Wow, 2021 has not been a fun year for investors in THG (LSE: THG), formerly called The Hut Group. The THG share price has tumbled by over three-quarters. At its much lower price, is more bad news going to keep coming and will it fall further, or is it a potentially profitable contrarian investment for me?

A saving grace? 

The one main thing that I think could turn around the firm’s fortunes and boost its share price is its tech platform called Ingenuity. In its ‘Ingenuity Commerce Q3 2021 Update’ report, THG said the operation has high recurring revenue, which is increasing every quarter. That’s the good news. 

According to that report, after the first three quarters of 2021, Ingenuity has made revenues of £137m. However, Next’s LABEL platform makes £464m in sales annually, so the questions I ask myself are: is Ingenuity that brilliant? And will it scale globally and really boost the THG share price? I’m unconvinced about that. THG may have technology, and technology may often excite investors, but is it really best in class tech that will attract lots of customers? So far the evidence on that seems unclear.

On the positive side, half-year results showed revenue up 41.9%. The gross margin rose 1.3% to 46.5%, which is very high, even by the standards of a technology and e-commerce company.

There’s undoubtedly a UK (and indeed a global) trend towards online shopping, which could benefit THG generally and the THG share price. That’s because investors like to buy into a growing trend. 

The company is also acquisitive, which could be both a positive and a negative. It helps it grow quickly and develop its own brands, but introduces the risk that the balance sheet becomes stretched and in the context of a falling share price, management may become desperate and overpay for acquisitions. This is usually bad for shareholders.

Potential share price downsides

Further governance issues could see the shares fall further. It’s also known that THG paid rent to properties controlled by the founder. Does that mean incentives are aligned and the best interests of shareholders are being looked after? Personally, I think there are more transparently run companies out there I could invest in.

Also, management presentations this year haven’t exactly won over analysts and investors. In October, the shares fell over a third after the founder, chairman and CEO, as well as the CFO, fronted a capital markets day for investors.

I’m also not clear on the rationale behind spinning out the beauty part of the business given its phenomenal growth. It’s bigger and fast growing than nutrition – the other main part of THG’s e-commerce empire – so why lose it? It feels a bit short term, especially given all the acquisitions THG has made in recent years.

Now it says “Clearly, the THG share price has become much cheaper over a short period of time. The company’s seemingly very strong growth makes the price look tempting in some ways. Yet I feel uneasy about buying the shares. At its cheaper valuation, I may be missing out, but it may also be that the shares keep falling. I’ll avoid them for now until the value of the Ingenuity division and the strategic direction of the company becomes clearer.

Andy Ross owns no share mentioned. 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.

I bought BT (LSE: BT-A) stock in early 2020. This is before we knew the pandemic would happen. Even at that time, it was not exactly the best performing stock around. Its share price had been dropping for years. But I still saw a case for buying it. 

The first reason was its double-digit dividend yield. My calculations show that even if the BT share price continued to decline a bit in the future, the yield was big enough to more than make up for it. In other words, net positive returns on the stock looked all but assured at the time. Also, after years of Brexit-related limbo, it appeared like the UK was finally ready to grow fast. The anticipation was already evident in the FTSE 100’s gains in December 2019. This could have spilled over into BT’s growth too. Its biggest money spinner is the crucial fibre-optic broadband network for the UK, which could thrive during a boom. 

BT shares’ pandemic crash

However, soon we found ourselves in a pandemic slump. Not only did BT roll back its dividends, the stock crashed. And by October 2020, it was trading at penny stock levels. I continued to hold the stock during this time, and was soon rewarded for it. Come November 2020, and like many other recovery stocks, it started rallying. By June this year, it was back to its pre-pandemic highs. 

But it has not gone anywhere since. It has slumped and recovered, but is still trading lower than its June 2021 levels. My BT investment is running into losses right now. Since I have been holding the stock for almost two years now, during which I have earned no dividends, it is a good time for me to assess if I should continue to hang on to this investment. 

Dividends come back for the FTSE 100 stock

First, let me consider dividends. It is true that BT has not paid any dividends  for some time, but it is going to start paying them soon. Its interim dividend payout is scheduled for February 2022, for the financial year 2021-22. I am guessing that the final one for the year should be paid by next September, which is normally its schedule. It plans to pay 7.7p for the year, which brings its forward dividend yield to 4.4%. 

To be fair, this is not bad at all. It is higher than the average FTSE 100 yield of 3.5%. And it even just beats inflation, which is forecast to be at 4% in 2022. In the past year, the stock has also risen some 30%, so there is also hope of capital gains. 

What I’d do now

Based on this, I think that I should wait a while before selling my BT stock. The company has strong credentials, and now when online spending has become so much more ubiquitous, its services’ significance have only grown. It is facing rising competition, but I would like to wait and watch how that plays out. As such, I would hold the stock right now, but not buy more of it. 

Manika Premsingh owns BT GROUP PLC ORD 5P. 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.

I’m looking for the best cheap UK shares to buy for 2022. Here are two brilliant bargains on my shopping list.

On the crest of a wave

I consider Crest Nicholson’s (LSE: CRST) a sub-£5 UK share too cheap for me to miss. At 342p per share, the housebuilder trades on a forward P/E ratio of just 9 times. This is too cheap given the bright outlook for the housing market in 2022, in my opinion. Indeed, City analysts think Crest Nicholson’s earnings will rise an extra 22% this financial year (to October 2022).

What’s more, today, the business also boasts a meaty 4.5% dividend yield for this fiscal period. This is more than double the current FTSE 250 average yield of 2%.

I already own shares in a couple of British housebuilders. So I was lifted by fresh research by property listings powerhouse Rightmove released this week. It said that it expects the market to revert to “more ‘normal’ conditions” in 2022 following the “frenetic” last 18 months.

Still, it added that average home prices should rise 5% year-on-year next year “as strong buyer demand and a historically low level of available property continue to push up prices.”

A top long-term buy

Reflecting these bright conditions, Crest Nicholson’s November trading statement revealed that sales rates have remained “robust” across all its regions. The builder is seeking to take advantage of the favourable trading environment by setting up three new regional divisions by 2026 too. It hopes this will set it on course to build 4,200 new homes a year by then, almost double what it is currently producing.

But this cheap UK share isn’t without risk. Costs are increasing as raw material and labour prices rocket through the roof. This looks set to continue hitting profits in 2022 too. It’s also possible that Bank of England interest rate rises could take a big bite out of homebuyer demand. That said, it’s my opinion that the rewards on offer from Crest Nicholson far outweigh the dangers.

Another cheap UK share I’d buy

Of course, I don’t have to buy the builders to capitalise on the house price boom. I can buy the companies that allow the likes of Crest Nicholson to sell their products. Firms like Nexus Infrastructure (LSE: NEX), for example, which trades at 228p per share. This particular business creates and installs the systems that get utilities connected up on new housing developments.

This isn’t the only reason I’d buy Nexus though. The company also installs electric vehicle (EV) charging points in homes and on the street. This should allow it to benefit from the huge sums being allocated to building EV infrastructure in Britain. Last month, the government announced legislation making it a legal obligation to install charging points in all new homes from next year.

Demand for Nexus’s services could shrink if Covid-19 cases keep rising and the construction industry shuts down again. But, as things stand, I think this cheap UK share is worth serious attention.

Royston Wild has no position in any of the shares mentioned. 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.

I am incredibly optimistic about the prospects for the Marks and Spencer (LSE: MKS) share price in 2022.

Over the past year, the company’s turnaround, which seems to have been in progress for over a decade, has finally started to take hold.

The market is waking up to its potential. The stock hit a multi-year low of 85p in May 2020 but has since recovered to around 232p. That is about the same level as it began 2020, before the coronavirus pandemic started.

However, the stock is still trading below its 2019 high of 280p per share, despite this recent performance. If the company continues to push ahead with its restructuring and growth ambitions, the stock could return to this three-year high. It could even move back towards 300p if trading outperforms expectations. 

Marks and Spencer share price outlook 

Of course, it will always be impossible to predict the future of any company’s share price with accuracy. I do not know what the future holds for any business or the economy. 

Still, if I assume that the economy continues to rebuild over the next 12 months in much the same way as it has done over the past 12, I think Marks’ top and bottom lines will expand. The firm’s recent changes are clearly having an impact on consumers. Its joint venture with Ocado is also outperforming expectations, which is a testament to its brand. 

It seems likely that a good deal of the company’s recent growth has been powered by rebounding consumer spending. This is unlikely to last. However, I think there is a strong chance that the group has convinced shoppers its offering has improved, which could support more spending. 

Indeed, City analysts believe the firm’s profits will hit £409m in its current financial year and £367m in 2023. These are the highest number since 2017. 

Undervalued 

If the company can hit these targets, the stock looks cheap at current levels. It is selling at a forward price-to-earnings (P/E) ratio of just 11.4. Considering the firm’s brand and growth potential, I believe this undervalues the enterprise. 

That being said, the firm will have to overcome some headwinds that could hit growth as we advance. These include the supply chain crisis and inflationary pressures. Rising costs could push consumers to change their buying habits or put off purchases. 

Still, even after taking these risks into account, I think the outlook for the Marks and Spencer share price in 2022 is encouraging. The double tailwinds of rising consumer confidence and economic growth should support the company’s revenue expansion. Its decisions to refresh its stores, product lines and reduce costs will provide further tailwinds to support growth. 

While the company has underperformed expectations more times than I can count in the past, all of the above seems to suggest that the group is finally ready to pull itself out of a multi-year decline. 

Rupert Hargreaves has no position in any of the shares mentioned. 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.

As penny stocks go, Lloyds (LSE: LLOY) is probably the biggest of the lot in the UK. Even though its share price is 46p as I write, its market value is a huge £33bn.

Does its low price make Lloyds a buy for my portfolio? I need to research the prospects of the business for the following year before I invest. Here’s what I think.

What I like about this penny stock

First, the Lloyds share price is up an impressive 36% over one year. This suggests that the business is performing well. Indeed, in the third-quarter interim management statement, the company said it recorded a profit before tax (PBT) of £5.1bn for the nine months to 30 September. This was a huge increase over the same period in 2020 when PBT was just £620m. But Lloyds’ management said the improvement in trading was due to the general improvement in the economic outlook so it wasn’t purely company-specific.

It’s understandable why profits have grown by such an extent. Lloyds earns income based on a net interest margin, or the difference in interest it charges compared to the interest it pays on deposits.

Therefore, profitability will improve when consumers are willing to loan money for things like mortgages, and on credit cards. The housing market has been particularly buoyant in 2021, which will have boosted the company’s profits. Also, as general sentiment improved after lockdowns ended, consumers will have been more willing to borrow.

I’m optimistic about the growth prospects of the UK economy heading into 2022, so I view this as favourable for Lloyds’ prospects.

Lastly, inflation is set to rise again in 2022. The Bank of England is forecasting consumer price rises to peak at about 5% in April. This might sound scary, but it also means the BoE will likely raise its base interest rate in 2022. For Lloyds, this may mean an even bigger net interest margin.

Risks to consider

As mentioned, Lloyds is able to generate profit from its lending activities. This was boosted significantly by the booming housing sector this year as the company expanded its mortgage book. However, it’s unlikely that this will continue into 2022 due to the end of the stamp duty holiday. House prices are also near an all-time high which may deter future buyers, and therefore borrowers.

Looking at the full-year forecast for PBT in 2022 and it’s expected to decline by 9% over 2021 to £6.8bn. This is still far larger than the £2bn of PBT that Lloyds achieved in pandemic-hit 2020. Nevertheless, the 9% reduction, I think, reflects the cooling of its lending activities after the boom this year.

Is this penny stock a buy?

Even though Lloyds’ profit is expected to decline next year, I still view the stock as attractively valued. On a price-to-earnings basis, the shares are priced on a multiple of 7 for 2022. I consider this dirt-cheap. The forward dividend yield is an impressive 5.3% too.

Taking everything into account, I view Lloyds shares as a buy for my portfolio. There are still risks to consider, but I think the shares are priced to reflect this going forward.

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

So far the stock market has taken Omicron in its stride. Arguably, though, it took the stock market a little while to react to the coronavirus back in the first quarter of 2020 and for share prices to fall. It’s difficult to know exactly what it means this time round for the markets and for investments.

However, if Omicron means more lockdowns and a stock market crash or slump, I think these two share prices will be hit extremely hard. Even if Omicron makes little impact on the stock market, I’d still avoid them as I think they are poor investments.

In the line of fire

SSP (LSE: SSPG) is an operator of food and beverage outlets in travel locations, principally airports and railway stations. This puts it directly in the line of fire when there are lockdowns and even advice to work from home when possible.

The SSP share price has more than halved since the start of 2020. At the same time, debt and the number of shares in issue have both rocketed. In my opinion, this fundamentally makes SSP a less attractive investment. It makes it harder for SSP’s management to drive increasing earnings per share, simply because there are more shares and debt costs more and takes away from earnings. 

As the company is loss-making, the shares are harder to value but if I ask myself: what is the growth potential here? I just don’t see any. Even if things turn out well with Omicron, there’s limited upside. If there are more lockdowns, the downside is potentially very high. I’ll be avoiding SSP shares.

Heading for disaster? 

Continuing on a train theme, Trainline (LSE: TRN) is another share I don’t think will do well if Omicrom rolls on. Earlier this year Trainline’s shares plummeted after the UK government unveiled a state-backed rival.

This change in competition comes on top of an underwhelming IPO in the summer of 2019, which in retrospect was fortuitous timing for the backers of Trainline that got out. The ticketing platform is loss-making. 

Then when you add in £169m of net debt there’s a lot to scare me away from investing in Trainline’s shares.

Trainline does operate beyond the UK, net debt has come down recently, and revenue growth is strong, but overall it doesn’t strike me as being a potentially profitable investment. That’s why I’ll avoid the shares.

Fundamentally, Trainline’s main business may cease to exist if the UK government competition is good enough to attract public transport users.

A brighter note to end on

Just quickly and to avoid making this article all about shares to avoid, I’d be tempted to invest in Melrose, especially if it becomes significantly cheaper. Already it has a price-to-earnings-growth ratio of 0.3, indicating it could be undervalued.

However, Omicron means a bigger margin of safety may be needed as the shares could fall in the short term, as a result of investors’ fear. So I’ll wait and see what happens before buying because new restrictions could hit the industrial group hard. 

Management, though, has a sterling track record of improving industrial companies and the company has been well managed through the pandemic. I think Melrose offers far more to investors whatever happens next than either SSP or Trainline ever can.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Melrose and SSP Group. 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.

I always remember someone telling me that the difference between being rich and being wealthy is knowledge. The point being that a wealthy person has the knowledge to make more money. One way I’m aiming to generate long-term wealth is via my knowledge of investing in the stock market. To this end, I hope to benefit from the stock tips of Warren Buffett, one of the greatest investors of our generation with a net worth of over $100bn.

Picking stocks that I understand

Buffett was born in 1930, so has experienced countless stock market recessions and boom periods. This experience comes into play with his first stock tip. He’s quoted as saying that “the important thing is to know what you know and know what you don’t know”.

This takes a couple of times of reading to understand it! The point is that in the long run, I’m better off investing in stocks that I can understand and appreciate. For example, I might be an expert on cars. Logically, I’d probably be able to identify hallmarks of a good car manufacturer and potentially buy a promising stock as a result. On the other hand, I would be unlikely to invest in a Chinese domestic restaurant stock. 

By acknowledging where my strengths lie (and don’t lie), I should be able to be a more successful stock picker than simply buying whatever everyone else does.

Buying for the long term

A second stock tip that ties in with generating wealth is another quote from Warren Buffett. He said that “Wall Street makes its money on activity. You make your money on inactivity”.

If I buy and sell stocks very frequently, I’ll incur higher transaction fees from my broker. In the long run, this also could be damaging for my overall portfolio. Some studies have shown that investors net higher returns from letting a stock run its course rather than trying to time the market from frequent trading.

One reason for this is that it’s impossible to perfectly time the market. This can cause me to lose out on potential upside if I’m sitting in cash and waiting for a dip that might never come.

A final stock tip from Buffett

In a speech at Columbia University, Buffett advised: “Don’t pass up something that’s attractive today because you think you will find something better tomorrow.”

From my position as an investor, missed opportunities are very frustrating. Especially when I’m trying to build wealth, if I pass up one attractive stock pick a year for the next decade, it’s a lot of potential profit missed out on.

Therefore, if I see a good stock at an attractive price, I need to seize it. I won’t be able to buy every stock I like, as I have financial limitations. But the principle is there, and valid.

Overall, Warren Buffett has many great stock tips and pointers. By trying to put them into practice, I can hopefully increase my long-run wealth.

Jon Smith and The Motley Fool UK have 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.