Recently, I came across an eye-opening report from respected financial academics. This revealed that from 1987 to 2020, UK value stocks underperformed their growth equivalents. For investors in the FTSE 100 and FTSE 250, the best returns came from buying growth companies, rather than undervalued businesses.

Growth versus value

In fact, for at least 15 years, the smart move has been to buy exciting US stocks, rather than boring British shares. After all, American corporate capitalism has delivered superior returns to investors for decades. But could this tide be turning?

The US stock market looks expensive to me today. The S&P 500 index trades on 23.9 times trailing earnings, well above its long-term average. The index’s dividend yield is just 1.3% a year as American corporations prefer to reinvest profits into growth.

Meanwhile, outside of major market meltdowns, the FTSE 100 has rarely offered such value. It trades on 14.6 times earnings with a dividend yield of 3.6% a year — among the highest of leading stock markets.

The FTSE 100 jumps ahead

The S&P 500 has kicked the FTSE 100’s behind. Over five years, the former has doubled (up 100.3%), while the Footsie recorded a 36.3% gain. Over one year, the results are 16.1% and 15.3%, respectively (all figures exclude cash dividends). But notably, this long-term gap has narrowed dramatically over the last 12 months.

As a long-term investor in both countries, I’ve followed these markets for decades. Finally, after years of waiting, there are some early signs that global investors might see deep value in UK shares.

For example, since end-2024, the UK index is up 7.8%, versus 1.2% for its US counterpart. Last month, the S&P 500 declined by 1.4%, while the Nasdaq Composite lost 4%. However, the Footsie ended February in positive territory, up 1.6%.

Another thing to note is that the UK index is just 0.1% below its all-time high hit last month. By contrast, the S&P 500 lies 3.1% below its record high of 19 February, while the Nasdaq index has dropped 6.7% from its 16 December 2024 peak.

Of course, just as one swallow does not a summer make, so one short-term trend isn’t evidence of a seismic shift. Even so, it’s nice to see the Footsie enjoying its day in the sun!

Once cheap FTSE 250 stock?

But it’s important to remember that investing in UK shares isn’t only about the FTSE 100. Sticking to my value-investing roots, I’ve been looking at the FTSE 250 and see shares in ITV (LSE: ITV) as undervalued, perhaps even triggering a takeover bid?

Founded in 1955, ITV is the UK’s leading commercial terrestrial broadcaster, while ITV Studios sells content worldwide. While core revenue from TV advertising struggles to grow, ITV’s production, digital and streaming arms are doing well.

On 28 December, the shares closed at 71.1p, valuing the firm below £2.7bn. Despite rising 27.5% over the past 12 months, it’s down 39% over five years.

My wife and I own ITV shares in our family portfolio as a value pick. They trade on just 6.6 times earnings and offer a cash yield of 7% a year. Of course, ITV has to compete with global streaming services for eyeballs, leading to declining audiences. Even so, I view it as a solid long-term hold for us.

I’m beginning to think Glencore (LSE: GLEN) shares have a grudge against me.

Maybe I’m paranoid, but they’ve inflicted so much damage on my self-invested personal pension, I’m convinced they’re out to blight my retirement.

They’re not my worst performer. Aston Martin and Ocado Group having inflicted even more misery. But I don’t take that personally. Those two play twisted mind games with every investor.

I accept that others are suffering at the hands of the Glencore share price. It’s down 14.5% over the last 12 months. But my personal loss has now topped 30%. Why do they hate me so?

Can this FTSE 100 stock show me some love?

All I’ve done is shower Glencore with love and admiration. I’ve written several articles praising the FTSE 100 mining and commodities trading giant. 

I said its troubles aren’t its fault. It’s all down to China buying less of its production as the world’s second biggest economy slows.

I’ve talked up its prospects – once China revives, the global economy recovers and the green transition boosts demand for lithium, copper, manganese and rare earths.

I’ve tried to see the positives of holding Glencore shares, such as the dividend. I’ve even overlooked the fact that the trailing yield has slumped to 2.47%, so I’m pinning my hopes on getting a bumper ‘special’ in the spring.

My reward? The Glencore share price dropped another 10% in the last month. Okay, so that’s not as bad as Aston Martin and Ocado, down 20% and 16%, respectively. Like I said, I knew what I was letting myself in for with those two.

On 19 February, the Glencore board pulled out the big one. It announced that it was considering swapping its primary London listing for New York, or anywhere else it can “get the right valuation”, according to chief executive Gary Nagle.

That’s all the rage today, threatening poor beleaguered London, while gushing about how much greener the grass looks Stateside.

If Nagle was hoping it would lift the share price, he was disappointed. Instead, it plunged. If even the New York magic trick doesn’t work for Glencore, what will?

It didn’t help that at the same time, Nagle unveiled a sharp drop in its annual core earnings, amid weaker coal prices.

I’m looking forward to some dividends now

Analysts knew Glencore’s adjusted earnings before interest, tax, depreciation and amortisation would fall. They expected $14.55bn. Instead, they got $14.36bn, a 16% drop year on year. Listing in rainy London had nothing to do with that.

The Glencore share price continues to persecute me but at least I’ll be getting more dividends soon.

The board is going to pay out $1.2bn together with a “top-up” buyback of $1bn before first-half results on 6 August. At that point shareholders can expect further returns, as Nagle divvies up a healthy $4.8bn of free cash flow.

That’s something to hang my hat on. I’ve no idea when the share price will stop tormenting me. It could take months, maybe years. But at least Glencore is giving me a reason to stick around. Unless it’s playing me for a sucker again.

With March upon us, it is now only a matter of weeks until the annual ISA deadline.

Some people see that as a concern. But in some ways I think it is an opportunity. After all, the deadline is for contributing money to an ISA. That money does not need to be invested immediately (or even any time soon).

Plus, the deadline marks the passing of one year’s allowance. But as one door closes, another one immediately opens!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Why the deadline can be helpful

Rather than seeing the contribution deadline as a nagging date in the diary, I see it as a useful point at which to pause and consider how my Stocks and Shares ISA is performing.

How much I put in from one year to the next may change depending on my circumstances at any given moment. But what does not change is my objective: reviewing my ISA to learn from both my mistakes and successes.

I can tweak my investment strategy accordingly.

Weeding out the underperformers

For example, one share I own in my ISA that has been little short of disastrous so far is boohoo (LSE: BOO).

When I bought it, it was already down considerably from former highs. Still, it had proven its business model, was sitting on some cash, and had recently been very profitable.

How times change.

So, what should I do?

On one hand, loss-making boohoo seems to lurch from one disappointment to another. The company keeps writing to me with its view on why letting key shareholder Mike Ashley get too involved might not be a brilliant idea. But whereas Ashley has created a lot of long-term value for shareholders at Frasers Group, the boohoo board has presided over a collapse in the share price.

On the other hand, if such a seasoned retail tycoon sees possible value – and has put his money where his mouth is – maybe there really is hope for boohoo.

It has a large customer base, extensive infrastructure, and owns some well-known brands.

For now, I plan to hold tight. But taking time to review my ISA holdings sporadically strikes me as a valuable exercise.

Sometimes, it can be time to say goodbye to a poorly performing shareholding where the prospects look dim. For now, boohoo still makes the cut – but at some point I may decide it is a lost cause.

On the hunt for bargains

Meanwhile, I continue to search for great shares I can buy at attractive prices.

For example, this year I have topped up my shareholding in JD Sports (LSE: JD).

With a tumbling share price, weak consumer sentiment threatening sales and multiple profit warnings over the past year, I hope I am not throwing good money after bad.

But I still reckon the sportswear retailer has the makings of a stock market star. It has a proven, profitable model. It has been expanding aggressively and has a global footprint.

An ISA is a long-term investment vehicle – and over the long term, I remain bullish about JD Sports’ prospects.

People keep trying to breathe life into the BP (LSE: BP) share price. Former CEO Bernard Looney gave it a go by turning the oil giant green.

In 2020, BP pledged to cut oil and gas production by an ambitious 40% by 2030. That didn’t fly. It ended with the shares trading at a significant discount to peers such as Shell and ExxonMobil.

Last week, newish boss Murray Auchincloss did a reverse ferret. He’s now aiming to more than double BP’s market value within five years by returning to fossil fuels. 

This FTSE 100 stock is all over the shop

Auchincloss was spurred by the attentions of hedge fund Elliott, which has built a 5% stake in the FTSE 100 oil major.

Options included stripping down the company, dumping net zero, re-listing in New York and possibly all three and more. Others have mooted a tie-up with rival Shell.

All of which keeps the analysts busy, but is this just displacement activity? Should we accept that the BP share price just ain’t all that?

The numbers tell a bleak story. The share price has fallen 5.4% in the past year and is down 20% over two years. 

Despite the 2022 energy shock, today’s price of 439p leaves it trading at similar levels to a decade ago. At least investors have got their dividends.

BP looked good value a month or two back, with a price-to-earnings (P/E) of around six. I turned my back, only to discover that the P/E has soared to a staggering 231 times. 

On 14 February, BP posted a full-year profit of just $381m, down from $15.24bn in 2023. It made a loss of $1.96bn in Q4.

At least the dividend still holds. The yield stands at 5.6% on a trailing basis and is forecast to hit 6.1% this year. Cover is decent at 1.8.

BP has also been generous with share buybacks. It promised another $1.75bn in Q1 2025. But it looks increasingly like the company will have to borrow to fund them. That’s not sustainable.

I’m just counting on dividends

BP’s strategy reset, announced by Auchincloss on 26 February, marks a dramatic shift. He plans to increase annual spending on oil and gas by about 20% to $10bn while slashing renewables investment. 

BP also aims to sell $20bn in assets by 2027, including possibly offloading Castrol and its stake in solar developer Lightsource BP.

It also hopes to slash net debt from $23bn to between $14bn and $18bn by the end of 2027. All of this will no doubt help. But I feel BP still looks like it’s blowing with the wind.

When net zero was all the rage, it went along with that. Now we’re drilling again, BP’s back to oil and gas. That’s no way to run an oil rig.

At least now it’s on home ground, I suppose. But this crisis does mean one thing. BP can’t afford to sit about any longer. As the stakes climb, somebody has to breathe life into the share price.

I hold the stock and I’m not giving up yet. I”ll just sit tight and keep reinvesting my dividends. At some point, all this activity has to lead to something, doesn’t it?

This is the time of year when a lot of companies unveil their performance in the prior year. Last week saw quite a few FTSE 100 and FTSE 250 firms unveil their annual results for 2024.

Some, it has to be said, were much more impressive than others.

Ocado: some promise, but a long way to go

One FTSE 250 firm that reported its results, only to be met by a big share price fall in response, was Ocado (LSE: OCDO).

The results were what we have come to expect from the business.

Lots of talk about potential? Yes. Explanations of how the business is gearing up for long-term performance? Yes.

Profits? No.

The loss-making firm continues to burn cash.

For now, I still regard its capital-intensive business model as unproven when it comes to profitability. So, for now, I am avoiding the shares.

But while I have long been bearish about the prospects for Ocado, the results did also provide a few potentially promising points to chew over.

One is ongoing solid growth: both the retail joint venture with Marks & Spencer and the outsourcing services business offered to retailers globally continue to grow revenues at pace. That could lay the foundations for long-term success.

I was also struck by the company’s forecast that it will turn cash flow positive within the next couple of years. I will believe it when I see it, but that could be a game changer for the FTSE firm’s investment case.

So, although I am avoiding Ocado shares for now, I will be keeping an eye on its business performance.

WPP: adapting to a changing world

Who would want to be in advertising right now?

Some clients are spending less, whole markets like China are weak, and AI threatens to replace a lot of what has traditionally been done by ad agencies.

When agency network WPP (LSE: WPP) unveiled its full-year results, the share price dropped like a lead bomb in response.

In some ways I understand that.

Revenues are set to decline. The company has reduced its workforce by thousands. That is not typically a sign of strength.

But that partly reflects its increased use of AI. AI is a threat to some of WPP’s creative activities — but I also reckon it could help the firm cut costs substantially. That could be good for profits.

Meanwhile, WPP has a huge business, a large global client base, and is one of the advertising industry leaders.

It kept its annual dividend per share, but given the weakened share price, that equates to a dividend yield of 6.1%. That is well in excess of the current FTSE 100 average.

I did not think WPP’s results were too bad but its shares got hammered by the City and sunk to a four-year low.

That could potentially offer me an attractive buying opportunity.

But I am still wondering whether I am missing something other investors are very worried about, so I am eyeing WPP as a potential addition to my portfolio — but do not yet plan to make a move.

Building up sizeable enough savings to earn a passive income isn’t a walk in the park, but it’s definitely within reach. With the right mix of dedication, patience, and savvy stock picks, it can become a reality.

For investors with some spare cash to save, there are plenty of ways to put it to work. One low-effort (but long-term) approach is investing in dividend-paying companies.

It’s not a surefire strategy, but many renowned investors have used it successfully over the years. To boost the chances of success, certain key steps can make all the difference.

Reduce costs and maximise gains

Investment profits are often subject to tax, so cutting these costs is a smart first move. For UK investors, a Stocks and Shares ISA offers a tax-efficient solution.

With an annual allowance of £20,000, this account allows investments across various assets with a tax break on the gains. There are many options to open one — whether through a high street bank or a range of financial providers.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Consider diversifying

To safeguard a portfolio against single points of failure, many investors adopt a diversified approach. This involves selecting a mix of assets from various industries and regions to reduce the impact of any single loss.

For example, growth stocks offer higher potential returns, while dividends provide a steady income stream. Meanwhile, defensive stocks tend to hold their value when other assets are crashing. 

Each brings its own benefits to the table.

Passive income stocks

My passive income portfolio includes a few defensive shares like Tesco, GSK, and Unilever. I also hold a few well-established dividend stocks like Legal & General, Aviva, and National Grid.

When it comes to maximum returns, however, my top dividend stock has long been British American Tobacco (LSE: BATS). With a 7.8% yield, the tobacco giant has a long history of consistent dividend growth.

Unfortunately, tobacco is a problematic industry with an uncertain future. The devastating health effects of smoking attract increasingly strict regulations.

That’s part of the reason the share price is down 43% since its high in 2017.

Still, I think the company’s pivot to less harmful products will be successful. Already, the shift is proving beneficial, with the shares up 32% in the past year.

There’s a risk it could fail to transition profitably — or be regulated out of business. But for now, I like its odds and believe less harmful products will ultimately benefit tobacco addicts.

Calculating returns

If an investor saved £5 a day for 10 years, that would amount to £18,250. But if they put that into a portfolio with an average 7% yield and 3% price growth, it could grow to £33,524 (with dividends reinvested).

The dividends on that would amount to £1,700 a year, or £4.65 per day – almost the same as the contributions.

Another 10 years and it would have grown to £97,426, paying dividends of £3,721 – over £10 per day!

This example shows how an investment could go from costing £5 a day to paying £10 a day. Plus, the investor would have almost £100,000 in savings.

Constructing the ‘perfect’ UK stock market portfolio is a mighty challenge. I doubt it can be achieved with a one-size-fits-all combination of shares.

That’s because investing’s a personal matter. For instance, an investor seeking steady dividend income should consider different stocks from one chasing share price growth. Each individual’s ideal portfolio needs to be tailored to their unique goals and risk tolerance.

I was curious about how ChatGPT would attempt to solve this conundrum. Here’s what the artificial intelligence (AI) chatbot told me.

Allocation strategy

It started with clear objectives. The ‘perfect’ portfolio needs “diversification across different sectors and asset classes, balancing growth and stability“.

I’m a firm believer in diversification as a partial antidote against volatility risks and stock market crashes. So far, so good. My cognitive companion went further, proposing five investment categories with different portfolio weightings for our mystery investor.

Stock market picks

ChatGPT’s sample choices almost exclusively came from the FTSE 100. AstraZeneca‘s first on the list, as a growth stock. For what it’s worth, when pushed for a response, my digital aide backs the pharma giant as the best UK stock to consider buying.

Dividend shares Diageo and Unilever make the cut while Lloyds Bank and British American Tobacco feature as value stocks. Up next, National Grid and Reckitt Benckiser reinforce the portfolio as defensive investments. Finally, exchange-traded funds (ETFs) tracking the FTSE 100 and FTSE All-Share indexes are the final portions of the pie.

I’m impressed. My AI assistant provided a credible, diversified mix of blue-chips and index funds. These FTSE 100 heavyweights aren’t immune to difficulties, but they’re plausible candidates for a ‘perfect’ UK stock market portfolio. I already invest in several of them.

Yet part of me feels underwhelmed. Collectively, these suggestions seem unimaginative, dare I say… robotic?

A surprising choice

Well, there was a bolder growth stock selection beyond the FTSE 100. That company was Wise (LSE:WISE), a UK-listed fintech specialising in global money transfers.

The market opportunity in cross-border currency services is huge. Worldwide, over 90 banking groups use Wise’s platform infrastructure, including challenger banks like Monzo.

Perhaps a real gamechanger for the Wise share price is whether the firm can attract a critical mass of financial institutions away from the antiquated Swift system for international payments. Undeniably, it has a competitive offering on efficiency and cost.

Plus, business is booming. Interim results confirmed that the tech company expanded active users by 25% and total underlying revenue climbed 19% to £662m.

That said, forex volatility could weigh on the transfer specialist’s profits amid Trump’s tariff threats. Furthermore, tax scandals surrounding CEO Kristo Käärmann and historic anti-money laundering probes into the firm damage confidence among investors and potential partners.

Unfortunately, those risks go to the heart of the growth opportunity, leaving me reluctant to invest today.

Last thoughts

I’d never blindly rely on a chatbot’s stock market tips, but they’re useful springboards for ideas. Overall, ChatGPT rose to my impossible challenge well, producing a balanced selection of FTSE 100 shares.

Still, I’m intrigued by the portfolio’s dark horse. Following my AI adventure, I’ll keep a close eye on Wise.

One common way to earn passive income is to start investing in well-known shares that pay dividends. These are payments a company makes to its shareholders. Simply by owning shares in, say, Legal & General and JD Sports, I regularly earn passive income without having to lift a finger for it.

Such an approach does not even need to be very expensive. In fact, it can be tailored to any budget. Here is how someone with a spare £3k could start investing like that.

What can someone achieve with £3k?

The scale of the passive income streams earned will depend on what shares the investor buys. Each company makes their own choice of what, if any, dividend to pay shareholders. They are never guaranteed.

Imagine an investor spreads the £3k over a few companies with an average dividend of 5p a year for each £1 invested (what we call a 5% dividend yield).

By spreading the money across multiple shares, the risk is reduced that one bad choice would stop all the passive income flows.

That should produce £150 a year in passive income. For as long as someone owns a share, they are entitled to any dividends it pays. So investing the money today could lead to lifelong passive income streams.

Boosting the income

That £150 is an example, but the income could be higher. One way would be to invest in higher yield shares. But as dividends are never guaranteed, it can be a mistake to start investing in a company just because its current yield is high.

A smart investor looks at a business and makes a judgement about what they think future dividends might be. So in this example, I will stick with 5%. That is above the current average FTSE 100 yield but I think it is achievable in today’s market while focusing on quality blue-chip companies.

If the investor waited a decade and during that time reinvested (compounded) the dividends, they would have a portfolio generating £247 of passive income annually.

Finding the right shares to buy and hold

As an example of the sort of share an investor may consider, I would point to British American Tobacco (LSE: BATS). At 7.8%, its yield is actually well above the target I mentioned above. It also has an enviable record of annual dividend increases dating back decades.

That might not last, of course. Cigarette sales volumes are falling in many markets, threatening both revenues and profits for the Lucky Strike maker.

But it remains highly cash generative and has a portfolio of premium brands that give it pricing power. It is also rapidly expanding its non-cigarette business. I think the business can benefit over the long term from its global distribution network and manufacturing expertise.

Of course, some investors may shun British American on ethical grounds. Something I like about investing is that we can each make our own decisions.

Getting started

To start investing the £3k in whatever shares they choose, the investor would need some sort of dealing account. So it makes sense to look at some of the different share-dealing accounts and Stocks and Shares ISAs on the market and compare them.

I think there are a couple of stocks growth investors should be looking at right now. These are companies that I see as having clear scope to increase their sales and profits for a long time. 

I’m a big believer in the idea that valuation is important – even when it comes to growth stocks. And these are shares that are trading at some of their lowest multiples for years.

Danaher

Danaher (NYSE:DHR) is a great example. The company is a collection of smaller businesses that supply tools and technologies in the life sciences and diagnostics industries.

The firm’s growth strategy involves acquiring other organisations that operate in markets close to its own. From there it looks to integrate them into its existing structure. 

This results in cost savings, operational efficiencies, and improved performance – which translates into higher profits. And this has been an extremely effective approach. 

Over the last 10 years, revenues have gone from $14.4bn to $23.9bn. While there has been some volatility during and after the Covid-19 pandemic, overall growth has been strong.

Acquiring other businesses is a risky approach. Danaher has recently paid a high multiple to acquire a company called ABCAM – and this increases the chances of overpaying. 

Eliminating this risk is impossible, but investors can mitigate it by avoiding overpaying for the stock. And at a price-to-book (P/B) ratio of just below 3 — its lowest level since 2019 — I think now is a good time to be looking.

Judges Scientific

Judges Scientific (LSE:JDG) has a lot in common with Danaher. It’s another firm that looks to grow by acquisitions and focuses on scientific equipment, albeit with a broader range of uses.

The stock has fallen 23% over the last 12 months, as sales have slowed. But I think this is temporary and puts the stock in very interesting territory. 

Unlike Danaher, Judges Scientific doesn’t typically look to involve itself in the businesses it acquires. It mostly allows them to continue to operate as they were. 

This increases the risk of overpaying, since cost savings aren’t there to be made. But there is a positive element to the company’s approach as well. 

Judges Scientific allows managers to keep running their operations. And this can be valuable for entrepreneurs who want to be able to continue to direct the businesses they have built.

The stock is trading at a P/B multiple of 6, which is high compared to other shares, but low in the context of where the stock has been in the last five years. As a result, I think it’s well worth taking a look at in March. 

Price-to-book!?

I’ve used price-to-book instead of price-to-earnings (P/E) as a valuation basis. This is because one-off and intangible costs make Danaher and Judges Scientific tricky in terms of earnings.

Both firms report adjusted metrics to account for this and I don’t object to using those in a valuation. On this basis, Danaher trades at a P/E multiple of 27 and Judges Scientific is at 29.

Book value, however, offers a relatively stable guide. And this is why the fact both stocks are trading at unusually low P/B ratios makes this a very good time to consider buying them.