For many investors, owning shares of Dechra Pharmaceuticals (LSE: DPH) has been highly rewarding. They have grown 23% in a year and now trade 146% higher than they did five years ago. But lately, the Dechra Pharmaceuticals share price has been falling and it is now down 16% since the start of 2022. Is this a buying opportunity for my portfolio?

Why I would consider buying Dechra Pharmaceuticals

Dechra is in the business of making animal supplements such as nutrition products, dog food, and veterinary pharmaceuticals. Its customer base includes farmers and pet owners. I think that is an attractive market to sell into. Both farmers and pet owners are motivated to nourish their animals. That means that they are typically willing to spend money on animal nutrition. As quality matters, price sensitivity is lower than it is in some markets. For a manufacturer like Dechra, that can translate into attractive profits. Last year, post-tax profits at the company surged 64%.

Demand is also likely to be fairly robust in mv view. No matter what is going on in the wider world or economy, animals need to be cared for and fed. So Dechra’s area of business will likely see fairly stable demand for the foreseeable future.

The company has built a portfolio of premium brands such as Vetoryl. That gives Dechra pricing power that should help it maintain profits over the long term. As the company grows, it could also benefit from economies of scale.

Valuation concerns

There are risks, of course. The barriers to entry in this area are not very high and a deep-pocketed competitor could take on Dechra, possibly hurting both revenues and profitability. On top of that, although the company helps improve animals’ immunity, Dechra itself is not immune to the impact of cost inflation. That could eat into its profit margins.

But my main concern about buying the stock for my portfolio currently is the Dechra Pharmaceuticals share price. It has crashed 23% since I wrote about my valuation concerns back in August. I think it could still fall further.

Even after the share price fall, it trades on a price-to-earnings ratio of 80. Although Dechra is a growth company with a proven business model in an attractive field, that valuation looks far too high for me. I do not like using adjusted earnings as I find them a less transparent accounting measure, but even using adjusted earnings the P/E ratio is still 37. That is much lower, but is more expensive than I would pay even for a high-quality growth company. Admittedly, it is in line with the P/E ratio of US rival Zoetis. But I think that just suggests possible overvaluation in the whole animal nutrition sector. That does not make Dechra’s price any more attractive to me.

My next move on the Dechra Pharmaceuticals share price

I like the Dechra business and would happily hold it in my portfolio. But, even after the share price has declined in recent months, I do not think the company trades on an attractive valuation. For that reason, I will not be buying it at the current price. Instead, I am waiting to see if it keeps falling far enough to make for an attractive valuation.

Christopher Ruane 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 stock markets continue to reel under geopolitical stress. Earlier today, the FTSE 100 index dropped to sub-7,000 levels. While it has recovered a bit as I write this Friday afternoon, the fact remains that it might still fall way below this level. It is a stressful situation, for sure. But if we can get past the sense of dread that it creates, the investments made right now could really be among the best ones we make in a decade. 

Throwback to the stock market crash of 2020

As proof of that, I only need to look at what was going on just two years ago. Stock markets had started feeling the tension from the spread of the coronavirus, and we were just weeks away from the market crash. My China-focused investments like Burberry had already corrected sharply, as it was the first country to be impacted by Covid-19. The stock was down by more than 25% from its highs in January. 

Others like the FTSE 100 British Airways owner International Consolidated Airlines Group were also feeling the heat, having lost almost half their value. But  share price weakness was hardly restricted to vulnerable stocks. Even big defensive stocks like AstraZeneca were losing value, albeit at a much slower rate of around 5% from their January highs. 

Lessons from my FTSE 100 investments

There are valuable lessons for me from this experience when I look at where the stocks are now. AstraZeneca, for instance, rose so much in the time to come that the levels from 2020 seem like the distant past. Even Burberry has shown a smart recovery, despite its recent weakness. Only International Consolidated Airlines is still struggling because of its massive debts and the fact that the pandemic dragged on endlessly, holding its operations back. I own all three stocks in my portfolio. While I am still making losses on the airline stock, on a net basis, across these three stocks I have still managed to make gains. And this is despite the current market weakness.

What I’d do now

Of course, in stock markets where you end up in uncertain times is a bit of chance. But it also tells me that if I make my investments strategically in defensive growth stocks like AstraZeneca or those in stocks that have a really long history of being around like Burberry, I could still come out ahead. Keeping this in mind, I am now buying FTSE 100 stocks that have dipped because of general market weakness.

These include the likes of healthcare and utility stocks. I am also keen on stocks that have really stood the test of time, including the World Wars and the Great Depression of the 20th century. Even if the Russia-Ukraine war continues, inflation reaches dizzying heights, and is even followed by a slowdown, in time I expect them to yield good returns. 

Manika Premsingh owns AstraZeneca, Burberry and International Consolidated Airlines Group. The Motley Fool UK has recommended Burberry. 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 don’t want the government to tell me when I can retire, and I reckon that by investing in UK shares I can take the decision into my own hands. I’m relying on the FTSE 100 and FTSE 250 to build the wealth I need to stop work at a time of my choosing.

The state pension age is now 66 for men and women, but from 2026 it will start rising to 67. Then it will rise again to 68, possibly from as early as 2037. It could ultimately climb past 70, to keep it affordable. I like my job but I’m not sure I want to work that long. Building a balanced portfolio of UK shares should mean I don’t have to.

I’ll decide when I retire, thank you

Anybody who believes the state will provide a decent standard of living in retirement is sadly deluded. It’s not going to happen. The UK already spends more than £100bn a year on the state pension, that’s an incredible 12% of total public spending and this proportion will rise as the population ages. Chancellor Rishi Sunak has already scrapped the triple lock once, and he is likely to do it again, in my view. So this is where UK shares come into it.

I’m self-employed, so it’s up to me to build retirement savings in my name. Nobody else is going to do it for me, sadly. I’m starting by building a balanced portfolio covering major markets such as the US and Europe, and sectors such as smaller companies. I don’t know enough about these markets to buy individual stocks, so I rely on low-cost exchange-traded funds (ETFs) and investment trusts to do the job for me. I do know a bit about UK shares, though.

There are three reason why I buy individual UK shares instead of funds.

• They give me the opportunity to generate outperformance and beat the market.
• Direct equities are more exciting because they can move rapidly (in either direction), and that keeps my interest levels high.
• It’s challenging (in a good way)! I like examining UK shares and checking out their potential, then seeing what happens to my stock picks (and how good/bad my judgement is).

Here’s why I’m buying UK shares

Right now, I can see plenty of opportunities out there. I suspect we are on the cusp of a commodity boom, because of that awful war in Ukraine. Rio Tinto tempts me. So does Anglo-American. I feel the financials sector is ready for a comeback, and rising base rates should allow the likes of Barclays and Lloyds Banking Group to widen their net interest margins and boost profits.

UK shares pay some of the most generous dividends in the world. Just look at Vodafone, GlaxoSmithKline, Johnson Matthey, and BAE Systems to name just a few. I will reinvest my shareholder payouts for growth today, and draw them as income when I finally retire. That may be when I’m 65, it may be later. The important thing is that the decision is down to me.

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, GlaxoSmithKline, Lloyds Banking Group, and Vodafone. 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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During times of high uncertainty as we’ve experienced recently, I believe it’s important to value businesses providing necessities more so than businesses providing luxuries. In the case of Compass Group (LSE: CPG), the necessity is food as humans will always need to eat, therefore there will always be a need for the services it provides.

Compass Group is now the world’s largest contract caterer, operating in around 45 countries worldwide. The locations Compass Group offers its services include schools, offices and factories. In addition to this, it also runs an impressive variety of bakery outlets, coffee shops and vending machines. The company was founded in 1941 and currently has a market cap of over £27bn.

Compass pointing in the right direction

Compass Group saw a major decrease in short interest during January. On 15 January the total short interest was 376,800 shares; however, as of 31 January, the total short interest was 90,900 shares. The short interest decline was 75.9% in less than two weeks, and Credit Suisse Group raised its target price on Compass Group from $26.37 to $28.40 on 7 February. The company also recently disclosed a dividend yield of 0.71%, which will be paid to shareholders on 10 March.

Compass Group operates with large diversification geographically, as it is in many countries around North America, Europe and Asia in particular. It is now increasing operations in high-growth countries such as India, Brazil and Indonesia, as it sees larger growth potential in these countries over the decade ahead.

In addition to geographic diversification, Compass Group also offers wide sector diversification. Sector revenue was well diversified for 2021: healthcare was 33%, education was 18%, defence was 10%, business & industry was 31% and leisure was 8%.  Within these sectors Compass Group has many large business-to-business partnerships, including companies such as Canteen, ESFM, Eurest and Bon Appetit.

Sustainable contributions

In addition to the progress of boosting profits, Compass Group is also progressing with its sustainability goals for 2022. A ban on air freight of fresh fruit and vegetable produces will see a focus more on increasing the use of local and seasonal products. With fruit and vegetable produce being its second biggest buying category, this means it will significantly reduce its carbon footprint.

Reasons for concern

Even though the compass seems to be pointing in the right direction, there are still some reasons for concern. Firstly, its price-to-earnings ratio is currently 85.82, which is up from 76.16 for 2021. Also, its price-to-cash-flow ratio is up to 25.45 from 22.59 in 2021. In addition to this, Deutsche Bank downgraded Compass Group from a “buy” rating to a “hold” rating in a research note on 20 January.

The stock price currently seems to be in neutral “hold” territory for many Wall Street analysts at the moment. I’m watching this stock closely as it offers diversification across many high-growth economies in a wide variety of industries.

Sabir Husain has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass 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.

Market volatility continues to reign supreme on Friday. From the biggest multinational companies to the most modest penny stocks, UK shares of all shapes and sizes are sinking sharply.

As a long-term investor I don’t think I need to be overly concerned with current market volatility, anyway. Sure, the sharp falls in UK share prices more recently could take a bite out of my final returns. But I’m convinced that the value of my investments will rebound strongly. On a longer timescale I believe that history is on my side.

Investing like Warren Buffett

So I won’t be selling my shares in light of recent market volatility. In fact I’m looking for some top bargains to buy following the fresh share price falls today. I plan to follow the strategy of billionaire investor Warren Buffett when stock prices come crashing down. He famously claimed that one should “be fearful when others are greedy, and greedy when others are fearful.” This way I have the chance to make some robust returns when the market eventually rebounds.

Here is one top penny stock I’m thinking of buying following recent share price falls.

A top electric vehicle stock

Vertu Motors (LSE: VTU) doesn’t make low-carbon vehicles or the parts that help them run. But its role as a major auto retailer in the UK still makes it top electric vehicle stock to buy in my book.

Strong demand for these greener cars helped Vertu’s like-for-like sales rise 9.4% in the five months to January, latest financials show. And data from the Society of Motor Manufacturers and Traders (SMMT) today shows that the popularity of electric vehicles has continued to soar since then.

Sales of battery, hybrid and plug-in hybrid vehicles rocketed 123% year-on-year in February. This was higher than the 92.5% rise recorded in January, the SMMT said, a period when car showrooms were also affected by Covid-19 lockdowns.

A dirt-cheap penny stock I’d buy

As concerns over the environment grow, people are switching from their old petrol and diesel vehicles to battery- and hybrid-powered vehicles in huge numbers. And lawmakers are aggressively acting to speed up adoption of these greener cars too. The Mayor of London, for example, is reported to be planning to turn the whole of London into an ultra-low emissions zone. This all bodes well for Vertu Motors and its industry rivals.

My main concern with Vertu Motors is how soaring inflation could hit profits in the nearer term. Demand for its big-ticket items could come under severe pressure as consumer spending power crumbles.

Still, this is a risk I’d be prepared to take given the cheapness of the shares. The penny stock has fallen 17% in value since the start of 2022. This leaves the business trading on a forward price-to-earnings (P/E) ratio of just 9.6 times, below the bargain benchmark of 10 times. I think this is a great UK share to buy to capitalise on the green revolution.

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

Cyber security is in the news a lot these days – and I think that could be the case for decades to come. As an investor, I reckon there might be an opportunity for me to benefit from rising consumer demand for cyber security services in the next few years. Here are five UK such shares I am watching, to assess whether they look like attractive additions to my portfolio. I see only one of them as a buy for my portfolio at present.

Big names

Avast is one of the big names in the sector – and has a £6.5bn market capitalisation to match. The company is a well-established player and has a dividend yield of 1.9%. But it is still able to grow: last year, earnings per share doubled on revenue that grew 5%. But Avast’s days as a listed company may be drawing to a close, with a takeover by rival NortonLifeLock due in April. If that falls through, it could hurt the current Avast share price so I will not be buying for now.

Smaller than Avast, Darktrace still commands a market cap of £3.5bn and has been promoted to the FTSE 250 index. The company floated last year and its shares are up 51% since then, although they remain well below their October highs. Yesterday the company upgraded its full-year expectations for revenue and adjusted earnings. It has invested heavily in marketing, which could boost revenues. But a risk is low barriers to entry in its market putting pressure on profit margins. I do not plan to add it to my portfolio.

Smaller picks

Little more than a decade old, Kape Technologies focuses on software to help with cyber security, such as virtual private networks. Some companies in the murky world of cyber security have reputational risks and this is something that puts me off Kape for now. 

Revenue and post-tax profit soared last year, making a juicy post-tax profit margin of 24%. And profits were more than 10 time those of the prior year. Yet the price-to-earnings ratio of 34 is too high for my liking, especially given that the company’s previous earnings were so much lower.

Another option I am watching is NCC Group. Its P/E ratio is 19. It also pays a dividend, although that has been flat for some years. NCC currently yields 2.6%.

The growth story here is less dramatic but still positive: last year revenues were up only 3% but post-tax profits increased 56%. The shares are close to their 52-week lows, with a risk that pandemic disruption could hurt this year’s revenue. Yet at its current price, I would consider adding NCC to my portfolio.

Turnaround play among UK cyber security shares

I think Micro Focus is also worth a look. The share has had a hard time, dropping 35% over the past year. It is almost 90% lower than its 2017 peak after an ill-judged acquisition started eating into its profitability. The diversified software group is targeting 5% or more annual revenue growth in its CyberRes division. That is a higher growth rate than for most of its business.

My concern here is that Micro Focus remains heavily loss-making and saddled with $4.2bn of net debt. It generated $292m of adjusted free cash flow last year. But huge debt and sluggish growth mean I will avoid this turnaround situation for now.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus and NCC. 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.

Key points

• Between the 2017 and 2021 calendar years, revenue grew from £17bn to £19.5bn
• The aerospace and defence firm has a lower trailing P/E ratio than major competitor QinetiQ
• JP Morgan recently increased its price target from 630p to 710p, despite maintaining its ‘neutral’ stance

While many companies’ share prices have fallen during the recent market sell-off, the BAE Systems (LSE:BA) share price has increased. The primary reason for this is the anticipation of the greater requirement for military hardware during the awful war in Ukraine. It is up 10% in the past week and 39% in the past year. Currently it is trading around 705p. So should buy shares for my long-term portfolio? Let’s take a closer look. 

Strong results and the BAE share price

The war in Ukraine is a horror and we all hope it ends soon. But BAE has been doing well for a while. For the 2021 calendar year, the firm reported that free cash flow had increased to £1.8bn. This had risen from £1.3bn in 2020. Furthermore, net debt fell to £2.1bn from £2.7bn in 2020. Sales increased to £21.3bn, up from £20.9bn the previous year. This strongly suggests that this aerospace and defence company is moving in the right direction in general. 

In addition, earnings-per-share (EPS) grew between the 2017 and 2021 calendar years, from 42.1p to 47.8p. By my calculation, this is a compound annual EPS growth rate of 2.5%. While there are many other businesses with higher EPS growth, this is extremely consistent. Over the same time period, revenue also increased from £17bn to £19.5bn.

Is the firm cheap?

By looking at a company’s price-to-earnings (P/E) ratio, I may be better able to assess whether it is under- or overvalued. BAE Systems has a trailing P/E ratio of 11.94. This is significantly lower than major competitor QinetiQ. This latter business has a trailing P/E ratio of 20.55. It is therefore possible that the BAE share price is cheap at current levels.

Furthermore, investment bank JP Morgan recently increased its target price on the company, despite maintaining a ‘neutral’ stance. It raised its target price from 630p to 710p. The justification for this rise was the escalating military situation. JP Morgan said it would not be surprised if US President Joe Biden sought an increased defence budget in the near future.

This is a change from December 2021, when the investment bank downgraded BAE Systems on account of its exposure to the US market. It had stated that this market was “now in a slowdown” and that this exposure could be detrimental to the business. In addition, any resolution to the current military conflict could lead to an immediate sell-off of shares. 

Overall, the BAE share price is evidently performing well while others are suffering badly. Underpinned by strong growth and solid free cash flow, this firm is in a good financial position. I will be waiting to see how the current conflict in Ukraine pans out as I do not want to buy a share on the back of a human tragedy like that. But I will not rule out a purchase in the future.

Andrew Woods has no position in any of the shares mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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.