Why I'd dump Sirius Minerals plc to invest in this stock
The market capitalisation of Sirius Minerals(LSE: SXX) runs at an eye-watering £1.44bn or so. The company is developing the world's largest and highest-grade deposit of polyhalite, which is used to make fertiliser, and the valuation seems to have been run up as other organisations sign up to agreements to purchase the end product.
But the firm has yet to produce a single pound in revenues or profits and has a huge, capital-intensive mine and infrastructure building project ahead of it. A lot could work out differently than planned and the stock remains highly speculative.
Is it time to take profits?
Since March, the share price is up more than 80% at today's 33p. If you were holding back in the spring around 18p, this has been a good speculation, but it wouldn't surprise me to see the shares back down where they started at some point. Maybe a good tactic would be to take profits, if you have them, perhaps recouping your initial investment and leaving some of your winnings to capture any more upside that may materialise.
However, if I held the shares I'd cash in my blessings and plough the proceeds into another opportunity such as low-cost airline operator Wizz Air Holdings(LSE: WIZZ), which strikes me as a less risky prospect.
Wizz Air sports a similarly sized market cap as Sirius Minerals at around £1.3bn, and the firm is profitable, has growth on the agenda, and sports a modest-looking valuation. Today's 2,276p share price throws up a forward price-to-earnings (P/E) ratio of just over 11 for the year to March 2019 and City analysts following the firm reckon earnings will improve by 13% during this trading year and again next year.
Solid operational progress
The valuation strikes me as undemanding and operational progress seems solid. In May, with the full-year results announcement, chief executive József Váradi told us that passenger numbers increased 19% year-on-year against a trading environment of very low fares and increasing fuel prices. This trading environment appears to drive customers to the firm's ultra-low-cost business model.
Mr Váradi reckons Wizz Air is well placed to grow its market share in Central and Eastern Europe and pledges that the firm will "continue to expand our route network, drive efficiency in our operating model, grow our ancillary revenue streams and enhance our compelling customer proposition."
Putting figures to the expansion plan, the top director reckons Wizz Air will increase capacity by around 23% and carry nearly 30m passengers during 2018. That sounds promising, but today the shares eased back a little on the news that Phoenix-based Indigo Partners sold its entire 18.7% stake in the budget carrier through an accelerated bookbuild to institutional investors.
Investors, even big ones, sell shares in companies for many different reasons and the big positive I take from this move is that Indigo's shares in WIZZ Air were swiftly snapped up by other institutions. To me, any lingering share price weakness over this placement could be a decent opportunity for investors to buy even better value.
Protecting the downside
If you are aiming for financial independence or a wealthy retirement with investing, perhaps guarding against potential drawdowns in your portfolio is the most important work you can do.
I'm wary of Sirius Minerals and keen on Wizz Air Holdings, but however you see things, I recommend the Motley Fool analysts' new report called The Foolish Guide To Financial Independence, which signposts other ways to make your investments work hard.
Kevin Godbold owns shares in Wizz Air Holdings. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.