As 2022 has advanced, I have grown increasingly concerned about US stock valuations. History has taught me that highly elevated asset prices usually lead to fragile markets. From October onwards, I wrote a host of articles warning that the risks of a stock market crash were increasing steeply. It gives me no pleasure today to see US stocks considerably below their 2021-22 peaks. But just as bubbles eventually burst, overvalued assets often fall steeply in value.

My fears were fuelled by several concerns, including irrational speculation in risky assets, highly rated US tech stocks, and rising interest rates. I also explained that I was, “genuinely terrified [of]…armed conflict…between Russia and Ukraine, as we saw in 2014”. Horribly, the last of those fears came true, as President Putin’s Russia invaded a European country of 44m people. So, with the US stock market having fallen in January and February, is a global stock market crash now a certainty in 2022?

Stock market crash: the S&P 500 slides

On 3 January, the US S&P 500 index hit an all-time high of 4,818.62 points. On Monday, it closed at 4,373.94 — down 444.68 points (-9.2%) from its record peak. A 10% post-peak decline is described as a correction. Only a fall of 20%+ counts as a full-on stock market crash. Right now, I can easily see the US market falling to 3,854.90 points, at which point it would be in a so-called bear market.

The Nasdaq turns nasty

As investing legend John ‘Jack’ Bogle remarked, “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks”. The Nasdaq Composite index is certainly heading that way right now. The tech-dominated index peaked at 16,212.23 points on 22 November 2021. On Monday, it closed at 13,751.40, down 2,460.83 points (-15.2%). With under five percentage points to go to a Nasdaq stock market crash, we’re almost there.

The FTSE 100 is holding up well

In January and February, the S&P 500 (-5.3% and -3.1%) and Nasdaq (-9% and -3.4%) both declined. To me, this is hardly surprising, given their extreme overvaluations in late 2022. However, on this side of the Atlantic, things are looking rosier. The UK FTSE 100 index ended 2021 at 7,384.54 points. As I write, it stands at 7,388.42 — up 3.88 points so far this year. This tiny gain is still way better than the losses racked up by owners of US stocks. It also vindicates my earlier argument that while US stocks looked expensive, UK shares seemed cheap. That’s why I’m less convinced that a UK stock market crash will hit in 2022.

This is a real stock market crash

To see a really shocking stock market crash live, I’ve been monitoring the Russian stock market since the invasion of Ukraine. On Thursday, the RTS market index halved, before rebounding to close down around 28%. It inched up again on Friday, but the Russian exchange has been closed since Friday. If and when it reopens, I expect Russian stock prices to collapse spectacularly. This is the sort of brutal stock market crash that only gruesome geopolitical events can trigger.

I’m ready to buy big

In the latter half of 2021, we decided to ‘de-risk’ our family portfolio. We stopped investing our spare cash into global and US stocks and started hoarding it. Today, we are building an ever-larger cash pile to buy cheap UK shares. Indeed, I still see many bargains today, especially among FTSE 100 dividend shares!

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

• For the three months to 31 December 2021, revenue rose to £805, up from £165m year on year
• In the same period, easyJet carried 11.9m passengers, an improvement from 2.9m a year previously
• The price of jet fuel may increase because of the Ukraine conflict

A big player in the short-haul airline sector, easyJet (LSE: EZJ) has been hit bard during the Covid-19 pandemic. Like many of its peers, the company’s operations more or less ground to a halt for long periods of time. Recent results suggest the market is improving, however, and some countries have already removed all pandemic-related restrictions. With a spare £500, should I buy at the current easyJet share price? Let’s take a closer look.

Recent results and the easyJet share price

In a trading update for the three months to 31 December 2021, the company reported that revenue rose from £165m to £805m. In addition, pre-tax losses almost halved to just £213m. For me, this suggests that the firm is on a solid path to recovery.

Another metric by which to gauge the health of an airline stock is its passenger numbers. For the same period, the business carried 11.9m passengers. This is equivalent to 64% of the same period in 2019, before the pandemic struck. It is also an increase from 2.9m, year on year.

This prompted S&P Global Ratings to upgrade the company to ‘stable’. It stated that is expects “much improved” results for the airline in the near future. Following this announcement, easyJet shares were trading at 643.8p. At the time of writing, the share price is 578.6p, down 27% over the past year. 

A mixed outlook

The conflict in Ukraine resulted in big increases to oil and gas prices. This is because there is greater fear of decreasing supply. This could negatively impact the easyJet share price, because the cost of jet fuel will likely rise in the months ahead. While the firm may have hedged some of its jet fuel at lower prices, the company will probably have to pay more in the future.

It is also worth noting that any future pandemic variant could result in more closed borders and less international travel. While I think this is a remote possibility, it is something I am weighing into my investment decision.

Despite this, some countries are reopening their borders. While many still have vaccination and testing requirements, like Spain, others have removed all restrictions. An example is Norway, which has essentially returned to pre-pandemic conditions. Sweden has followed suit, but only for EU citizens for the moment. I predict that more countries will adopt this attitude, resulting in a domino effect.

I think the outlook for the easyJet share price is bright. While there are risks, including jet fuel costs and other variants, I think results show the company is moving in the right direction. I will be buying shares today with my spare £500. 

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.

Key points

• Between 2016 and 2020, Ferrexpo had a compounding annual EPS growth rate of 26.3% 
• The company recently approved an interim dividend of ¢6.6 per share
• Military action in Ukraine, where the firm operates mines, caused a 36% share price fall in the past week

Ferrexpo (LSE: FXPO) produces and manufactures iron ore pellets for use in the steel industry. With strong underlying results, I think the company could be a good long-term investment. However, recent hostilities in Ukraine, where the firm operates, have made me think twice. Is the current Ferrexpo share price attractive given the situation at the moment? It is currently trading at 156.8p, down 50% in the past year. Let’s take a closer look. 

Strong historical results and the Ferrexpo share price

Between the 2016 and 2020 calendar years, earnings per share (EPS) increased from ¢33.6 to ¢108.1. This demonstrates significant earnings growth over the period. Furthermore, by my calculations the company has a compounding annual EPS growth rate of 26.3%. This is both strong and consistent.

In addition, revenue for the same period rose from $986.33m to over $1.7bn. As a potential investor, I view this ability to generate and improve revenue as a big positive. In addition, in December 2021 the firm approved an interim dividend of ¢6.6 per share. This also demonstrates the financial strength of the business.  

In a recent production update for the three months to 31 December 2021, the business stated that its year-on-year iron ore production was basically flat. Compared with the previous quarter, however, production rose 18%. Furthermore, investment bank Liberum labelled Ferrexpo as a leader in its peer group because of its increasing expansion into copper production. This precious metal is critical to moves to decarbonise, like electric vehicles.

The impact of recent events

The recent Russian invasion of Ukraine caused panic among investors, because the company operates iron ore mines in Ukraine itself. In the past week, the Ferrexpo share price has fallen 36%. The firm issued two operational updates, stating that mining activities were still ongoing, but that the safety of the workforce is paramount.

It is possible, however, that mining activities could stop if the fighting intensifies. Furthermore, the Ukrainian government has suspended rail transportation, meaning that the company could struggle to transport the iron ore it mines. This could have a devastating impact on the firm’s ability to meet demand.

Overall, Ferrexpo has a track record of strong results. It is solely down to the military situation that it faces an unpredictable time ahead. Much depends on the length of this war. If recent talks between Ukraine and Russia on the Belorussian border bring peace, I suspect the Ferrexpo share price will increase. In that case, mining operations and transport will both run smoothly. I will hold off purchasing shares, however, and wait to see what the military situation brings, while primarily hoping for a swift end to conflict on a purely human level. I won’t rule out buying shares in the future.  

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.

Key points

• The firm has two exciting treatments that seek to better tackle cancer
• It contributed to the Covid-19 testing roll out
• Interim losses widened from £6.9m to £10.1m year on year 

Pharmaceuticals and diagnostics company Avacta Group (LSE: AVCT) specialises in cancer treatments. The FTSE AIM firm focuses on clinical stage development and currently has two major proprietary treatments. It also provides Covid-19 testing kits in the UK. Its share price has had some volatile movements over the past year, and I want to know more. Should I buy this company for my long-term portfolio, or avoid it? Let’s take a closer look.  

Exciting medical advancements and the Avacta share price

The firm developed two revolutionary cancer therapies and diagnostics procedures. The first, Affirmer®, is a proprietary therapeutic platform. This treatment, the company says, seeks “to address the lack of a durable response to current cancer immunotherapies”.

Using naturally occurring human protein, Affirmer provides an “alternative to antibodies derived from small human protein”. Indeed, while tackling an important issue, this could be lucrative for the firm and positive for the Avacta share price. The antibody market is potentially worth over $100bn.

The company’s second medical advancement is named pre|CISION. This is targeted chemotherapy that seeks to lessen the side-effects for patients. The AVA6000 trial moved to the clinical stage in summer 2021. On 3 February 2022, the Phase 1 trial advanced after a “positive review”. The Avacta share price rose 3% on this news. It is currently trading at 47p. This is down 74% over the past year.

Furthermore, much of the excitement about the business arose because it manufactures Covid-19 testing kits in the UK. These gained approval in June 2021. While the rapid antigen test was fit for use in the UK, the government paused its roll out when the Omicron variant struck. It resumed in December 2021.

Lukewarm results

The company is clearly active within the cancer treatments and diagnostics field. While this is important in creating new technologies, it may also positively impact the Avacta share price in the near future.

As is the case with many early-stage pharmaceutical firms, however, the company results show widening losses. This may be due to efforts to finance new technologies. Indeed, the interim results for the six months to 30 June 2021 show that research costs had nearly doubled year on year, to £6.2m.

For the same time period, revenue increased from £1.8m, in the first half of 2020, to £2.3m. Despite this, losses widened from £6.9m to £10.1m. This doesn’t exactly fill me with confidence as a potential investor. 

The company is developing some amazing cancer treatments. However, the recent results are not strong enough to encourage me to buy the shares. While I won’t rule out a purchase in the future, I will be standing aside in the near term.

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.

Was this article helpful?

YesNo

Quite often the market presents me with an opportunity to buy UK shares on sale. Today I’m looking at companies that are showing signs of progress, but crucially whose share prices have drifted lower in recent weeks or months.

The fundamentals of a company rarely change on a day-to-day basis. But the same can’t be said for share prices. And when the market offers ‘no-brainer’ shares that I believe are selling at a discount, I like to pounce.

UK shares on sale

One such UK share that I’d buy this month is global banking giant HSBC (LSE:HSBA). It recently reported a jump in pre-tax profits of $18.9bn for 2021. That’s more than double the figure seen in 2020. HSBC is benefiting from the global economic recovery following the pandemic. As restrictions end around the world, more economic activity is likely to take place. That bodes well for the FTSE 100 bank.

Looking forward, HSBC should benefit from rising interest rates too. With the aim to rein in surging inflation, the base rate increased to 0.5% in February. But market analysts expect the Bank of England to raise it again over the coming months. Typically when interest rates rise, banks can earn more from lending activities such as mortgages than they need to pay out for interest-bearing customer deposits.

That said, higher interest rates could deter some borrowers. It could also raise competition for mortgage products. Overall though, I’d expect the net effect to be positive for HSBC. Finally, its share price is up by 24% over the past year, but has drifted lower in recent weeks. I reckon that gives me an opportunity to buy these shares at a discount right now. It’s one that I’d consider for my Stocks and Shares ISA.

Best performing FTSE 100 stock

Another company with strong fundamentals but with a share price that has stalled in recent weeks is Airtel Africa (LSE:AAF). Its share price has gained a whopping 82% over the past year, making it the best-performing FTSE 100 share. Its share price stumbled last month after two large holders sold shares. I reckon this could limit share price performance in the very near term, but even so, it still looks promising as a long term buy-and-hold UK stock.

As the name suggests, Airtel Africa focuses on providing telecom services in 14 African markets. There’s much to be excited about in this space.

Demand for voice, data and digital money services is set to grow for many years. And the region offers several encouraging trends. These markets have high population growth rates. They also tend to have much younger populations than other parts of the world. That coupled with an expanding middle class and limited banking facilities all bodes well for this established telecoms player.

Recent financials look good. Its pre-tax profit in the nine months ending 31 December surged 79% to $864m. That said, there are some risks to consider. Competition is rising, it’s a highly regulated sector and there are cyber security risks.

But I consider Airtel to be a good-quality share with excellent growth prospects and an undemanding valuation. It’s definitely a UK share that I’d consider tucking away for several years.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and HSBC Holdings. 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 tale of the market has been one of volatility over the last six months. The FTSE 100 has seen four big dips during this period and the US market has been sliding steadily in 2022 prompting calls to ‘buy the dip’. While many see this as a chance to capitalise, Warren Buffett is holding on to his cash pile in search of more stable market conditions and businesses. So what’s his reasoning and why am I content to watch the market and do some research right now as well?

Berkshire Hathaway’s results and annual letter

Warren Buffett’s Berkshire Hathaway released its fourth-quarter (Q4) 2021 results recently. Surprisingly, its balance sheet showed a $147bn cash reserve. In fact, this is the second year in a row that Berkshire’s stock sales value was higher than stocks purchased. In 2021 alone, the company unloaded a net $7.4bn in shares.

Buffett reiterated in his annual letter that the team at Berkshire picks businesses and not simply stocks. This reiterates one of his popular principles of picking companies that offer long-term value rather than trading based on price fluctuations. And to me, market health is determined by its stability, which has been rare in recent months. Even though my watchlist of quality companies looks resilient, recent results should still be subject to intense scrutiny, according to Warren Buffett.

The Oracle of Omaha warned investors to be wary while reading financial reports and make sure that businesses are accounting for all factors. “Deceptive ‘adjustments’ to earnings – to use a polite description – have become both more frequent and more fanciful as stocks have risen. Speaking less politely, I would say that bull markets breed bloviated bull,” Buffett wrote.

Uncertain times

I think that over last two years investing has gained a lot of traction. And new investors get carried away by the promise of incredible returns. But I stand by the Foolish investing philosophy of looking at the long-term potential of a business and not investing based on trends.

Several promising sectors have hugely inflated valuations right now. For example, the gaming boom in 2020 brought in a lot of investors and UK gaming stocks grew immensely. But gaming shares have fallen steadily since mid-2021. Shares of UK giants like Frontier Developments are down over 45% in 12 months.

The same holds true for even the most tested businesses. Commodity prices have been fluctuating in the last six months and are set to worsen given recent disputes. The Bank of England increased its key interest rate this month to contain the fastest growing UK inflation in decades. This could have a trickle-down effect on sectors like housing and development. The electronic vehicle boom inflated the valuations of companies like NIO, Tesla and Rivian. But all three shares are down over 25% since 2022. Trusted performers like Rolls-Royce were forced to restructure and I think gauging the success of these efforts will take time.

Right now, picking solid businesses is no easy task, even for a genius like Warren Buffett. There are several variables that could affect the market, making it a tricky period. But I’m staying calm, and carefully observing and researching the shares on my watchlist. That’s my key action for today. I would consider an investment once market conditions stabilise in the coming months. 

Suraj Radhakrishnan 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.

Enthusiasm for Britain’s housebuilders remains soggy as investors fear the impact of Bank of England (BoE) rate rises. Taylor Wimpey’s (LSE: TW) share price, for example, has slumped 12% since the beginning of the year, to 146p. This means on a 12-month basis, the FTSE 100 stock is down 17%. It’s my opinion that share pickers are being far too cautious on housing stocks like this.

I have no intention of selling my own Taylor Wimpey shares. As BoE data shows today, the UK homes market remains extremely robust. Some 74,000 mortgage approvals for property purchase were signed off in January. That remained some way above the 12-month pre-pandemic average of 66,700 monthly approvals up to February 2020.

Taylor Wimpey’s own comments in late January also underlined the resilience of the housing industry. It then reported that “we continue to see strong demand for our homes” and that its order book was already 47% sold for 2022.

Encouragingly, the company’s so confident about its profits outlook that it plans to launch a buyback programme to return excess cash to shareholders.

Cash machine

Taylor Wimpey’s excellent cash generation is what encouraged me to first invest (along with FTSE 100 counterpart Barratt). Its rich balance sheet allowed the business to pay some mouth-watering dividends.

So I’m pleased that despite the problem of rising building costs, Taylor Wimpey remains an impressive cash-creating machine. Net cash surged to a forecast-beating £837m as of December, up from £719.4m a year earlier.

It’s no surprise to me that City brokers predict more big dividends will be coming down the line then. Last year’s predicted 8.55p per share reward is anticipated to rise to 9.47p in 2022. This leads to a mighty 6.5% dividend yield, one that smashes the broader FTSE 100 average of 3.6%.

The good news doesn’t end here either. A total dividend of 9.88p per share is anticipated for 2023 too, creating a handsome 6.8% yield.

A FTSE 100 stock I’d buy more of

Recent market volatility means many UK shares carry big dividend yields which look pretty flaky. However, I think the predicted dividends at Taylor Wimpey look pretty secure. On top of that strong balance sheet, anticipated payouts for the next two years are covered 2 times over by expected earnings. A reading of 2 times and above is regarded as the benchmark for investors to be confident in dividend projections.

Those City analysts also reckon annual earnings will rise 8% in both 2022 and 2023. Consequently, Taylor Wimpey also trades on a rock-bottom forward price-to-earnings (P/E) ratio of 7.7 times.

Like any UK share, Taylor Wimpey isn’t without risk. Future BoE rate rises could hit demand for homes, and rising raw materials costs pose another danger to profits. However, these are threats I think are reflected in that low earnings ratio several times over.

At current prices I’m thinking of buying more of the FTSE 100 business.

Royston Wild owns Barratt Developments and Taylor Wimpey. 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.

Was this article helpful?

YesNo

Amid the recent stock market turbulence, I have been looking for cheap UK shares to buy for my portfolio. I am not searching for just any enterprises. And I am not willing to buy a company just because it looks cheap.

I am looking for corporations benefiting from significant structural tailwinds. These should help them continue to report growth, no matter what the future holds for the global geopolitical environment. 

With that in mind, here are my favourite cheap UK shares. I would buy both of these stocks for my portfolio today. 

Educational market growth

The first company is education group Pearson (LSE: PSON). The enterprise focuses on providing learning materials for institutions around the world. This is a market that is only likely to grow in the decades ahead.

According to its latest results release, underlying sales grew 8% overall in 2021, primarily driven by an increase in demand for professional qualifications.

Management has also been pushing to move much of the business online, which has helped improve overall profitability and cash generation. Indeed, as a side effect of this, at the end of the year, the company had managed to reduce its net debt by around £113m to £350m. 

However, Pearson’s business is not without challenges. This market is competitive, and the rising cost of living could push consumers to look elsewhere for cheaper educational materials. This is probably the most considerable risk to the company’s growth right now. 

Still, with the stock trading at a forward price-to-earnings (P/E) multiple of 14.7, below its five-year average of around 17, I think the shares look undervalued, compared to the group’s potential. 

One of the best cheap UK shares

As well as Pearson, I also believe Currys (LSE: CURY) is another business that looks undervalued compared to its potential. 

After a couple of years of volatility, the group now appears to be getting itself back on track. Sales for the 10 weeks to 8 January increased 11%, compared to the same period in 2019. That is a notable improvement. It also shows that the demand for tech remains robust, despite the global supply chain crisis and high demand reported in 2020. 

And we have to be aware of such challenges over the next 12-24 months. The supply chain crisis could hit the availability of products, while consumers may put off purchases if prices rise too much. 

Even after taking these into account, I think the demand for electronics and electronic equipment will only grow in the years ahead. This is the primary reason I would buy the stock for my portfolio today.

It is also selling at a 2023 P/E ratio of just 6.4, which looks incredibly cheap, considering the company’s position in the UK and European electronics market. A potential dividend yield of 3.8% only sweetens the appeal for me. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.