The time for using this year’s ISA allowance is running out. But there’s a FTSE 100 stock on my radar that I’d buy if I were an investor with cash to deploy before 5 April.
I’m a firm believer in the principle that investing in good businesses brings good investment returns. As such, I’d look to buy shares in Halma (LSE:HLMA).
Overview
Halma is a collection of smaller organisations focused on three specific areas. The first is industrial safety, the second is environmental monitoring, and the third is life sciences.
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Usually, investors have to choose between a business with a dominant market position and one with good growth prospects. But with this company, I think they get the best of both.
Halma’s subsidiaries are focused on maintaining leading positions in niche markets. But the company grows its earnings by adding more businesses to its portfolio.
In other words, individually the subsidiaries are difficult to disrupt, but collectively their size means there is scope for growth. I think that makes it a great stock to own.
Results
Halma’s business model has a good track record. Over the last 10 years, revenue, operating income, and earnings per share have all grown between 9% and 10% per year on average.
As a result, Halma’s share price has gone from £5.11 in March 2013 to £21.10 today. That’s an average increase of 15% per year.
The underlying business also has some really strong intrinsic features that make it durable. Chief among these is the fact it doesn’t cost much to run.
Halma earns £417m in operating income using £194m in fixed assets. And capital expenditures account for less than 20% of the cash produced by its operations.
That means the company can use most of the cash it generates to reduce debt, reinvest in the business, pay dividends, or fund buybacks. These make it attractive as an investment.
Valuation
The biggest risk with Halma shares is price. At a price-to-earnings (P/E) ratio of 35, initially this doesn’t look like the kind of stock investors should be looking at with interest rates rising.
I don’t see any plausible way of arguing the stock is cheap. But I view this as a case where following Warren Buffett’s advice and buying a great company at a fair price is a good idea.
Ultimately, I expect the returns from the stock to follow the performance of the underlying over the long term. And I think Halma’s subsidiaries will do well for some time, causing the stock to follow.
For investors with a long-term outlook, this looks like a great stock to me. So if I had cash to invest before April 5th, I’d be buying it now, rather than hoping for a better price.
