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Time is running out to use this year’s ISA allowance. But there is a FTSE 100 stocks on my radar that i would buy if i were an investor with cash to deploy before april 5th.
I am a firm believer in the principle that investing in good businesses generates good investment returns. As such, I would look to buy shares in Halma (LSE:HLMA).
General description
Halma is a collection of smaller organizations focused on three specific areas. The first is industrial safety, the second is environmental monitoring, and the third is life sciences.
Investors typically have to choose between a company 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 focus on maintaining leadership positions in niche markets. But the company increases its profit by adding more businesses to its portfolio.
In other words, individually the subsidiaries are difficult to disrupt, but collectively their size means there is room for growth. I think that makes it a great stock to own.
Results
Halma’s business model has a good track record. Over the past 10 years, revenue, operating income and earnings per share have grown 9-10% per year on average.
As a result, Halma’s share price has risen 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 characteristics that make it durable. Chief among them is the fact that it doesn’t cost much to run.
Halma earns £417m in operating income using £194m in fixed assets. And capital expenditures represent 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 finance buybacks. This makes it attractive as an investment.
Valuation
The biggest risk with Halma shares is the price. With a price-earnings (P/E) ratio of 35, this initially doesn’t seem like the type of stock investors should consider with rising interest rates.
I don’t see any plausible way to argue that stocks are cheap. But I see this as a case where taking Warren Buffett’s advice and buying a great company for a fair price is a good idea.
Ultimately, I expect the stock’s returns to track the performance of the underlying over the long term. And I think the Halma subsidiaries will do well for a while, which will keep the stock going.
For investors with a long-term perspective, I think it’s a great stock. So if I had cash to invest before April 5th, I would buy it now, rather than wait for a better price.
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