I’m looking at top FTSE 100 stocks I can buy and hold through next year. Here are two I think will offer great returns for my portfolio.

A top FTSE 100 dividend stock

The first company I’m going to buy and hold is Legal & General (LSE: LGEN). It’s a financial services business, offering a wide array of investment and insurance solutions.

The share price has performed well over one year and is up almost 20% at time of writing. This means the stock has outperformed the FTSE 100, which has risen 11% over the same time period. I think this could continue in 2022.

First, the dividend yield forecast for next year is a huge 6.3%. I have to keep in mind that dividends are never guaranteed. However, Legal & General was able to keep paying a dividend throughout the pandemic, so there’s a good chance that it’ll be paid in 2022.

Then, Legal & General is expanding its alternative asset management businesses. Its aim is to generate £500m to £600m in operating profit from alternative assets management by 2025. Operating profit for this division doubled to £250m in the recent half-year results. I consider this an exciting area within its asset management business.

There’s always a risk of a stock market crash next year which would lower the fees that Legal & General earns on its assets under management. Nevertheless, I view the stock as a great buy and hold for my portfolio in 2022.

A stock that’s underperformed

The next company I’m going to buy and hold in 2022 is London Stock Exchange (LSE: LSEG). It’s the largest stock exchange in the UK today. Because of this, it has a wide economic moat that protects its business from potential competitors.

The share price has had a torrid time in 2021. In fact, over one year the stock has plummeted over 20% as I write. This is largely due to the acquisition of Refinitiv, the financial data and analytics platform. London Stock Exchange guided for a significant increase in costs as it integrates Refinitiv into its current business. This increase in costs will reduce future profitability, so the stock has re-priced lower to reflect this.

However, I view this as a short-term issue. There’s great potential here for London Stock Exchange to offer leading financial data and analytics services once Refinitiv is integrated. I think this could widen the economic moat of the company.

There are still risks at play here. For one, the integration of Refinitiv into London Stock Exchange’s business might not work out as acquisitions are never guaranteed to be successful. With this in mind, the costs associated with Refinitiv may be higher than I anticipate. This would no doubt cause the share price to underperform again.

Taking everything into account, I’m still going to buy and hold the stock in my portfolio in 2022.

Dan Appleby owns shares of Legal & General and London Stock Exchange Group. 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.

The outlook for the global economy in 2022 is rife with potential problems. The Covid-19 crisis continues to drag on. Runaway inflation is expected to worsen, and China’s economy is cooling rapidly. I wouldn’t like to predict where the FTSE 100 will be this time next year.

This doesn’t mean I’ll stop looking to add to my shares portfolio though. There are plenty of UK shares that could thrive in 2022, even if broader economic conditions remain tough. So should I buy these two FTSE 100 shares for my portfolio?

A high-risk FTSE 100 share

At first glance, International Consolidated Airlines Group (LSE: IAG) shares don’t look that cheap, at current prices. At 137p, the British Airways owner trades on a price-to-earnings (P/E) ratio of 27 times for 2022.

Could IAG’s share price be worth such a meaty premium though? There’s a lot I like about the Footsie flyer, like the immense customer loyalty its brands command and its robust position in the transatlantic market. I also like its significant exposure to the fast-growing budget segment, through its Aer Lingus and Vueling divisions.

That being said, I won’t be touching IAG shares with a bargepole right now! The company isn’t as financially robust as other UK airline shares like Ryanair and Wizz Air, putting it in greater jeopardy as the Covid-19 crisis worsens. In fact, I find its net debt pile (which sat at €12bn as of mid-2021) frankly terrifying.

My fears for IAG ratcheted up this week when travel rival TUI said that booking levels are cooling following the emergence of the Omicron variant. Things threaten to remain difficult too if countries continue to ramp up travel restrictions to limit infection rates.

Surfing silver

I think Fresnillo (LSE: FRES) could be a much wiser FTSE 100 stock for me to buy. I think the silver and gold it produces could steadily gain in value as fears over Omicron remain, boosting profits at the Mexican miner. Recent US data showing inflation there hitting 40-year highs has also boosted my appetite for this stock. Precious metals tend to rise in value when inflationary pressures increase.

Fresnillo also looks more attractive than IAG’s share price, at current levels of 858p. It trades on a P/E ratio of 13.9 times for 2022, while its price-to-earnings growth (PEG) ratio of 0.9 sits below the watermark of 1 that suggests a stock could be undervalued.

Mining shares like Fresnillo come with their fair share of risk, of course. Exploration work can fail to reveal what the company believes could be the next mammoth mining project. Development and production costs can also spiral out of control and issues that bring output to a halt are commonplace. This can hit revenues hard.

Still, I think it could be argued that at current prices these risks are baked into Fresnillo’s share price. And from a long-term perspective, I’m encouraged by its efforts to build a raft of low-cost mines inside and outside of Mexico. I think they might deliver handsome profits in the years ahead.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

Electric vehicle (EV) shares took the market by storm in November. Tesla shares broke above $1,000 and others also saw a lot of interest. Both Rivian (NASDAQ:RIVN) and Lucid Motors (NASDAQ:LCID) saw strong short-term gains. However, since the middle of November these top EV stocks are off their highs. Rivian is down 34% from the peak, with Lucid down 33%. Is this the dip for me to buy?

Caught up in risk sentiment

The top EV stocks have moved lower for a different reasons. First, the Lucid Motors share price tanked recently due to news regarding an SEC investigation. In a regulatory filing, the company said that there was a request of “production of certain documents related to an investigation”. This appears to be regarding the nature of how the company went public via a SPAC (special purpose acquisition vehicle). However, this hasn’t been confirmed, so we’ll just have to wait and see.

Rivian stock doesn’t seem to have been hit due to company specific news. In fact, most of the market is still looking ahead to upcoming results in order to gauge the future direction of the company. However, the share price appears to have suffered from broader risk sentiment.

In recent weeks, the discovery and rise of the Omicron variant has spooked some investors. During periods of uncertainty, people tend to sell high-risk growth stocks. The money then usually goes towards defensive stocks as a safer place to weather a potential storm. I would definitely classify Rivian as a high-risk stock. Since the IPO only a month ago, the stock had been volatile as investors try to place an accurate value on the business.

Risks and rewards of top EV stocks

One reason why I might decide to buy the potential dip is if I believe in the long-term future of EVs. With global government initiatives around the environment and higher consumer awareness around electric vehicles, I think demand will continue to grow. These top EV stocks are likely to be leaders in the sector. Clearly, others such as Tesla have a head start. But the potential market is huge and so could easily be shared among a selection of manufacturers. 

Another reason why I could consider buying now is if I’m optimistic on the outlook for 2022. These high-risk stocks will continue to be influenced by sentiment around Covid-19 and the health of the global economy. So if I think that Omicron isn’t something to be seriously concerned about, now could be the time to buy. If we’re in a positive risk environment next year then I’d hope the share prices of these top EV stocks should be higher.

What about potential risks? I think a big one is the fact that both Rivian and Lucid are at an early stage of production. Their business models are somewhat untested when it comes to seeing how they can handle reaching scale. It could take several years to reach a mass level that enables the companies to become profitable.

But I would consider buying these top EV stocks today. However, I’d invest 50% now and then hold off on the other 50% to see how the stocks trade over the next few weeks.

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.

I’ve been looking at penny stocks for my portfolio. Sometimes they can be higher-risk investments that are more volatile than larger companies. But I’d always consider investing in penny stocks — as long as I research the companies concerned — because the return potential can be huge.

Here are two penny stocks I’ve been considering this month.

A penny stock to buy

I’ve been looking at Creightons (LSE: CRL) as a potential buy for my portfolio. It’s a developer and manufacturer of toiletries and fragrances for its own brands and also private labels. It provides outsourced manufacturing for third-parties too.

The share price is 97.5p as I write, so only just in penny stock territory. In fact, as recently as September the share price was around 130p. I view the stock decline as general market weakness, and not about anything specific to the company’s performance.

Even though Creightons is a penny stock today, with a market value of only £68m, the company is showing signs of being a quality operator. For example, it’s able to generate double-digit returns on its capital. It has been able to increase its operating margin almost every year from 2012 when it was as low as 1.6%. In the company’s fiscal year 2021 (the 12 months to 31 March 2021) the operating margin had improved to 8.8%. These are key characteristics I look for before investing in a company.

The growth has also been impressive of late. Revenue grew 29% in Creighton’s most recent year, and profit increased further by 37%. Some of this growth was from sales of hand sanitiser due to the pandemic, so may be considered a one-off. This may mean that revenue growth slows, so it’s a risk to keep in mind.

One further risk to consider is the lack of analysts covering the stock as the company isn’t large enough to warrant professional research. Therefore, I have to be confident in my own forecasts before I invest. 

But on balance, I like the potential here. I’m considering this penny stock for my portfolio.

And one to avoid

I also came across AO World (LSE: AO) as a potential penny stock investment. It’s an electrical products retailer operating across Europe and offering a range of kitchen appliances and home electricals.

Revenue growth has been impressive in recent years, so there might be a good investment case here.

However, the company has only recently become a penny stock as the share price dipped to 95p at the end of November. The price was over 400p at the start of 2021, so something must have gone wrong.

Well, in the most recent half-year results to 30 September, the company said it made an operating loss of £11m. This was down from a profit of £16m in the same period one year ago. The company said it built up its cost base as it expected revenue growth to continue. Multiple issues now mean revenue will be flat or even potentially decline by 5% for the full year.

The company has really suffered due to supply chain constraints and cost inflation recently. I don’t expect these problems to ease for a little while longer. So, as it stands, I won’t be investing in AO World until I see some evidence that these issues are easing. If they do, I’ll revisit the investment case here.

Dan Appleby 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.

Income stocks are those that pay out a dividend to an investor. The FTSE 100 and FTSE 250 are full of different income stocks that I can choose from when considering an investment. So here’s how I’d go about trying to generate an income next year.

Trying to ensure dividends are paid

I’m looking ahead at how I can make £1,000 in 2022 and in my opinion, one of the most important things to look at with income stocks is how reliable the payments will be in the future. Next year is a complete unknown that might cause some companies to halt dividend payments and unlike bond coupon payments, dividends aren’t guaranteed. Year-on-year, dividend payments can rise or fall depending on how well the business is performing.

Therefore, I want to try and identify stocks that give me the best shot at getting paid next year (and beyond). This isn’t an exact science by any means. But I can look at the past few years and see what the track record is. I can also look at how well the business has done in 2021, as the dividends will likely be based on this performance. Finally, I can assess the outlook for 2022 and make a judgment call on how well I think the sector could do.

Diversifying income stocks

I need to think about diversifying the shares that I choose to buy. It’s fine having a list of a dozen names that I think are sustainable, but what if they’re all in the same sector? It wouldn’t be the smartest idea to invest in all of them. 

Even though the stocks within one area might be brilliant choices, putting all my eggs in one basket could end up costing me. For example, I might have picked a host of dividend stocks within the banking sector in 2019. Yet in early 2020, the regulator requested banks to stop paying out dividends to help aid cash flow during the pandemic. So if I only held income stocks from this area, I’d be stuck. Rather, I’d prefer to pick a couple of shares from several different industries.

Considering the numbers

Another important point is look at is my cash situation. If I want to make £1,000 next year from dividends, I’m going to need to invest a larger amount than £1,000. 

The easiest way to think about things is to consider how much I’d need to stump up today. If I presumed an average dividend yield of 5%, then I’d need to invest £20,000. This assumes that I’ve picked sustainable income stocks that will continue to pay out in the future.

Of course, this isn’t an option for me at the moment. Alternatively, I could invest month-by-month. This method wouldn’t generate £1,000 in year one. But if I want to make £1,000 in dividend income next year, a monthly plan would get me there. And if I want to enjoy the income in five or 10 years’ time, investing regularly each month should help me build a generous pot in the long term.

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.

Anyone needing evidence that money can still be made in these undeniably tough market conditions should take a look at the Genedrive (LSE: GDR) share price. In the last month, the small-cap’s valuation has rocketed over 230%.

Let’s take a look at what this under-the-radar firm does and, most importantly, question whether such a performance can be sustained. 

What’s this hot stock all about?

Genedrive is a molecular diagnostics business. In its own words, the company’s platform supports “the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications”. These include Hepatitis C, military biological targets and, perhaps most importantly, Covid-19. 

Genedrive has been listed since 2007 and shareholders have enjoyed/endured a rollercoaster ride since. However, anyone buying at the height of panic in March 2020 will have done extremely well. Just before Boris Johnson announced the first UK lockdown, the Genedrive share price languished at just under 9p. On Friday, the very same stock closed at almost 62p. 

Why is the Genedrive share price flying? 

On 29 November, Genedrive revealed that its COV19-ID test had been supplied to “a range of potential commercial partners” for review and evaluation. This news was compounded by last week’s announcement that the company had now received the CE mark as intended. In other words, COV19-ID conforms with European health, safety, and environmental protection standards.

I won’t go into the science too much here, save to say that Genedrive’s test (performed via a nasal swab) can deliver positive results in 7.5 minutes. Negative results arrive within 17 minutes. As CEO David Budd commented, this will “allow immediacy and convenience in molecular testing, rather than waiting many hours or days for results from a central laboratory.”

On top of this, Genedrive’s test “offers several orders of magnitude improvement in sensitivity” compared to the usual antigen lateral flow devices.

Rapid results should mean a reduction in transmission rates and, ultimately, a quicker return to normality. That’s potentially great news for, well, everyone but particularly for any operator in the travel, leisure and hospitality space.

More to come?

It’s clear that the Covid-19 tale has several more chapters to run. That could provide a sustained boost to the Genedrive share price. This is especially if deals with partners are announced over the next few weeks and months. A market-cap of just £57m certainly suggests a lot more room for growth compared to the likes of, say, diagnostic peer Novacyt.

Even so, it’s clear only those blessed with a stoical temperament should apply. While GDR has soared in only a few weeks, it’s still way below the 52-week high of 165p. Those who picked up the stock in February or March will still be nursing heavy paper losses.

Due to a relatively small free float (the number of shares available to trade on the market) of 60%, I think this kind of volatility is set to continue. As evidence of this, the Genedrive share price dropped almost 12% on Friday. 

(Very) cautious buy

Recent news from Genedrive is undoubtedly encouraging and I wouldn’t rule out further gains going forward. As such, I’d consider buying a slice of the company today. That said, I’d be sure to only use money I could afford to lose while also remembering that there are other ways to take advantage of the market’s Covid-19 concerns.

Paul Summers 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.

The FTSE 100 index has a current dividend yield of just over 4%. So, in theory, I could bung some money in a low-cost index tracker fund following the Footsie and collect that income.

But the investment would need to be £150,000 to receive dividend income worth £500 a month. So, I’d use the Warren Buffett method to help me invest and compound my way to a pot worth £150k.

Careful capital allocation

Buffett sees himself as an allocator of capital (money). And his main investment activities take place within his listed company Berkshire Hathaway. He said in the company’s 2020 letter to shareholders he wants Berkshire to “own all or part of a diverse group of businesses with good economic characteristics and good managers.”

But he doesn’t care whether Berkshire controls the businesses by owning them outright or simply holds some of their shares. And that’s great news for me because I can simply buy stocks as well — just like Buffett has.

So my plan for building up an investment pot worth at least £150,000 would involve trying to be a ‘mini-Buffett’. There’s no need to go out and start up another Berkshire Hathaway. All that’s required is to choose stocks carefully, buy them at opportune moments, and then hold for years as value compounds within each enterprise.

In the letter, Buffett sketched out a simple approach to investing. He said he looks for stock opportunities based on three things. The first is a company’s durable competitive advantage. The second is the capabilities and character of its management. And the third is price.

Simple, but not easy

It’s simple, yes. But is it easy? No. It’s important for me to do the work with regard to research and to make sure I’m buying stocks at a good-value entry point. Then, when holding, I need to monitor news flowing from my investee companies and regularly test it against my investment thesis. If it breaks down, it may be necessary to act, such as selling my stock holding.

However, Buffett reckons holding carefully-chosen shares requires “little” effort compared with owning companies outright. And he said: “You are awarded no points in business endeavours for ‘degree of difficulty’.”

Buffett and his long-time business partner, Charlie Munger, view Berkshire’s stock market shares as a collection of businesses. And they hold the stocks with the same tenacity they would apply to whole businesses they might control within Berkshire Hathaway. In other words, there’s no difference in their mindset between stocks and businesses. They are both long-term commitments purchased and owned with the intention of building wealth.

And that business-perspective approach to investing is one of the key parts of the Buffett method I’m using as I preside over my own mini-Buffett business ’empire’ within my own stock account portfolio.

But, of course, even as I try to emulate the great man’s approach, there’s no guarantee of positive investment outcomes — all shares carry risks.

Kevin Godbold 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.

This is the time when stock-pickers think about their favourite shares to buy for the coming year. After a stormy 2020-21, this is no easy task. Furthermore, with monetary policy tightening and interest rates set to rise, things might get nervy for investors globally. Nevertheless, I’ll stick my neck out by revealing three companies I’d back for market-beating future returns. Each of these stocks are large-cap FTSE 100 shares that I’d expect to weather the worst storms. I don’t own any of these shares, but I’d happily buy all three today.

#1 best stock to buy: British American Tobacco

As I expect stocks to be quite volatile next year, I’m looking for shares that — in my view — are solid enough to weather stormy conditions. Thus, the first of my stocks to buy for 2022 is tobacco titan British American Tobacco (LSE: BATS). As a leading manufacturer of tobacco, cigarettes and smoking products, BAT isn’t popular with ethical investors. But its huge cash flows enable its to pay massive cash dividends to shareholders. On Friday, it closed at 2,758.96p, up 67.96p (+2.5%), valuing the group at a hefty £63.3bn. At present, the shares trade on a price-to-earnings ratio of 10.2 and an earnings yield of 9.8%. What’s more this FTSE 100 giant’s shares offer a dividend yield of 7.8% a year — almost double the Footsie’s 4%. For me, BAT is a solid stock, even though the group does have a towering £40.5bn of net debt on its balance sheet.

#2 top stock: Unilever

When I contemplate safe, solid stocks, consumer-goods colossus Unilever (LSE: ULVR) often springs to mind. Its steady, solid business model appeals to me. It sells hundreds of popular brands, servicing 2.5bn people every day. In effect, one in three people on the planet is a Unilever customer. Wow. On Friday, Unilever’s share price closed at 4,020p, gaining 38p (+1%), valuing this FTSE 100 super-heavyweight at £102.6bn. But the second of my picks has been in decline since summer 2019, when it hit a record closing high of 5,324p on 4 September 2019. Currently, the shares trade at a discount of roughly £13 from their peak. They trade on a chunky multiple of 22.8 times earnings and offer an earnings yield of 4.4%. Plus ULVR’s dividend yield is 3.7% a year. The company’s sales growth has been slowing, but I’d hope to see it rebound in 2022-23.

#3 recovery share: Lloyds Banking Group

The third of my stocks is a recovery play. Lloyds Banking Group (LSE: LLOY) is Britain’s largest retail bank, serving 30m customers. Thus, its fate is closely tied to spending and borrowing by consumers and businesses. On Friday, Lloyds shares closed at 46.42, losing 0.27p (-0.6%), valuing the Black Horse bank at £33bn. But as fears over Covid-19 rose and fell, Lloyds’ share price ranged from 32p on 21 December 2020 to 51.58p on 2 November 2021. For me, Lloyds is a binary bet on the war against coronavirus. If the UK conquers Covid-19, then Lloyds’ prospects should improve markedly, but viral setbacks could harm the bank’s future. Right now, this stock trades at 7.1 times earnings, for an earnings yield of 14.1%. The dividend yield (axed in 2020 and later restored) is 2.7% a year. I hope humanity and Lloyds both bounce back strongly in 2022!

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco, Lloyds Banking Group, and Unilever. 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.

Almost two months ago, I suggested that the Deliveroo (LSE: ROO) share price could stage a brief rally as the firm reported on earnings over its third quarter. This duly happened. At the same time however, I also felt the takeaway delivery firm was in no way a bargain due to the many headwinds it faced. 

Post mini recovery, the valuation of Deliveroo has dropped back again. In fact, it’s now hit levels not seen since the end of April, following its disastrous IPO. Could it fall further moving into 2022? And would I be a buyer if it did?

Gig workers rule

The latest obstacle faced by the company is news that the European Commission has drafted news rules for gig workers. These would compel firms like Deliveroo to classify their drivers and riders as employees, entitling them to a minimum wage, pension and paid holidays. To date, these businesses have regarded workers as independent contractors.

As you might expect, such a move would mean far higher costs for ROO and its rivals. And while some of this can be passed on to the customer, there’s clearly a limit on what they’ll be prepared to pay.

Right now, nothing is set in law. However, the 20% fall in the Deliveroo share price in the last month suggests investors are once again wary. 

Will the Deliveroo share price fall further?

There’s certainly nothing to stop things from getting worse before they get better. It’s not just the threat of new legislation either. Like many highly-valued stocks across the pond, Deliveroo remains unprofitable. That could prove very unattractive to investors if inflation were to force a hike in interest rates. Even if this doesn’t happen soon, the sheer amount of competition Deliveroo faces can’t be ignored. If it possesses an economic moat, I’m struggling to see it.

It’s also worth mentioning that Deliveroo’s free float (the number of shares available on the market) is pretty low for a company of its size, at just 70%. This means its stock has the potential to be more volatile than other UK heavyweights. 

Reasons to be cheerful

Of course, no one has a crystal ball. While my call in October turned out pretty well, it was little more than educated guesswork. And there are certainly reasons for thinking the Deliveroo share price could stage another recovery as we move into 2022.

The emergence of the Omicron variant, for example, has already pushed the number of people dining out down to its lowest levels since May. That could/should be beneficial to Deliveroo, just as it was during the three national lockdowns. People still need to eat and a takeaway is an affordable luxury to raise the spirits in the dead of winter.

It’s also worth highlighting that, due to legal challenges, it will probably be a good while before Deliveroo needs to factor the aforementioned gig worker rules into its business plan. This delay could prove profitable for traders, albeit less so for long-term investors like me. 

Still overvalued

To be clear, I’ve nothing against Deliveroo as a company. I’ve used its services on a few occasions and been more than satisfied. At £4bn, however, it still looks overvalued to me. Lose another 50% and that view might change. For now, I’m maintaining my wide berth. 

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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.

Flutter Entertainment (LSE:FLTR) has struggled over the past couple of months. This has been reflected in a downward move in the share price. Even though the shares are down around 26% over one year, most of this move (24% of it) has come in just the past three months. Yet with a potentially promising outlook for next year, I think that Flutter Entertainment shares could be a good discount buy for me right now.

Short-term struggles

It hasn’t been easy going for Flutter of late. Q3 results released in early November did show some good growth, but it also saw the business cut its full-year guidance.

For example, adjusted EBITDA was cut from previous projections of £1.27bn-£1.37bn to £1.24bn-£1.28bn for the group, excluding the US. In the US, Flutter now expects a loss for the year at the higher end of the previous guidance. It spoke of unfavourable sports results as a key factor in October that contributed to this revision lower in numbers for the year.

Aside from the numbers, Flutter Entertainment shares also fell as a large number of MPs have been lobbying for a review of gambling laws in the UK. In late November, an open letter was submitted by MPs to push for more stringent limits as more than 55,000 children (11-16 year olds) are now claimed to be gambling addicts. 

Any tightening of restrictions would mean a revenue negative hit for Flutter, so the shares dropped on this news.

Reasons to be positive

The above points have pushed Flutter Entertainment shares down over the past quarter. But I think that they’re starting to be attractively priced. I note the concerns raised above as potential risks, but I do also see plenty of reasons to be positive.

For example, the business recently said it’s buying online bingo operator Tombola for £402m. This deal is expected to complete in Q1/Q2 next year. I think this is a smart move as it gives Flutter a more diversified range of companies within the group. With PaddyPower and BetFair concentrating on the sports market, having a more traditional casino company should help to spread risk. After all, with negative sports results being flagged in the Q3 report, Tombola revenues should help to balance this out if issues are still there in 2022.

Another reason why I think Flutter Entertainment shares could do well next year is continued growth in the US. In the most recent results, US revenue for the first nine months of the year was up 85% versus 2020. America is a huge and potentially lucrative market for the firm. If Flutter can continue with the current strategy, then I’d expect this growth to continue next year.

Overall, I think that the recent dip in the share price represents a good opportunity for me to buy. I’m considering doing so at the moment. There are risks around recent results and potential restrictions. But I feel the potential rewards from the US and new acquisitions should outweigh these.

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.