The last 10 days have been a pretty bumpy ride for the Rolls-Royce (LSE:RR) share price. Despite management reporting promising full-year results, the stock has been on a downward trajectory. And consequently, the shares have fallen by more than 20% in the last 12 months. By comparison, the FTSE 100 is up by just over 5%. Is this a sign to run for the hills? Or am I potentially missing out on a fantastic buying opportunity for my portfolio? Let’s explore.

Can the Rolls-Royce share price recover?

I’ve looked at this business several times before. And each time, my primary concerns surrounded the level of exposure to certain industries (primarily aerospace) and the unhealthy-looking balance sheet. Yet despite what the recent tumble in the Rolls-Royce share price would indicate, both of these problems seem to be getting resolved.

In 2020, the majority of its income stemmed from the sale and, in particular, maintenance of commercial aircraft engines. So, when Covid-19 led to closed borders, the revenue stream pretty much evaporated. Today, the pandemic has loosened its grip on the world. And the travel sector as a whole seems to be heading back in the right direction, along with the firm’s income.

But what’s encouraging is the group’s no longer overly dependent on a single industry. Its Defence and Power Systems divisions now represent 56% of the revenue stream, up from 44% in 2019. Some of that’s due to other ops contracting in the pandemic, but they’ve also seen growth themselves.

What about the balance sheet? After some fairly aggressive restructuring that unfortunately saw 9,000 employees lose their jobs, Rolls-Royce has cut annual costs by £1.3bn. Its capital outflow last year still came in at around £1.5bn, resulting in an increase in net debt. But with the upcoming £2bn sale of its ITP Aero business, a good chunk of these financial obligations, and in turn, interest payments are due to be wiped out.

With that in mind, the Rolls-Royce share price looks like it could have some promising years ahead. But as always, there are some risks that could derail its progress.

Taking a step back

Given the seemingly promising results, it raises the question of why the Rolls-Royce share price fell so sharply recently. The catalyst appears to be the surprise departure of CEO Warren East. At the end of 2022, he will no longer be steering the ship, and management now has the arduous task of finding a suitable replacement within the next nine months.

While I’m sure the company will find plenty of qualified candidates, performing a CEO hunt in the middle of a recovery strategy is a pretty big distraction. Needless to say, that’s not what I like to see when prospecting a company as a potential addition to my portfolio.

If the wrong person is appointed or management starts taking its eye off the ball, I wouldn’t be surprised to see the Rolls-Royce share price suffer.

The bottom line

All things considered, I think the worst is now over for Rolls-Royce as a business. The company appears to have made several prudent decisions that are already having a positive impact on its health and future potential. At least, that’s what I think.

But personally, I’m going to wait and see what’s happening with the leadership change before buying any shares for my portfolio.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As equity markets around the world struggle to digest the awful news from Eastern Europe, I have been looking for undervalued FTSE 100 shares to add to my portfolio. 

I am looking for companies that have a solid competitive advantage. And I am searching for firms operating in markets that might not be disrupted by the current geopolitical uncertainty. 

With that in mind, here are two FTSE 100 stocks that have recently caught my attention. 

FTSE 100 shares to buy

Veterinary pharmaceuticals group Dechra Pharmaceuticals (LSE: DPH) is one of the UK’s premier blue-chip stocks. 

The company develops and sells pharmaceutical products for the animal industry around the world. This market is very competitive and highly regulated.

Overcoming these challenges are probably the biggest risks to the company’s growth. Nevertheless, the corporation has performed well over the past couple of years by investing heavily in new products and research and development. 

Net profit has grown at a compound annual rate of 34% over the past six years. Analysts are expecting this growth to continue. 

Two trends could drive the company’s sales over the next five to 10 years. Demand for veterinary pharmaceuticals is increasing as the global population is growing. On top of this, the world needs more food, and farming animals is one of the best ways to meet rising demand. Keeping these animals healthy is vital, and Dechra’s products will play an important role here. 

Considering these challenges, I think the FTSE 100 group has a bright future, no matter what happens in Eastern Europe. As such, I would be happy to buy the stock from my portfolio today. 

Market growth

Flutter Entertainment (LSE: FLTR) is one of the largest online sports betting and gaming companies in the world. 

A surge in consumers using its platforms during the pandemic helped the enterprise generate windfall profits in 2020. And management is using this money wisely. The additional cash is helping to fund the company’s expansion in the US, which has the potential to be a massive growth market for the firm. 

That said, the FTSE 100 enterprise is not the only business to recognise the potential of this market. This too is a highly competitive industry, and larger players are throwing money at capturing market share. Flutter needs to keep investing, or it could be left behind. This is the most significant risk the corporation faces today. 

Still, I think it is unlikely the company’s operations will be disrupted significantly by the ongoing political crisis.

As such, I think the FTSE 100 business looks cheap compared to its potential after the recent sell-off. As the enterprise continues to expand around the world, I think it should benefit from increasing awareness of its brands and more significant economies of scale. These should help push down costs and improve profit margins. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Scottish Mortgage (LSE: SMT) share price has fallen over 16% in the last week, currently sitting at 844p. Extending this time frame, the shares are down 34% year-to-date. This is the opposite to its bullish trajectory in 2020 when it climbed over 106% throughout the year.

With the shares well below the 900p mark, is now the right time for me to add this stock to my portfolio? Or should I be steering clear of the tech-heavy investment fund? Let’s take a closer look.

Understanding the Scottish Mortgage share price

The easiest way to explain the movement of the Scottish Mortgage share price is to take a closer look at its portfolio. While the fund has exposure to many industries, it is heavily weighted towards tech growth stocks. For example, its top 10 holdings include Nvidia (2.9%), Tesla (5.3%), and Tencent (4.9%).

Understanding why this was leading to rising share prices is tied with the broader macroeconomy. During the pandemic, central banks across the world lowered interest rates in an effort to prop up the economy. This led to increased stock market investment, as bond and savings returns declined. This pumped-up stock valuations, especially in high growth tech stocks, and hence the Scottish Mortgage share price soared as a consequence.

However, government spending and supply chain problems induced by Covid-19 have served central banks with a new problem – tackling rising inflation. For example, in the US, the annual inflation rate hit 7.5% in January. The way central banks tackle this is by doing the opposite of what they did in 2020 and raising interest rates. With rates on the rise, investors have been selling out of high-growth positions. Hence, the Scottish Mortgage share price has taken a beating.

What I’m doing now

There is no doubt that Scottish Mortgage is an excellently managed fund, regardless of current price moves. For example, over the past 10 years, it has returned 650% to investors. In addition to this, the fund prides itself on long-term growth, so perhaps I should be discounting this short-term volatility and adopting a broader outlook. In addition to this, it also allows me to have a heavily diversified portfolio of companies under one investment, which could help reduce volatility further down the line.

That being said, the short-term outlook for the Scottish Mortgage share price still worries me. On top of current inflationary pressures, the Russia-Ukraine conflict has led to increased supply concerns. For example, the price of oil has skyrocketed to $130. I expect this to negatively impact many of the businesses that Scottish Mortgage holds, and hence the shares could continue to slide below the current level.

Overall, although the shares could lead to some great long-term growth for my portfolio, I think the Scottish Mortgage share price has further to fall in the short term. Therefore, I will be waiting to add this stock to my portfolio.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

National Grid (LSE: NG) is one of the most sought-after dividend stocks in the FTSE 100. At the time of writing, shares in the electricity distribution company trade with a dividend yield of 4.6%. 

The great thing about this company is that it is relatively defensive. The electricity infrastructure in the UK is a vital backbone of the country’s economy. While National Grid does not control the entire network, it is responsible for the majority of it across Great Britain. 

National Grid share price opportunities 

This competitive position comes with both benefits and drawbacks.

On the one hand, it means the company has a relatively predictable, guaranteed income stream. I believe the demand for electricity across the UK will almost certainly increase over the next 10 years. National Grid will have a fundamentally important role in ensuring the network is up to standard. 

On the other hand, this market is highly regulated and controlled. Regulators can set the amount of money the business and its peers can earn from consumers. This means they cannot just charge whatever they like. There is a strict set of rules regarding the charging structure, and this could impact the company’s profitability if regulators decide to clamp down. 

Indeed, it looks as if there is already a risk of this happening. Regulators are planning to reduce the amount of profit utility providers are able to earn over the next couple of years. They are arguing that the cost of developing new equipment has fallen substantially. This should be passed on to consumers in lower prices. 

This is the biggest risk facing the National Grid share price today. Additional regulations could hit the company’s bottom line. In turn, the corporation may decide to reduce its distribution to investors. 

The income stream 

Still, there is more to this business than its UK division. It also has a presence in North America. This market is a bit more flexible and provides a vital income stream for the group. I think this should alleviate some of the pressure on the company’s bottom line if regulators here in the UK decide to clamp down. 

So overall, I think the dividend yield on the National Grid share price is safe for the time being. The group’s defensive operations provide a steady, predictable income stream for the company. On top of this, its North American business is growing and delivering additional cash flows for the enterprise to reinvest and return to investors. 

While there are some risks on the horizon, I think the company does have a bright future as a defensive income stock. That is why I would buy the shares for my portfolio today. In uncertain times, the National Grid share price looks incredibly appealing as a defensive investment. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As equity markets remain volatile, I have been looking for UK shares to buy right now for my portfolio that appear cheap compared to their potential. 

There are a couple of companies that stand out to me as being deeply undervalued after the recent sell-off. I would be happy to buy all of the stocks outlined below for my portfolio right now.

Long-term cash flows

The first stock on my list is insurance giant Legal & General (LSE: LGEN). After the recent sell-off, the stock is trading at a forward price-to-earnings (P/E) multiple of just 7.5.

I think this significantly undervalues the company’s growth potential over the next few years. In addition, the stock is also trading with a dividend yield of 7.6%.

While the current geopolitical crisis will almost certainly have an impact on a company. It could hurt investor sentiment and reduce the demand for its insurance products, I think the business is well-placed to expand over the next decade.

Rising demand for financial services, and an ageing population, will increase the demand for pension and life insurance products. As one of the largest providers in the country of these products, Legal should benefit. 

One of the best shares to buy now

The second-hand car market is booming, and this is fantastic news for dealers like Lookers (LSE: LOOK). Based on current City estimates, the stock is trading at a forward P/E multiple of 4.9. However, these numbers are based on windfall profits in 2021, which are unlikely to last.

Analysts are expecting profits to fall back in 2022. They are projecting a 40% decline. Even based on this number, the stock is still only trading at a forward 2022 P/E of just 7.9. 

That said, there is no guarantee the company will meet City projections. If the economy starts to struggle over the next few months, the group will as well. This is the biggest challenge it will face in the near term.

Still, management is planning to reinvest the company’s windfall profits. This could help support its growth during the next few years, especially in the aftermarket service space. Even if new and second-hand car sales fall, customers will still need to maintain their vehicles. 

That is why I think this is one of the best UK shares to buy now. 

Leading UK shares

I think one of the best ways to build exposure to the UK economy as a whole, without having to buy a range of different stocks, is to acquire a lender such as NatWest (LSE: NWG).

Shares in this bank have fallen heavily due to the Russian crisis, but the stock is now trading at just 50% of book value. It is expected to report bumper profits over the next two years thanks to higher interest rates and a more robust UK economy. Analysts have also pencilled in a dividend yield of 5.7% for the year ahead. 

Unfortunately, this growth is not guaranteed. If there is an economic crisis in the UK, the company could suffer a significant decline in profitability. This is the biggest risk facing its growth today. 

Even after taking this headwind into account, I think NatWest remains one of the best UK shares to buy now, considering its exposure to the economy and low valuation. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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I’ve been an advocate of investment trusts for more than 20 years, and they’ve justified my faith by delivering fantastic outperformance in that time.

Incredibly, a total of 30 investment trusts would have made me more than £1m if I had invested my full annual ISA allowance in the same trust each year, according to data from the Association of Investment Companies (AIC).

This assumes I invested my full ISA allowance on 6 April every year since ISAs were launched in 1999. In total I would have paid in £263,440 across 23 tax years.

I’m a fan of investment trusts

HgCapital Trust, which invests primarily in software and services businesses, would have turned my ISA contributions into a staggering £2,062,931 since 1999. I don’t know much about that particular fund but I’ve kept close tabs on the second and fifth-best-performing investment trusts.

Scottish Mortgage Investment Trust (LSE: SMT) and Polar Capital Technology Trust (LSE: PCT) have amazing track records. They would have transformed £263,440 into an incredible £2,046,762 and £1,555,681 respectively since 1999, AIC figures show.

Both funds built their success on the all-conquering technology sector, and I really wish I’d bought at least one of them. But I didn’t, and I wouldn’t today. Investment trends go in cycles and I suspect the tech sector that’s important to them will now struggle to repeat its fabulous success.

Scottish Mortgage, managed by Baillie Gifford, now has £13.9bn worth of assets under management. That’s a tribute to its blistering performance. At one point, it had returned a staggering 500% in five years. Yet nothing lasts forever and the king of investment trusts has fallen more than a third in the last six months.

Near-zero interest rates and loose monetary fiscal policy drove the tech boom. Investors piled into companies like Apple and Amazon even as their valuations soared, assuming they would continue to grow and deliver even bigger profits in future.

That era is drawing to a close as central bankers prepare to hike rates and taper bond purchases. Inflation is rocketing, and that will erode the real terms value of future tech company earnings. This makes today’s sky-high valuations harder to justify. That’s putting me off these two investment trusts.

I’ve got enough US tech, thank you

Scottish Mortgage has massive holdings in US tech giants Amazon, Nvidia and Tesla, and Chinese behemoths Alibaba Group and Tencent Holdings. Polar Capital is a rollcall of US tech titans. Apple, Amazon, Google owner Alphabet and Facebook owner Meta make up the top four holdings. There’s a fair bit of crossover between these two investment trusts.

I still retain exposure to US tech, through an S&P 500 tracker fund, so there’s another reason for me to shun these two tech-heavy investment trusts.

US tech giants do look slightly better value after the recent sell-off, but I’m still not tempted. I’m always wary of jumping into once fashionable sectors, for fear of jumping on the bandwagon too late.

Once the glory days are gone they rarely return. But as I said, I’m a fan of investment trusts and I’ll still buy shares in some. Now though, I’m looking for those targeting FTSE 100 value stocks instead.

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

Tesla (NASDAQ: TSLA) shares reached their all-time high of $1,229 in early November 2021. However, since then the electric vehicle (EV) giant’s shares have tumbled almost 32%, currently sitting at $838. What’s more, in 2022 alone the shares are down 30%.

In an uncertain economic environment, do Tesla shares have what it takes to climb back above $1,000 during 2022? And as such, should I be considering adding the shares to my portfolio? Let’s take a closer look.

Reason for November price jump

The main reason why Tesla shares skyrocketed in November was due to a partnership announcement with Hertz. The car rental giant said it would be buying 100,000 Tesla vehicles to add to its fleet throughout 2022, which is expected to equate to a healthy $4.2bn for Tesla. This injection of cash throughout the year should help Tesla deliver more solid results.

In addition to this, in September 2021, the firm’s Model 3 sedan topped total new car sales in Europe, becoming the first fully electric vehicle in history to do so.

Growth in 2022

On 26 January 2022, Tesla released its 2021 Q4 results. Revenues came in at $15.9bn, up 71% year on year. In addition to this, profits rose an astounding 118% compared to Q4 2020, with margins rising over 6% in the process. Tesla is also in a great spot financially, with $17.6bn cash and negligible debts.

Although these results were extremely encouraging, Tesla shares dropped over 10% in the days after their release. This was largely due to wider issues concerning supply problems after Tesla affirmed that its “own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. These supply issues are likely to be a threat to Tesla shares climbing back to $1,000.

Why I am not a fan of Tesla shares

It’s no secret that the Tesla share price is high and heavily overvalued, especially when considering its fundamentals. Tesla shares currently trade on a price-to-earnings (P/E) ratio of 171. For context, good value stocks usually trade on P/E ratios of under 10.

With such a high valuation comes volatility. As my fellow Fool, Cliff D’Arcy mentioned, between March 13 and March 20 back in 2020, the stock moved by over 12% every day, primarily due to high volume options trading. I’d be lying if I said this volatility didn’t worry me.

In addition to this, rising global interest rates are placing big pressure on growth stocks. When rates rise, people turn away from riskier investments, and hence valuations drop. For context, the S&P 500 Growth, a high-growth index, has dropped almost 15% in 2022. With Tesla’s high valuation and volatile price movements, I think interest rates pose a real threat to the shares.

Overall, I am sceptical about whether Tesla shares will be able to climb back above $1,000, especially considering supply chain shortages and the threat of rising interest rates. Although the firm continues to see great results, I think those broader factors outweigh any positives. Therefore, I won’t be adding any Tesla shares to my portfolio today.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

FTSE 100 shares are in for a tough time as the news flow from Ukraine continues to shock and appal. The index crashed by 3.48% on Friday, and I’m bracing myself for further extreme volatility in the days ahead.

On Friday, more than £100bn was wiped off FTSE 100 valuations. Any fleeting pain investors might have felt is nothing compared to what the Ukrainians are going through, so we should keep things in perspective. I feel the stock market crash is a price worth paying for standing up to aggression.

Stay calm, it’s only a stock market crash

We can’t do much about Ukraine, except send money and show our support, and there’s nothing we can do about the FTSE 100 crash. There never is. All I’m doing is reminding myself that share prices have always crashed and they always will.

Typically, they recover faster than people expect and go on to outperform almost every other asset class in the longer run. So the first thing I do when the FTSE 100 is going into a downward spiral is… nothing.

I never invest money in the FTSE 100 that I might need in the next five years (in practice, the next 10 to 15 years). That allows me to overlook my short-term fears, and focus on the longer run. If I sold now, I would probably miss out on the recovery, when it finally arrives. I’d then do something even dafter, like buying back in at the top of the market.

I don’t have any idea whether now is a good or bad time to buy or sell shares. Nobody can time the market with any consistency, and don’t believe anyone who claims they can. There are too many variables. Even computers can’t work it out. I suspect they never will.

What I do know is that the FTSE 100 has dropped 500 points in a week. That makes today a cheaper time to buy shares than a week ago. So that’s what I’ll do. The index may crash again after I bought them, but if it does, I’ll buy a few more.

My portfolio is exposed to stock market volatility because I take a relatively high-risk approach to investing. Now I’m tempted to add one or two defensive stocks to my line-up. While the FTSE 100 fell on Friday, utility stocks Severn Trent, SSE and United Utilities Group held firm.

Stand by your FTSE 100 shares

Human beings are not blessed with the gift of foresight. I get round this by building a diversified spread of FTSE 100 shares, balancing riskier growth stocks with defensive alternatives, investing for the longer term and reinvesting my dividends for growth.

History shows that stock markets always recover in the end, even from the bloodiest wars. As well as trade tensions, pandemics, financial crises, tech crashes and just about everything else. I’m holding on until that day. I’m telling myself it will come. Given time.

It’s not guaranteed, but it always has bounced back in the past.

Harvey Jones 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.