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Why We Bought Drax
On Monday we bought Drax. It’s a contrarian pick.
In a nutshell, the Tory government has cancelled Drax’s green energy subsidy, which was meant to help it give up coal and burn environmentally friendly fuel.
The head of Drax’s green effort resigned at once.
A year ago Drax was 700p; the post slump low was around 245p. We bought at around 264p and it is currently 271p.
Why did we buy?
In the old days I would have bought either on the day or a week or so later. Recent performance of these sorts of situations has been that the share stays low for a long time, so I’m loathe to jump right in.
Drax is, however, an attractive purchase because apart from being on a trailing 8 P/E, there is a looming electricity shortage coming to the UK, widely predicted to put Britain in a pinch.
Because of ‘global warming’ logic a lot of generating capacity has been shelved and this leaves the UK heading for an electricity crisis, or so many say.
Drax is offering on a historical basis a 4.4% dividend which is attractive, but it might get cut. The balance sheet is strong.
Drax will survive and in my book any share that is half times sales and has fallen 60%+ without a fraud or some other such death rattle, is the sort of company that should be acquired.
Contrarian stocks are definitely out of fashion right now but if you are a contrarian you can’t say no and you must start buying.
I’m not filling my boots but a political thunderbolt can heal over months and that would prove quite profitable.
Read more sample articles:
The Market Doesn’t Listen to Me