A devastating fall in the Marks & Spencer (LSE:MKS) share price means the retailer should fall out of the UK’s top 100 share index for the first time in its history. So is it still worth investing in the fondly-thought-of retailer?
There’s a reason why the proverb “may you live in interesting times” is considered a curse. A failure to respond to rapidly-changing market conditions produced a slow-bleeding share price at M&S, followed by a more rapid recent drop.
And it doesn’t always make sense to buy the dip. M&S’s 2016 transformation plan has yielded little benefit and future prospects are weak, not only because of the storming performance from online-only competitors like Boohoo.
M&S debuted as one of the original stocks when the FTSE 100 formed in 1984. But a storied past is no predictor of future value and the company is struggling in the face of modern retail sector challenges.
Heavily UK-centric companies can’t escape the creeping spectre of Brexit either and those without a truly global outlook are being pulled into a black hole of failing consumer confidence and crippling drops in investor sentiment.
On the other hand, short positions — where funds bet against the share price rising — regarding M&S have fallen since the early part of 2019. And you can pick up M&S shares at quite a discount: a price-to-earnings ratio of 7 with a dividend of 7.2%. But income investors might fight shy having been burned when management slashed dividends by almost half this year to leave millions short-changed.
My precious
Slated to replace Marks & Spencer in the FTSE 100 is Russian multinational mining firm Polymetal (LSE:POLY).
Founded in 1998, a 2011 IPO saw it debut on the FTSE 250, and strong performances from its Eurasian gold and silver mines have pushed Polymetal to the brink of a FTSE 100 promotion before.
While in 2016 the POLY share price dropped as investors moved cash into riskier assets, safe-haven plays like gold are back in vogue. Yet precious metals might be a sound hedge against recessionary fears, but themselves offer no dividend and historically have not provided much more than a place to park cash while the sky is falling. Instead, betting on a firm with a strong pipeline of gold production makes sense. Polymetal’s newest Kyzyl mine in Kazakhstan is just the thing. A series of mining company acquisitions across Russia, central Asia and Canada in the last few years bode well for diversification too.
Mining specialist Ian Cockerill took the helm as chairman in April 2019 and Polymetal has benefited from his strong leadership. Cockerill upped his own stake this summer and the share price has surged since the firm told investors that ore reserves at its Veduga gold deposit had more than doubled to 2.8m ounces.
Despite the share price double-bagging over the last five years, there’s still value here. You’ll pay 13 times earnings to buy in now, and price-to-earnings growth sits nicely at less than 1. That says to me that the stock is undervalued based on expected future earnings.
A dividend of 3.5% won’t make you rich, but City analysts are expecting that to rise to 4.8% next year. In any case, I think POLY is better seen as a growth stock play. Its 69% returns over the last 12 months vastly outperformed the UK metals and mining market and earnings are expected to grow by 12% a year.
