FTSE 250 stock flying. Firstly, the firm sees excess demand from Europe after countries imposed sanctions on Russia. Considering Europe accounted for more than half of Ferrexpo’s revenue in 2021, this could be a huge tailwind for Ferrexpo once it resolves its logistical issues. Secondly, iron ore prices could increase if China’s economy continues its recovery. With the group’s Wave 1 Expansion also on hold, its ability to produce 25% more pellets could boost Ferrexpo’s numbers if there’s sufficient demand.

Furthermore, the board recently reinstated its dividend, attracting dividend investors back into the stock. Its shares are going ex-dividend later this week at 6.60p per share. So, this could be an opportunity for me to earn some passive income.

Nonetheless, despite a potential 115% return, the geopolitical implications remain too ambiguous for me to have a long-term position in Ferrexpo. Instead, I’ll be looking to purchase other shares that could benefit my portfolio in this stock market crash.

However, the mammoth dividend yield can largely be explained by the substantial recent fall in the Ferrexpo share price. It’s dropped nearly 40% in 2022. Is the passive income appeal sufficiently tempting for me to buy shares of this company despite the considerable risks? Let’s explore.

The risks for Ferrexpo shares

Ferrexpo is the world’s third-largest exporter of iron ore pellets. The miner’s production takes place at its three mines near Horishni Plavni, Ukraine. This year’s share sell-off for Ferrexpo was triggered by the Russian invasion and I view the ongoing war as the predominant risk facing the business.

In its FY2021 financial results, the group confirmed its operations haven’t been a centre of armed conflict. However, there’s a risk this could change if the war escalates. A further concern is that Ferrexpo has “temporarily lost the ability to export its products via the Black Sea”, forcing the company to rely on river routes and rail instead.

In addition, there are currency risks facing this stock that worry me. The functional currency of Ferrexpo’s operations is the Ukrainian hryvnia, which has historically represented approximately half of its operating costs. Developments in the war could cause significant movements in forex markets, which would in turn impact Ferrexpo’s profitability.

Silver linings

Despite an uncertain backdrop, Ferrexpo shares are arguably cheap at present. The company has a price-to-earnings (P/E) ratio of just 1.59. Importantly, the group’s net cash position was approximately $159m at the end of Q1, 2022. For me, this should assist the business in distributing dividends as well as bolstering its ability to survive a prolonged period of difficulties.

Ferrexpo’s target is to deliver 30% of free cash flow as dividends each year. If Ferrexpo’s financials prove resilient, the potential total return from this stock could make it an attractive investment, although the company will have to successfully navigate significant risks to realise this.

In addition, there’s a possibility iron ore prices could rise, particularly if China eases its Covid-19 lockdowns. The country is the world’s largest importer of iron ore by a considerable margin. Ferrexpo is well placed to benefit should this materialise. For the past three years, the company’s sales volume to China and South East Asia made up between 28% and 56% of its global total.

Finally, any de-escalation in hostilities would be welcome news for everyone. While far from certain, it’s worth considering that this would likely lift the Ferrexpo share price.

Would I buy this FTSE 250 dividend stock?

With inflation on the rise and fears of a stock market crash mounting, I’m concentrating on reducing risk in my portfolio for now.

There are undoubtedly tempting reasons to buy Ferrexpo shares, not least the 25+% dividend yield. However, the high risk/reward profile means I won’t be adding it to my portfolio today.

An unfashionable stock

boohoo (LSE: BOO) is one of the UK’s biggest fashion retailers. The online fashion retailer had already been 30% down this year, but plunged a further 12% after it released its FY22 results. Nonetheless, it’s managed to recover most of its post-earnings loss since then.

The firm had already been starting to see a slowdown in sales growth due to “Significantly longer customer delivery times as a result of the pandemic”. Nevertheless, its new distribution centre in the US is expected to go live in mid-2023. With next day and two-day express delivery options available, this could help ease the supply chain constraints that boohoo is currently facing, and help the stock price.

However, with inflation continuing to weigh on consumer spending, I expect sales growth to continue declining. Management shares my sentiment too, as guidance for FY23 is for low-digit revenue growth. Expensive freight costs have also impacted its bottom line as the firm saw its profit margin decline from 5.2% in FY21 to -0.2% in FY22. For that reason, I won’t be buying this stock for now.

In the eye of the storm

The unfortunate events of the Russia-Ukraine skirmish has battered the Ferrexpo (LSE: FXPO) share price. Commonly known for being a high-dividend yield stock, the stock is now trading at 65% off its all-time-high.

The Ukraine-focused firm faces a large amount of uncertainty given the ongoing war there. Any further escalation might run the company out of business as its mining operations are located just east of Kyiv, where it’s more susceptible to Russian attacks. Additionally, China’s city-wide lockdowns have driven iron ore prices down. This will inevitably impact Ferrexpo’s top line in the near to medium term. Most importantly, the firm decided to defer its dividend payments. The board said that it will continue to assess the situation in Ukraine and make a decision on dividends when appropriate. With many investors initially buying the stock for its dividend, this is a stock I’m avoiding.

Getting the boot

Aside from sky-high inflation, Dr Martens (LSE: DOCS) will also have to worry about the recent retail sales figures. Although positive for the month of April itself, retail sales for the three months to April fell 0.3% as high inflation hurt purchasing power. That’s one reason why its stock is down 50% this year.

The majority of the firm’s revenue stems from the Americas and EMEA region. With inflation continuing to spiral out of control, this doesn’t bode well for Dr Martens’ near-term outlook. As central banks in these regions rush to raise interest rates, its debt levels start to become even more alarming. The firm has a debt-to-equity ratio of 140%, a declining free cash flow, and higher operating expenditure. These aren’t factors that are favourable when I invest in UK stocks, especially in a high interest rate environment. As such, I’ll be looking to purchase other shares with much more favourable fundamentals.