The FTSE 250 fell close to 12% in the last month before making a slight recovery. And both the FTSE 100 and S&P 500 also came close to dipping into correction territory as well.

So far, the market has managed to avoid a massive downturn. But if the conflict in the Middle East continues to escalate, that might soon change. Yet while it may not feel like it, future indiscriminate selling could create incredible buying opportunities. And for patient investors, capitalising on these could lead to an impressive £1m portfolio in the long run.

Building a seven-figure ISA

Minor downturns in the stock market are fairly common. But full-blown corrections and crashes don’t come along very often. And while the sell-off in 2026 so far is far from ‘major’, a global energy crisis sparked by the ongoing war in Iran could quickly change that.

If the situation does evolve into a massive market meltdown, it’s important to remember one critical fact. Even after the worst disasters, the stock market has a perfect track record of eventually recovering before going on to reach new record highs.

That means immense wealth can be unlocked for those who see the plummeting prices for what they are: an opportunity.

Under normal market conditions, the UK stock market has historically generated an 8% average return each year. At this rate, for someone who maxes out their Stocks and Shares ISA each year, it would take roughly 21 years to become an ISA millionaire when starting from scratch.

Yet by capitalising on chaos and buying top-notch UK shares at a discount, it’s possible to significantly reduce this waiting time.

In fact, if a portfolio musters closer to a 12% average return, the journey is shortened by roughly five years. And for a 50-year-old brand-new investor, 2026 could prove to be a once-in-a-lifetime chance to retire as a millionaire.

Opportunities to explore

Given that a global energy crisis can be a powerful tailwind for the energy sector, a lot of attention from institutional analysts has unsurprisingly focused on this industry. And one UK stock that’s starting to pop up across several Buy lists is Serica Energy (LSE:SQZ).

Serica is an independent oil & gas exploration and production enterprise operating in the UK North Sea.

With fossil fuel prices spiking, the business is on track to deliver a stellar revenue surge with its top line currently on track to more than double in 2026. And this momentum is only being compounded by a recent January trading update that confirmed a notable step up in production volumes.

Of course, there’s still a significant risk. The current UK government is hostile to North Sea oil & gas exploration, with enormous taxes against any profits made in the region.

While the Iran war does create a strong incentive to secure domestic supply, policy has yet to change, preventing Serica from unleashing its full potential. But with political pressure mounting, and the government’s track record of policy U-turns, that could change.

As such, investors may want to consider taking a closer look at this under-the-radar energy stock in 2026. And it’s not the only opportunity worth exploring right now…

The post Stock market correction 2026: an extraordinary chance to build a £1m Stocks and Shares ISA? appeared first on The Twelfth Magpie.

Of course, dividends aren’t guaranteed and, on occasion, can be cut if there aren’t enough cash flows to support them. This becomes increasingly more common as yields get higher, so seeing a double-digit yield from Serica certainly raises some alarm bells.

But there are always some exceptional businesses that manage to beat expectations and keep the money flowing. So is Serica one of these exceptions?

Why’s the yield so high?

There are two ways for a dividend yield to increase. Either the company raises shareholder payouts, or the share price takes a tumble. In the case of Serica, the latter appears to be the root cause. For reference, since 2022, its shares have been stuck on a downward trajectory, falling by over 70%!

There are a variety of factors at play here, including regulatory, operational, and macroeconomic challenges during the period. In 2022, the UK government introduced a windfall energy tax that boosted the effective tax rate to as high as 78%. Serica’s production between 2022 and 2024 fell from 40,000 to 34,600 barrels of oil & equivalents per day. And at the same time, natural gas prices have fallen steeply over the last three years.

It’s a perfect storm of headwinds that’s translated into falling revenues and earnings. And in 2024, the group’s payout ratio dipped below 100%. In other words, the company’s now paying out more in dividends than it’s generating in earnings.

Reasons for optimism

The Energy Profits Levy isn’t scheduled to end until 2030. But Serica’s production levels appear to be getting back on track. The damage caused by Storm Eowyn at the start of the year has caused management to cut production guidance for 2025. But assuming the weather doesn’t take a turn for the worse in 2026, production volumes are on track to rise considerably.

A combination of new wells and efficiency boosts could push Serica’s production to 42,986 barrels in 2026, according to a recent report by investment firm Auctus Advisors. A big driver of this is the Belinda project, scheduled to start production in the first quarter of 2026. And later in 2027, the firm’s Buchan project is expected to kick off. The latter is crucial given it’s expected to reach a peak production of 35,000 barrels by itself.

At the same time, natural gas prices have been steadily rising again since August 2024. And while they’re still nowhere near the peaks of 2022, this upward trend still helps bolster Serica’s profit margins.

The bottom line

Providing no more spanners are thrown into the works, Serica’s dividend sustainability should improve over the next 12 months. As such, the current 15% yield appears tempting. However, this comes at the cost of considerable risk.

Management has no control over the weather or natural gas prices, both of which could create a new round of delays and earnings drops. Personally, the risk is too high for my tastes. Nevertheless, Serica still presents a potentially interesting opportunity if it can steer the ship back on course. That’s why investors may want to consider adding it to their watchlists.

The post 15% dividend yield! Is this the ultimate UK income stock to consider buying today? appeared first on The Twelfth Magpie.

Seeing a dividend yield this high is usually a warning sign as it indicates most investors believe the company will not be able to sustain payouts for long. And looking at Serica’s share price chart, the downward trajectory of the stock certainly implies the same. For reference, the shares have tumbled over 70% since their peak in late 2022.

However, is this secretly a juicy income opportunity?

Too much on its plate?

Serica Energy has a lot on its plate right now. The oil & gas producer is in the middle of negotiating a merger with EnQuest, lobbying the government to lower windfall taxes on the energy sector after 2030, and also busy moving from AIM to London’s Main Market. At the same time, management’s also having to tackle falling natural gas prices as well as disruptions to production.

The impact of these operational headaches is laid out clearly in its 2024 results when compared to 2023.

• The group’s average realised gas price fell from 94p per therm to 76p
• Total production fell from 40,100 barrels of oil equivalents per day to 34,600
• Revenue tumbled from $917m to $727m
• EBITDA before exploration expenses, or EBITDAX, dropped from $475m to $379m

Needless to say, these figures aren’t what investors want to see, especially considering it’s a continuation of the downward trajectory endured throughout 2023 versus 2022. And yet, dividends have continued to flow to the pockets of shareholders.

Inspecting payouts

Despite the troubles with production, management’s taking steps to make the flow of oil & gas more reliable. And we’ve already started seeing encouraging progress in the first quarter of 2025. Total production still fell short of expectations due to a necessary shutdown in response to Storm Éowyn landing at 27,600 boepd. However, that’s still ahead of the output achieved in the third and fourth quarters of 2024 respectively.

In the meantime, the group’s exploration efforts have also started to yield fruit. Its Triton hub drilling campaign has seen two of the five wells finish drilling with promising results. And now both are expected to begin production in the near future. Meanwhile, drilling at the last of the five wells is now underway with production scheduled to start in early 2026.

Overall, 2025 looks like it could be the year Serica Energy gets back on track. Production for the year isn’t expected to grow tremendously with an average output of 33,000 to 37,000 boepd. But production in the second half of 2025 is expected to be “materially ahead” of this guidance range.

So if everything goes according to plan and oil & gas prices don’t suddenly collapse, free cash flow generation in 2025 should support a continuation of the dividend even at the current double-digit yield. Having said that, the firm’s recent track record shows disruptions as the norm, so this is by no means guaranteed to happen.

Overall, Serica Energy still carries a lot of risk. But for investors willing to take the plunge, this AIM stock may be worth researching further.

The post A 15.7% dividend yield! Is this a juicy income opportunity? appeared first on The Twelfth Magpie.

This assumes a constant payout and that all dividends received are reinvested. It also requires the share price to remain unchanged during the period.

Although these assumptions are unlikely to hold, it does illustrate the potential of high-yielding income shares. And the power of compounding, which has been described as the eighth wonder of the world.

A rare thing

By my calculations, there are presently (14 February) five stocks that offer a yield in excess of 15%.

One of these is Serica Energy (LSE:SQZ). It extracts hydrocarbons from the North Sea. Although relatively unknown, it currently supplies around 5% of the UK’s gas requirements.

Unusually for an energy company, it was in a net cash position at 30 June 2024. The industry is capital-intensive, meaning significant borrowings are common. However, despite acquiring a number of other companies and assets in recent years, Serica Energy has managed to keep its level of debt under control.

This has been helped by a sustained period of high energy prices. And whether we like it or not, despite the move towards net zero, the demand for oil and gas continues to rise.

But the thing that sets it apart from most other stocks is its generous payout.

Over the past 12 months, the company has paid a dividend of 23p, implying a yield of just over 15%.

Too good to last?

But a look at the company’s cash flows makes me question whether the dividend at its current level can be maintained. During the 18 months ended 30 June 2024, it spent $179.5m more than it earned.

There’s little the company can do to reduce its tax bill or loan repayments. And cutting back on capital expenditure is likely to harm the business in the long term. Should things start to go wrong, its options for preserving cash are, therefore, limited.

Also, part of the impressive yield can be attributable to the decline in its share price. Compared to February 2024, it’s down 23%. Since achieving its 52-week high in April 2024, it’s fallen 30%. Then it was yielding a more modest — albeit still impressive — 11%.

This loss of investor confidence is probably explained by a recent softening in energy prices.

And concerns about the impact of the energy profits levy (EPL). The EPL — or ‘windfall tax’ as it’s more commonly known — means the company faces an effective tax rate of 78%.

Looking to the future

With oil prices easing, and the government confirming that the EPL is here to stay, I think Serica Energy’s earnings (and cash flows) are going to come under more pressure. In these circumstances, the easiest way of saving cash is to cut the dividend, even if it means upsetting shareholders.

Having said that, even with a 50% cut in its payout, it would still be one of the highest-yielding shares around.

With a 75% reduction, the stock would yield more than the average of those on the FTSE 100.

Despite the risks associated with the energy sector, this could make it attractive to income investors on the lookout for passive income opportunities.

The post Could this 15%-yielding dividend stock double an investor’s money in 5 years? appeared first on The Twelfth Magpie.

This business has a £500m market cap and operates in the energy sector. Its shares currently boast a forecast dividend yield of 17%. Management recently reiterated their support for this payout and my sums suggest it could be sustainable.

I recently bought these shares. I’m hopeful that when the dust settles after the Autumn Budget on 30 October, investor confidence in this business may improve.

Pumping out cash

Serica Energy (LSE: SQZ) is one of the top 10 oil and gas producers in the UK North Sea. The company has grown rapidly in recent years by buying mature fields from larger operators such as BP.

This growth run was then extended with the acquisition of rival North Sea firm Tailwind Energy in 2023.

Serica’s focus on producing assets means that it doesn’t carry the all-or-nothing risk of oil and gas explorers. Instead, the company’s expenditure is carefully targeted to maximise production from known reserves.

As a result, the group business generates a lot of surplus cash. Much of this has been returned to shareholders over the last few years, as this chart shows.

Chart by TradingView

The latest broker forecasts suggest Serica’s dividend will remain at 23p per share this year. That gives a forecast dividend yield of 17.4%, based on the recent 132p share price.

Why are Serica shares so cheap?

This high yield is partly a reflection of the stock’s low valuation. Serica shares currently trade on just three times 2024 forecast earnings, according to recent broker estimates.

The shares have fallen by 40% so far this year as investors have taken fright at the prospect of changes to UK tax and energy policies.

One concern is that potential changes in the Autumn Budget may make it harder to operate profitably in the North Sea.

One particular risk flagged up by Serica’s new chief executive relates to capital allowances. In short, changes to these rules could reduce companies’ ability to claim tax relief on future spending. This would make it less attractive to invest in North Sea assets.

The other main risk I can see is simply that Serica’s current production rate won’t be sustainable forever. Many of these fields are relatively mature. Production will gradually decline without investment in additional developments and the acquisition of new assets.

The uncertainty around the budget means planning is difficult right now. There’s a possibility that Serica may just run off its existing assets and enter a managed decline. In that case, the 17% dividend yield might be offset by a gradual decline in the share price.

Why I’ve been buying

I won’t lie. Serica Energy is probably one of the riskier stocks I hold currently.

However, I’m comfortable with the position as part of a diversified portfolio. Here’s why.

In my experience, markets hate uncertainty and fear change. But what I’ve found is that quite often, when new rules are established, good companies are able to adapt and remain profitable.

My guess is that’s what will happen here. I’m sitting tight ahead of the budget. I’m hopeful that Serica shares will recover when there’s more clarity about future investment decisions.

The post A 17% yield! Why I’ve been buying this UK income stock ahead of the Budget appeared first on The Twelfth Magpie.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Creo Medical   

What it does: Creo Medical is a medical devices company that makes instruments used in endoscopic surgery.    

By Ben McPoland. I think shares of Creo Medical (LSE: CREO) look interesting after falling 42% this year. The innovative small-cap company manufactures devices that enable minimally invasive surgical procedures.

Last year, it more than doubled its user base and analysts expect revenue to jump 28% this year to around £39.6m. Its recently launched Speedboat UltraSlim, a device compatible with most endoscopes, is expected to drive further sales momentum in the years ahead. 

On 18 September, Creo announced the sale of 51% of its European business to China’s Micro-Tech (a leading endoscopic instrument company). If approved, this will net the firm approximately €36.7m, which it will use to fund its growth.

Creo says this deal will “support our continued commercial growth in the [Asia Pacific] region through product registration and co-branding in China.” Opening up opportunities in the massive Chinese healthcare market could prove to be very lucrative.

The main danger here is that the company’s still in growth mode and not yet profitable. It has a cash-flow break-even target for 2025, but the lack of earnings still heightens risk. 

Nevertheless, with the market cap now at £95m (as I write), the stock looks attractive to me given the growth potential.

Ben McPoland owns shares in Creo Medical.

hVIVO

What it does: Specialist contract research organisation (CRO) focused on human medical trials of vaccines and antivirals.

By Mark David Hartley. hVIVO (LSE: HVO) is a clinical research organisation that serves biopharma companies. It recruits volunteers for clinical trials through its FluCamp database, which boasts over 320,000 participants. It can be a risky business, as clinical trials face the threat of medical complications or even fatalities. This could cause reputational and financial damage to the company. 

The company’s latest results revealed a 30% year-on-year increase in revenue and 67% EBITDA growth, translating to a 24.5% margin. Basic adjusted earnings per share also saw a 30% increase. However, with a price-to-sales (P/S) ratio of 3, revenue is lagging the share price. 

Still, its balance sheet looks solid, with cash up from £31.3m to £37.1m in H1. Looking ahead, management anticipates an 11% increase in full-year revenue with a projection of at least £100m in revenue by 2028. That’s a compound annual growth rate of about 14%.

Mark David Hartley does not own shares in hVIVO.

Serica Energy

What it does: Serica is one of the top 10 oil and gas producers in the UK North Sea, with an output of more than 40,000 barrels per day.

By Roland Head. Shares in North Sea oil and gas producers have been hammered by the falling oil price and uncertainty over government energy policy. Serica Energy (LSE: SQZ) is no exception.

The company’s share price has fallen by 40% so far this year. The shares now trade on just three times forecast earnings, with an 18% dividend yield.

The Autumn Budget on 30 October may provide some welcome clarity. In the meantime, we know that Serica had $131m of net cash at the end of June.

Serica’s projections suggest that the company could generate another $500m of surplus cash from its current production by the end of 2027.

My main worry is that management may blow some of the group’s cash pile on a misguided foreign acquisition.

However, the company recently confirmed its support for the dividend, declaring an unchanged interim payout. I think the shares just look too cheap right now.

Roland Head owns shares in Serica Energy.

Warpaint

What it does: Warpaint sells colour cosmetics under its own brands, W7 and Technic. It sells through major retailers and via its own website.

By Harshil Patel. Warpaint (LSE:W7L) is going from strength to strength. Not only are sales and profits rising, but its profit margin is too.

Achieving this hat-trick is impressive and it’s what makes this AIM stock stand out from the crowd.

Its half-year pre-tax profit jumped by 76% from £6.2m to £10.9m. The company’s sales are weighted towards the second half of the year due to its gifting attributes. So, I’d expect more growth to come.

There are plenty of opportunities, both from existing retailers and through new major shops which it is currently in discussion with.

Warpaint offers many of the qualities that I look for in the best shares. Namely, it offers a return on capital employed of 42%, over 20% operating margin and a solid balance sheet.

There is competition in this space, but it looks like it’s taking market share from rivals.

I wrote about this Aim stock a year ago, and although its share price has doubled since, I still like it today.

Harshil Patel owns shares in Warpaint.

YouGov

What it does: YouGov is a British internet-based market research and data analytics firm with global operations.

By Muhammad Cheema. YouGov’s (LSE:YOU) 2024 has been torrid with its shares falling by almost 62%. Investors were particularly spooked by a profit warning in June, which caused a one-day drop of 46%. Debt of £214m on its balance sheet is also risky and doesn’t ease concerns.

However, I believe this has been blown way out of proportion. On its later trading update on 6 August, it guided for revenue of £327-330m and operating profit of £43-46m. For context, FY23 revenue and operating profit were £258m and £44m, respectively.

This doesn’t warrant the share price fall in my opinion and presents a potential buying opportunity for investors to consider. Revenue growth remains strong and even though earnings are broadly in line with last year, historically the company has a strong track record of increasing this. This might just be a blip in performance, especially as the firm is in a great position to capitalise on the rise of AI.

Muhammad Cheema does not own shares in YouGov.

The post Best AIM stocks to consider buying in October appeared first on The Twelfth Magpie.

Now it finally looks like things are on the up.

I want to take advantage of this by stocking up on two shares I feel are undervalued. One I already own and the other is on my list for my next buying round.

A young dividend powerhouse

Serica Energy (LSE: SQZ) is an energy company that prospects for oil and gas opportunities in the UK. Its share price hasn’t exactly been mind-blowing lately – in fact, it’s down a rather painful 22% in the past year. 

But in 2022 it did quite well and now its good fortune may be returning. 

The company has just been granted approval to develop the Belinda subsea oil field in the North Sea. It also took on a new CEO this month and has attracted the attention of major broker Jefferies, which put in a Buy rating for the stock on 16 May.

The real value, however, is the exceptionally high 13% dividend yield. 

The next ex-dividend date is 26 June, with a payment of 14p per share set for 24 July. That certainly makes the £1.77 shares more attractive. Payments have been sporadic though and aren’t well covered by cash flows so there’s no guarantee they will continue. 

Still, I think the company has potential. Based on future cash flow estimates it could be undervalued by as much as 36%. There is good consensus analysts among that the price could rise by 64% in the coming 12 months (but as we know, that doesn’t mean it will rise).

A plunging UK stalwart

Reckitt Benckiser (LSE: RKT) is currently the worst-performing stock in my portfolio. It’s down 20% this year alone and is single-handedly destroying what would otherwise be an impressive profit and loss (P&L) score for me.

So why do I want to buy more of its shares?

Reckitt stock crashed in March when one of its products, Enfamil, was blamed for the tragic death of a premature baby in the US. It’s already paid $60m in damages and that could increase if more cases are brought forward. It’s not a good situation for any company to be in. 

But (hopefully) it’s a one-off occurrence and I believe the majority of the damage is now priced in. It’s a well-established firm with a wide range of popular products, and I think it could be only a matter of time before it bounces back. 

At £44, the shares might not seem cheap but they’re the lowest they’ve been in over 10 years. If somebody had told me in 2020 that I’d be able to buy Reckitt shares for £44 in a few years, I wouldn’t have believed them. 

Still, the price could fall further if more fines are imposed. But already there are signs of improvement, with the price up 7% since the April low. Unfortunately for me, it could be a while before I see profit. But for investors considering a buy now, I think this could be a bargain.

The post These cheap UK shares look way too good to ignore right now appeared first on The Twelfth Magpie.

Essential supplies

Anyone who did online shopping in the run-up to Christmas had a good chance that some of the packaging they received was produced by FTSE 100 firm DS Smith (LSE: SMDS).

This £4bn business supplies a lot of packaging for food producers and industrial customers, as well as consumer goods.

A slowdown in demand has led to a period of destocking, with DS Smith’s customers reducing the amount of packaging in their storerooms. Profits are down and the shares have been hammered. But I think we may have reached a turning point.

DS Smith’s recent half-year results show pre-tax profit down by 15% to £268m. However, this result was expected and CEO Miles Roberts believes the group’s full-year results will hit City forecasts.

Cost-cutting means that the company’s profit margins actually improved slightly to 10.4%, despite lower sales.

Looking ahead to 2024/25, profits are expected to start climbing again. Of course, there’s still a risk we’ll see a renewed consumer spending slump in 2024. That could delay DS Smith’s recovery, but I don’t see it as a major concern given the company’s current modest valuation.

DS Smith shares currently trade on about nine times forecast earnings, below their historic average of about 14 times earnings. The stock also supports a 5.8% dividend yield, which should still be covered 1.9 times by profits this year.

I reckon a fair amount of bad news is already priced into DS Smith shares. I think the shares look good value and could perform well from this level.

Pumping out value

North Sea oil and gas group Serica Energy (LSE: SQZ) isn’t the kind of stock I normally look at for value. But shares in this £850m firm currently trade on just three times forecast earnings and offer a stonking 10% dividend yield. What’s going on?

In my view, the market is rightly cautious about bidding up energy stocks to high valuations.

Oil and gas prices are prone to boom and bust cycles and Serica’s profits are directly linked to these commodity prices.

Looking further ahead, the energy transition means that long-term demand for fossil fuels is expected to fall.

On the other hand, Serica’s recent profits have been supported by very strong cash generation. The company’s 10% dividend yield looks affordable to me, especially as the most recent accounts showed a net cash balance.

Serica’s acquisition of Tailwind Energy earlier in 2023 also means its production is now much more evenly split between oil and gas. That reduces its exposure to volatile UK gas prices.

The Tailwind deal has also opened up some new drilling opportunities for the year ahead, which are expected to result in quick production gains.

I’m generally cautious about investing in fossil fuel producers these days. However, I think that Serica is a well-run business that’s affordably valued. On balance, I think the shares are probably too cheap at current levels and could deliver attractive returns in 2024.

The post 2 value stocks to consider buying before the new year appeared first on The Twelfth Magpie.

What does Serica Energy do?

Serica Energy is one of Britain’s leading independent upstream oil and gas companies, with operations centred on the UK North Sea. It currently plays a leading role in the UK’s energy transition, with over 85% of its production being natural gas that has significant environmental advantages over other fossil fuels.

The UK shares continued their positive momentum after Serica Energy confirmed on Tuesday that it’s rejected an offer, by rival Kistos, that represented a 25% premium on their closing price. At the time of writing, the stock was trading at 348p, which is still 10% under the offer price. This indicates management has conviction that it can continue to deliver growth for investors. This is certainly a promising sign.

Oil and gas sector tailwinds to headwinds

The UK North Sea has been extremely lucrative for Serica. However, even with that being the case, there is no guarantee that future explorations will yield similar results. The company naturally also has a history of success, but if it does not strike proverbial gold in its ongoing exploration projects, such as the North Eigg project, it could be a considerable drain on its funds. This would naturally damage the share price and, importantly, could affect the company’s long-term plans and attractiveness.

The sector as a whole has received tailwinds this year thanks to runaway oil and gas prices. However, I do not see these prices as a long-term trend, and certainly not a sustainable one. In fact, I see this as more of a short-term symptom of the restructuring of global supply chains. I am not bullish on the long-term prospects and prices of oil, although the company is focused more intently on natural gas and this is certainly where the opportunity for Serica remains.

Conflicted: what I’m doing!

You would think that after such a meteoric rise — to the tune of 10,000% over the last decade — that the shares would look overpriced, but in a relative sense it still appears to hold pretty good value to me, trading at a price-to-earnings ratio of a little over 10. Since 2018 it has also multiplied revenue by a whopping 15x. Quite the feat for a company operating in such an uncertain sector.

All in all, despite the rosy picture painted and the demand for its assets at a premium by a rival company, I believe Serica could soon face turbulence in the shape of falling oil and gas prices. This means I expect the share price is at risk of becoming cheaper over the coming months to years.

Whilst I do still see value in Serica shares, I feel there are better long-term opportunities out there to park my cash today.

The post UK shares: this energy stock sees growth of 10,000%! Is it still a buy? appeared first on The Twelfth Magpie.

Oil and gas business

Serica is a leading mid-tier oil and gas business. In 2018, it completed an exciting acquisition of three fields in the North Sea from BP. This made it a substantial player in producing oil and gas in the lucrative North Sea.

So what’s happening with Serica shares? As I write, they’re trading for 312p. At this time last year, the stock was trading for 149p, which is a 109% increase over a 12-month period. Five years ago, the shares were trading for 26p, which means the shares have returned 1,100% based on current levels.

UK shares have risks

One of the biggest risks with commodity producers in my experience is the significant financial and operational issues they face when exploring assets. This is a costly exercise firstly, which could hurt Serica’s balance sheet as well as investor returns. Furthermore, if it is unable to yield any commodities from its exploration, the longer-term outlook for the business could also be affected.

Next, much has been made of the surging oil and gas prices in recent months. Although in the shorter term this could boost the coffers, the question that bugs me is whether this is sustainable longer term. The answer is usually no. I’ve often thought investing in commodities when commodities are volatile is a bad idea. I will keep an eye on developments here.

The bull case and what I’m doing now

Despite Serica’s remarkable share price rise in the past few years, the shares still look good value for money. They’re currently on a price-to-earnings ratio of 10.

So what has underpinned Serica’s rise in recent years? I believe its performance has definitely played a part. Although I am aware past performance is not a guarantee of the future, I review it to gauge the bigger picture. Looking back, I can see it has grown revenue year-on-year for three of the past four years. 2020 levels were affected by the pandemic. It is worth remembering many UK shares’ performance dipped during this unprecedented time. 2021 performance was excellent. I also note it has no debt and lots of cash. This is exciting as it could boost further investment, as well as payouts to investors.

Serica shares could boost my passive income stream through dividends. Its current dividend yield stands at 3%. This is in line with the FTSE 100 average of 3%-4%, despite being on the FTSE AIM index. I am aware dividends can be cancelled at any time, however.

Upon reviewing whether I would buy or avoid Serica shares for my holdings, I found myself torn. This is often a bad sign for me personally. The current negativity surrounding oil and gas prices is definitely a factor. Furthermore, the pitfalls of exploration for new assets in oil and gas businesses are well-documented.

I decided to stick to my general rule of not buying commodity stocks when prices and the market in general are volatile. I will keep a keen eye on Serica shares, however.

The post UK shares: should I buy this energy stock, up 1,100% over 5 years? appeared first on The Twelfth Magpie.