Why I’d Buy Segro plc, Hold HSBC Holdings plc & Sell Rare Earth Minerals Plc

Segro plc (LON:SGRO) and HSBC Holdings plc (LON:HSBA) are more attractive than Rare Earth Minerals Plc (LON:REM), argues this Fool.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

You’d do well to consider HSBC (LSE: HSBA) and Segro (LSE: SGRO) for your portfolio, but I’d be cautious with Rare Earth Minerals (LSE: REM). Here’s why

Today In The News

HSBC announced today that it was exploring various strategic options for its operations in Brazil, including a potential sale, although no decision has been taken so far. This news reinforces the investment case, in my view.

Elsewhere, Segro said it would spend about €40m to take control of Italy’s Vailog, a real estate development company, striking a bolt-on deal that is not a big event per se, but signals a commitment to grow the business while exploiting favourable conditions for buyers in the sector. 

Finally, REM issued an update on its SLPDR (Sonora Lithium Project Drilling Results), which was essentially a non-event, in my view. 

Segro: It’s Risky, But Is It Worth It? 

Segro is not such an obvious pick for retail investors, but it’s one name that could reward you awesomely, particularly if improving UK rental conditions and low vacancy rates will help it grow revenue at a faster face, while generating more cash flow in order to cover for capital investment and hefty dividends, which are mostly financed by debt at present.

Its stock is up 11% year to date, and has recorded a +41% performance over the last two years. A real estate investment trust, with £2bn of net debt as at 31 March (this figure includes its share of debt in joint ventures and was unchanged from 31 December 2014), Segro is a high-risk investment that doesn’t look overpriced based on trading multiples, although its balance sheet is clearly stretched. 

Its stock currently trades at 422p, or 7 % below its 52-week high of 454p, which it recorded on 8 May.

HSBC Has Options 

HSBC has options when it comes to strengthening its balance sheet, and disposals are one of them. This is a good thing, even though its core capital metrics appear to be safe. If the bank manages to sell its assets in Brazil at a premium valuation — and there’s reason to believe it could do that — its own equity valuation would certainly benefit, I’d argue.  

In recent weeks investors seem to have preferred Lloyds (+12.9% since 30 April) and Barclays (+9.2% since 7 May), but a 4.6% drop since the end of April render its stock even more attractive. 

HSBC is considering options for its headquarters; frankly, I think I’ll be very difficult for the bank to move away from the UK. The shares currently trade at 620p. Based on their fair value, upside could be in the region of 10% to 15% to the end of the year, in my view. 

Not Much In Rare Earth Minerals’ Latest Update

It takes a huge leap of faith to snap up REM right now. 

As I argued in early April, REM is a highly speculative bet that will need more solid updates than the one it released today to boost its own equity valuation. The stock is down 3% today and 14% in the last 8 weeks of trading — more downside is apparent. 

A lithium-focused exploration company with a market cap of £70m, REM will continue to burn cash for some time, given that it doesn’t generate any revenue, and may need additional equity injections from shareholder to keep going. The longer it takes for REM to announce any meaningful development, the more expensive will it become to finance its development plans, which may eventually open the door to a change of ownership or new partnerships. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »