Key points

• The firm will likely benefit from a hike in interest rates
• In the 2021 calendar year, pre-tax losses narrowed from £311m to £245m
• It sold its residential mortgage segment to NatWest in February 2021 for around £3bn 

Metro Bank (LSE:MTRO) has seen a volatile share price in the past year. The high street retail and commercial bank, which was founded in 2010, saw its price falling 36% over the past year. And it’s down 20% in the past month. It currently trades at 80p. With this recent price movement, I want to know if I should be buying shares in the company to add to my long-term portfolio. Let’s take a closer look.

Interest rates and other factors

Given that interest rates are important for Metro Bank’s revenue, because it’s a lender, it makes sense to briefly look at their impact. For the last 15 years, interest rates have never exceeded 6%. In fact, they fell to just 0.1% when the Covid-19 pandemic hit the economy. 

The Bank of England recently raised rates to 0.5% and this may increase further in the near future, even though they remain well below that 6% figure. More interest rate hikes would tend to positively impact the Metro Bank share price. In addition, RBC analysts recently said they expect the firm to break even by 2023 at the earliest.

Metro Bank was the centre of an accounting scandal in 2019. This has been a grey cloud over the share price in recent years but finally concluded in December 2021. It was forced to pay a fine of £5.38m to the Prudential Regulation Authority, the UK financial services regulatory body. With this issue now resolved, I would feel more comfortable buying shares.

Recent results and the Metro Bank share price

The company’s historical revenue progression is rather solid. Between the 2017 and 2021 calendar years, revenue grew from £293m to £418m. Furthermore, in the annual results for the 2021 calendar year, underlying revenue increased 17% from 2020. 

In addition, pre-tax losses narrowed from £311m to £245m. This has all been a result of cost-cutting efforts by management. That includes closing some of its 78 branches. It also sold its residential mortgage segment to NatWest in February 2021 for just over £3bn. This is all aimed at creating a platform for further growth in higher-yield lending operations. It’s worth noting, however, that any further Covid-19 lockdown could dent these growth plans.

Furthermore, the cash balance at the 2021 year end was £3.5bn. As a potential investor, it’s heartening to see an increase from £3bn the previous year.

The historical Metro Bank share price makes it easy to see the difficulties the company has faced in recent years. As it builds back its credibility after the accounting scandal, results also appear to be improving. While I won’t be buying today, I won’t rule out a purchase in the future if results continue on the current trajectory. 

Andrew Woods 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 IOG (LSE: IOG) share price shot up by more than 10% on Monday. The oil and gas firm being forced by sanctions to rip up its off-take agreement with Russia’s Gazprom could well be a blessing in disguise.

As an existing shareholder in IOG, I have followed its progress closely in recent months. With western countries worrying about energy security, there’s been a renewed focus on fossil fuels. By the look of it, IOG appears to have the right product coming on stream, in the right location at the right time.

The UK-listed company has been working hard to bring its three new North Sea gas fields into production. Recent announcements indicate that the gas will start pumping this month.

On its own this wouldn’t be enough to persuade me to buy more shares in the company. There was, however, a more important message from management last week that sparked my interest.

As is normal in the fossil fuel industry, IOG put in place agreements for the sale of its gas well in advance of production. BP acquired rights to gas from the Blythe field, but it was Russia’s Gazprom that secured the remaining off-take rights. 

Gazprom off-take contracts 

With sanctions kicking in over the last fortnight, IOG has been forced to tear up its contract with Gazprom. In a short announcement last week, management broke this news. It also expressed confidence in securing replacement sales agreements.

My view is that this is an understatement. European countries are heavily reliant on the import of Russian gas. I feel that IOG should be able to secure a great deal in the market to replace the Gazprom contract.

Production risks

IOG is in the progress of commissioning its three Phase 1 fields and the gas is due to start flowing later this month.

Not being an expert, I’m not 100% clear about how long gas prices will remain at record levels, but in the short term at least, I would anticipate that the IOG share price will continue to benefit.

But I will be keeping a close eye on company announcements. Gas development is a complex business — particularly in the harsh offshore environment. Any technical delays may cause investors concern and could put downwards pressure on the share price.

There may also be risks in holding this stock for the long term. The current energy crisis will pass and the world will revert to its migration towards low-carbon energy generation. I’m also concerned that the share price may suffer from ‘ethical’ funds shying away from fossil fuel stocks.

A strong partner in Berkshire Hathaway 

Yet my overall confidence in IOG is also bolstered by the fact that CalEnergy (an offshoot of Warren Buffett’s Berkshire Hathaway empire) is its joint venture partner in these developments.

With such a strong ally, I take the view that financing is unlikely to be difficult to source. This bodes well for the company’s strong pipeline of further projects in the Thames catchment area.

All things considered, I am confident about the future for IOG. My hope is that future production announcements will bolster the share price and I will be looking to add to my holding in due course.

Fergus Mackintosh holds shares in IOG. 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 Scottish Mortgage Investment Trust (LSE:SMT) share price is down by almost 40% so far this year. Has it become too cheap for me to ignore? That’s the question I’m looking to answer today.

Despite its name, this investment trust has nothing to do with mortgages and is more global rather than Scottish. Considered to be Baillie Gifford’s flagship investment trust, Scottish mortgage is an actively managed fund that’s full of innovative growth stocks.

One of its shares that gave it a staggering return was electric car and energy company Tesla. Having first invested in the company in 2013, Scottish Mortgage made an eye-watering 16,000% on its initial investment.

The Long view

Managers at the fund certainly aren’t day traders. They’re focused on at least a five to 10-year horizon. They’re particularly interested in finding the giant growth companies of tomorrow. These businesses should be well-run and have durable competitive advantages.

Much of the fund’s focus is in three areas: the ongoing digital transformation of the world; the intersection between biology and technology; and clean energy plus the electrification of transport.

Currently, one of the top holdings in the trust is Moderna. This biotechnology company became a household name from its Covid vaccines based on mRNA technology. It has the potential to expand its offerings to a wider range of healthcare options over many years.

Technology needs microchips to power the world’s devices. From smartphones to cars, chips are everywhere. Many of the most advanced chips are manufactured on machines made by only one company. That company is ASML and it’s the third-largest holding in Scottish Mortgage Investment Trust’s portfolio.

The past and the future

So how has the fund been performing? Its return over the past decade has been exceptional, in my opinion. On average, it has returned 20% per year over that period. That’s enough to turn a £1,000 investment into over £6,000. That said, more recent investors might be feeling disappointed at its near-40% decline this year. So what’s going on?

Shares have been weak in growth stocks mainly because of a change in stance from the US Federal Reserve. After many years of low interest rates, it announced its intention to reverse this policy with the aim of tackling high inflation. Growth shares benefited from ultra-low interest rates and investors were willing to pay higher valuations.

So now, share prices are correcting lower and as Scottish Mortgage Investment Trust owns many growth shares, it has suffered too. This remains a risk.

Technology trends continue

One thing to bear in mind is that the underlying businesses haven’t really changed in the past few months. I still think key technology trends will continue over the coming years and these companies will continue to innovate.

As a long-term investor, I see the recent dramatic fall in share price as an opportunity to add the fund to my Stocks and Shares ISA. It may now be too cheap for me to ignore. I have to remember, of course, that the market is currently more volatile than usual, so the share price could still fall some more. But I’m confident that over several years, my upside will more than outweigh the downside.

Harshil Patel owns Tesla. The Motley Fool UK has recommended ASML Holding and Tesla. 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.

In the last month, Lloyds (LSE: LLOY) shares have fallen over 15%. This is partly just due to the market dropping in the wake of the war in Ukraine and partly because of a less than enthusiastic reaction to recent results. It has taken the shine off the share price, which had been doing well (it’s still up nearly 4% in a year) because of the expectation that interest rates will rise. This would be beneficial for banks.

Bad news first

That said, with the difficult economic situation, will interest rates really rise as fast as expected? Some think not and that would likely hit Lloyds shares. Most people had been expecting rates to continue going up just a few weeks ago. Also, a difficult economic backdrop will hit banks, whose health is tied to the economy (Lloyds is more closely linked to the UK economy than its peers too). A booming economy is good for banks. A cost of living crisis, not so much.

City analysts think earnings at the FTSE 100 bank will drop 16% year on year in 2022. These backward steps tend to go down like a lead balloon with investors, even if the shares are arguably cheap already.

With investors seeming in risk-off mode and the markets falling, Lloyds shares are certainly a risky investment proposition at the moment.

That’s the bad news. But all that being said, the recent losses could well be reversed. Lloyds could be a beneficiary of inflation, unlike many other shares.

Why Lloyds shares could rise

The bank is pursuing a refreshed strategy under new(ish) chief Charlie Nunn. It is continuing to move into higher-margin wealth management and other new areas of business like property. It also wants to increase the number of digital customers to more than 20m by 2024, increase its market share of credit card spending and sell more insurance and pensions. If executed well, these activities should help grow profits and earnings and all should be higher-margin than traditional retail banking.

Lloyds has recently announced a £2bn share buyback. This should help support the share price in the short term. And the P/E is six. This is an undemanding valuation to say the least. For comparison, HSBC is nearer 11, although Barclays is only five.

Lloyds shares have fallen sharply recently so there’s arguably a bigger margin of safety if buying the shares now. Another item for the pro column would be that it has tended to be a relatively well run bank, as evidenced by a sector leading cost-to-income ratio. Although its huge PPI bill does show it makes big missteps from time to time.

Nevertheless, Lloyds knows how to make money and has scale, focus and expertise, as a UK retail bank. 

Finally, there are the dividends. the shares come with a whopping 5.9% dividend yield. This beats the 3.6% forward average for the FTSE 100 by a huge margin.

When all is said and done, I think Lloyds shares could very well reverse the recent losses by the end of the year. A rise in interest rates, if it goes as expected, along with the bank’s low valuation and high dividends mean the shares could become an attractive investment. I might buy some shares at some point myself.  

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and 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.

I’m keen to generate a rising passive income by investing in a portfolio of UK dividend stocks. That’s my strategy for enjoying a comfortable retirement.

I’m doing this by looking for FTSE 100 companies with sustainable dividends. Particularly those whose payouts are nicely covered by cash flows. I’m also looking for companies with impressive profit forecasts. This suggests to me they should be able to increase their dividends more rapidly over time.

I would aim to buy a diverse range of companies covering many sectors of the market, such as banks, miners, energy, utilities and consumer staples. This should help me build a strong income portfolio, and combat today’s low interest rates.

I’m aiming for a rising passive income

Naturally, there are no guarantees. As we saw in the pandemic, many supposedly reliable dividend companies can dump their payouts in times of trouble. Others, like pharmaceutical giant GlaxoSmithKline, have failed to increase their shareholder payouts for years.

As a result, I would aim to build a portfolio of at least a dozen FTSE 100 stocks and hope the winners more than outweigh the losers. By investing in companies with strong reliable earnings and healthy dividend cover, I have a better chance of generating a rising passive income.

I’d focus on companies with resilient sales growth, higher margins, loyal customers and a strong track record of dividend growth.

In recent years, UK dividend stocks have fallen out of favour. Instead, investors have been chasing fast-growing US technology stocks. That trend is now going into reverse. So-called value stocks are back in favour, such as the banks, miners, oil companies, healthcare stocks and utilities. Many are still trading at attractive valuations. They offer fertile ground for my rising passive income.

I love FTSE 100 dividend stocks

For example, Barclays trades at dirt-cheap 4.1 times earnings. Lloyds Banking Group has a price/earnings ratio of just 5.6. Phoenix Group Holdings (6.6), Anglo American (7.0) and Taylor Wimpey (7.1) are just a few of the many FTSE 100 dividend income stocks available at lowly valuations. These are the companies I would target to generate my rising passive income.

Today’s uncertain economic outlook makes diversification more important than ever. Just look at the ups and downs afflicting dividend income heroes BP and Shell over recent years, as the pandemic and Russian invasion of Ukraine have wreaked havoc.

Personally, I am happy to look beyond short-term volatility like this. I am still 10-15 years away from retirement, so there is plenty of time for my stock holdings to recover. I will reinvest all my dividends for growth while I’m still working. Then start drawing a rising passive income as I wind down.

I’m investing inside a Stocks and Shares ISA, because all my growth and dividends will be tax-free. Given the gaping hole in the Treasury’s finances, I don’t want my retirement income to be at the whims of whoever is chancellor at the time.

My rising passive income will be free of income tax, making my money go a lot further. 

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, GSK and 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.

There are around 2,000 ISA millionaires in the UK. And most achieved their millionaire status by investing regular sums of money in Stocks and Shares ISAs over the past 30 years or so. And right now, I’m seeing many FTSE 100 shares to buy.

The terrible conflict in Ukraine has accelerated a bear run that was already in progress for many stocks. And in the months prior, analysts had been calling for a correction because many businesses had become over-valued. And over-valuation is potentially harmful to long-term shareholder returns. The problem is that price-to-earnings multiples tend to revert to the mean over time, meaning they normalise. And that often happens because share prices fall.

Over-valuation can lead to poor investments

The last thing we need is a weak share price causing us to lose money in an investment. Even when an underlying business continues to trade well and grow, share-price weakness can keep an investment underwater for years. And that’s why great investors such as billionaire Warren Buffett pay so much attention to valuation. He knows if he buys what he calls “wonderful” businesses at fair prices, he’ll have a much better chance of achieving a positive long-term investment outcome.

The alternative can be grim. And shareholders taking new positions in over-valued stocks spent much of 2021 discovering what that feels like. Indeed, US and UK stocks trading at racy valuations spent months plummeting. And some have fallen by mind-boggling percentages, such as 50%, 60%, 70% and even 90% or more. The big lesson for me has been that valuation matters. It matters now and it matters when stocks are shooting higher in a major bull run. In short, valuation always matters!

And that’s why bear markets, setbacks, corrections, crises and other events can provide a well-stocked hunting ground for the long-term investor. It’s at times like we have now that Buffett most often finds his enduring long-term investments. Although psychologically, it can be hard to buy stocks during a crisis when the news is grim and share prices have been falling.

A focus on specific businesses

The best way I’ve found to muster up the courage to act is by ignoring the general market. So I stop watching the FTSE 100 and other indices. Instead, it can pay to focus on the individual stocks on my watchlist and tune in to the news flowing from each company.

And we’ve seen some big downwards stock moves among big-caps in the FTSE 100. Those moves don’t in themselves ensure a better-value purchase. But I do see them as a jumping-off point for further research. For example, at 5,561p, fast-moving consumer goods company Reckitt is down around 12% since the beginning of March. And it’s about 9% lower than it was a year ago. I’m also watching paper-based packaging manufacturer Smurfit Kappa. The stock is 28% lower than it was around 18 February and it’s down 15% over the past year.

There’s no guarantee of a positive investment outcome even when valuations reduce because of lower share prices. All stocks carry risks as well as positive potential. But my plan is to compound the gains from careful FTSE 100 investments over many years. And I’m aiming to build my ISA up to the value of £1m as others have before me.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt 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.

Share prices are falling almost across the board. Market volatility is the highest it’s been since the depths of the pandemic era. And there seems to be no end in sight. With all of this going on, should I sell my stocks? 

Volatility

It’s tempting to think that I could sell all of my stocks now and buy them all back later for less than I sold them for. That way, I could get my original investments back having saved money by being out of the market while shares were falling. 

Take Amazon.com as an example. I currently own shares of Amazon in my portfolio. The stock has been coming down steadily all this year. As I write, it’s down around 21% since the beginning of the year and it’s down another 2% today. And it doesn’t look like stopping any time soon. So maybe I could sell my Amazon shares today and buy them back in the future when the share price is lower than it is today.

I can see the appeal of this line of thinking, but I don’t think it’s for me. I believe that selling my stocks now is a very bad idea. There are two reasons for this. The first is that I have no idea when the markets will reverse course. The second is that it doesn’t fit with how I think about investing. 

Why I’m not selling

The first problem with the idea that I might sell my stocks now and try to buy them back more cheaply in the future is that I have no idea how much lower they will go. For all I know, the amount that I sell my stocks at might be the lowest that they’ll ever be. So I might not get the chance to try and buy them back at a lower price. Trying to time the market really is a tough task.

The second — and bigger problem — is that selling stocks now doesn’t fit with the way I think about investing. When I invest in a company, I believe in it long term and aim to benefit from the cash it produces. It isn’t to make money by selling it for a profit in the future.

As I don’t plan on selling my investments, the amount someone is prepared to pay for them doesn’t concern me. If the market price is more than I think the company can plausibly produce in cash, then I might be tempted to sell. But if the share price is temporarily lower, it doesn’t concern me.

In other words, I think about buying stocks as owning part of the underlying business. This means when stock prices are falling, I have opportunities to own a bigger chunk of the businesses I already part-own at lower and more attractive prices. Thinking about investing in this way means it’s much more attractive for me to buy stocks when they’re trading at lower prices than it is to sell them. 

I don’t know whether or not the stock market will go lower. If it does, I’ll see it as an opportunity to add to the investments I already have. But I think I’ll do better by staying the course. So I don’t anticipate selling my stocks any time soon.

Stephen Wright owns shares in Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. 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 tragic events in Ukraine mean that stock market volatility remains quite extreme. Companies of all shapes and sizes — from the biggest FTSE 100 share to the smallest penny stock — have been heavily sold. Even companies that retain solid long-term earnings outlooks have been thrown aside in the panic.

Here are two great penny stocks I’m considering buying despite the rising near-term risks they face. I think they could be too cheap to miss following recent crashes.

Topps Tiles

I’d buy slumping Topps Tiles (LSE: TPT) as it carries attractive all-round value right now. As well as trading on a forward price-to-earnings (P/E) ratio of just 9.6 times, the retailer carries a chunky 5% dividend yield.

The home improvements phenomenon that took off during Covid-19 lockdowns in 2020 is yet to run out of steam. In the 12 months to September, a record 247,500 planning applications for home improvement and extension were made, latest figures show.

This suggests demand for Topps Tiles’ building products could remain strong in 2022. But this is not the only reason why I’m optimistic for the retailer. The homes market remains ultra-strong as low interest rates and government support for first-time buyers continues. And so sales of its flooring products to homebuilders should also stay lively as construction rates ramp up.

Topps Tiles could of course see sales slump as the cost of living crisis worsens. However, I think this is reflected in the company’s recent share price reversal and that rock-bottom earnings multiple.

The Restaurant Group

Leisure shares like The Restaurant Group (LSE: RTN) are also in danger from the rising cost of living. The strong revenues recovery following the end of Covid-19 lockdowns could run out of steam if people stay at home to save cash. What’s more, costs at the company’s restaurants could well balloon as commodities like wheat, sugar, cocoa and other essential foodstuffs rise in price.

That said, as a long-term investor I’m still thinking of buying The Restaurant Group shares today. The penny stock’s plunge to 14-month lows leaves it trading on a forward price-to-earnings growth (PEG) ratio of 0.1. This marginal reading is a long way inside the benchmark of 1 and below that suggests a company might be undervalued.

I like The Restaurant Group because of the strength of its brands like Frankie & Benny’s and Wagamama. The huge investment the penny stock has made to revitalise these brands has exceeded many people’s expectations (including my own). This is reflected by sales at group level outperforming those at other major restaurant chains in recent times.

I’d also buy The Restaurant Group as a way to capitalise on changing consumer priorities. What I mean by this is that Britons have been spending an increasingly large percentage of their incomes on experiences like dining out. This is a trend that’s recovering strongly in the post-pandemic environment as people strive to get out and about again.

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.

Buying dirt-cheap FTSE shares with the intention of holding them for decades strikes me as a great way to build wealth for the future. Investment trends go in cycles, and I would much rather buy at the bottom of the market than at the top.

A major challenge that every investor faces is that nobody knows where share prices are going to go next, especially in the short term. I could easily load up on what I think are dirt-cheap FTSE shares today, only to find they are even cheaper in a year’s time. I will have lost money along the way.

I’m buying dirt-cheap FTSE shares today

That is why I am investing with a long-term perspective. History shows that over the longer run, stock markets beat almost every other investment. Clearly, they should do even better if I buy them when they are cheap, rather than expensive.

My aim is to turn the market cycle to my advantage, by purchasing undervalued shares in troubled times, and holding on for the recovery. These are certainly troubled times, but that is throwing up plenty of dirt-cheap FTSE shares.

Of course, I could be wrong. As the oil price rockets towards $150 a barrel, we could be heading for a serious recession. It could drag on for years. This is where the second part of my strategy comes in. I’m planning to hold my dirt-cheap FTSE shares for a very long time.

Ideally, I’m looking to hold them for at least three decades, because I plan to keep my portfolio invested after I retire, and draw a rising passive income from it. I’m hoping that over such a lengthy timespan, my strategy will prove profitable.

Dirt-cheap FTSE shares are not automatically bargains. Often, there is a very good reason they are going cheap. Sales may be falling. Margins rising. Competition may be too tough. Smaller, nimble rivals may be snatching market share. Management strategy may be all over the place. Its customers may simply have moved on.

Holding for the long term is key

I will check for all these dangers, before buying FTSE shares that look dirt-cheap. I would favour companies that have suffered temporary setbacks, and look ripe for recovery. In some cases, the setback may have been out of their hands (the pandemic is a good example). In others, the market may have overreacted to a single set of poor results. In this case, their valuations may not reflect their future prospects.

The big danger of course is that the company does not recover. That is why I would build a balanced portfolio of at least a dozen stocks, to spread my risk. There should be plenty of dirt-cheap FTSE shares to choose from, as global stock market volatility intensifies.

I won’t go shopping for shares all at once. Instead, I will spread out my purchases, taking advantage of market dips, to get them at really low prices. Then I will sit back and wait for them to (hopefully) recover, while investing all my dividends to buy more stock. Over time, I believe this is a winning strategy for my retirement.

Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.