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When I’m looking for stocks to buy for my portfolio, I often look at the holdings of top-performing funds. I find that this is a great way to generate investment ideas.

Here, I’m going to highlight three top stocks in Terry’s Smith Fundsmith Equity fund I’d buy today. All of these companies are leaders in their industries and appear to have considerable long-term growth potential.

Microsoft

Let’s start with Microsoft (NASDAQ: MSFT), which is one of Fundsmith’s biggest holdings. It’s one of the largest technology companies in the world.

To my mind, MSFT has all the right ingredients to be a ‘core’ long-term holding. For starters, it has attractive long-term growth prospects. In the years ahead, it should benefit from the growth of the number of industries, including the cloud computing, remote work, and gaming industries. 

Yet at the same time, it’s a relatively ‘defensive’ company. People aren’t going to suddenly stop using Microsoft products like Office and Azure if there’s an economic slowdown. Meanwhile, the group has a strong balance sheet and generates an enormous amount of cash. 

Of course, MSFT is not risk-free. If we see further weakness across the tech sector, MSFT could underperform. With the stock now trading at 28 times next year’s earnings however, I think it’s a good time to be buying for my portfolio.

Estée Lauder

Next up is Estée Lauder (NYSE: EL). It’s one of the world’s largest skincare and make-up companies.

One reason I like this Fundsmith stock is that its brands provide a strong competitive advantage. When it comes to beauty products, people tend to buy the same brands over and over again.

Another reason I see appeal here is that the company looks set for growth both in the short term and the long term. In the short term, it could benefit as the world continues to reopen and people socialise more. Meanwhile, in the long run, the company looks set to benefit from the ‘premiumisation’ trend – where consumers are happy to pay more for premium products.

It’s worth pointing out that EL does have a relatively high valuation (the forward-looking P/E ratio is about 34). If future growth is disappointing, the stock could fall.

However, it has recently had a near-20% pullback. So I think it’s a good time to start building a position.

Intuit

Finally, I also like the look of Intuit (NASDAQ: INTU) right now. It’s a leading provider of accounting solutions, and the owner of QuickBooks.

There’s a lot to like about Intuit from an investment point of view, to my mind. One key attribute here is that its products are ‘sticky’. Once businesses sign up for an accounting product, they’re unlikely to switch to a competitor, due to the time and costs involved in switching. This means revenues are quite predictable.

Secondly, the company has a strong growth track record, and is very profitable. Over the last three years, revenue has climbed 60% and return on capital employed (ROCE) has averaged more than 30%.

Like MSFT, Intuit could underperform if sentiment towards tech stocks continues to deteriorate. In the short term, this is definitely a risk.

All things considered however, I see a lot of appeal here. After a recent pullback, the stock now trades at 35 times next fiscal year’s forecast earnings, which I think is a very fair valuation.

Edward Sheldon owns shares in Intuit and Microsoft. The Motley Fool UK has recommended Microsoft. 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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Key points

• Evraz’s largest shareholder is Chelsea FC owner Roman Abramovich
• The company’s operations could be hit by sanctions against Russia
• But this FTSE 100 stock might be a high-risk bargain

Russia’s invasion of Ukraine triggered massive falls for Russian firms listed on the London Stock Exchange. The biggest of these fallers was Roman Abramovich’s steel company Evraz (LSE: EVR), whose share price fell by 70% in February.

There’s a lot of uncertainty about whether the company’s operations outside Russia and its UK stock market listing will be affected by sanctions. Here, I’ll explain why the Evraz share price has fallen so hard and if I’d consider buying the shares.

Strong numbers

Evraz issued its 2021 results last week, but these strong numbers were overshadowed by the invasion of Ukraine. Even so, I think they’re worth a quick look.

Total revenue rose by 45% to $14,159m in 2021 at this coal, iron ore and steel group. Net profit rose by 262% to $3,107m and Evraz generated more than $2bn of surplus cash.

Shareholders received a total dividend of $1.25 per share, or around 90p. With the Evraz share price at around 150p, that’s equivalent to a whopping 60% dividend yield. This isn’t normal — the market is pricing this stock as a high-risk situation.

Risk versus reward

I’ve previously been attracted to Evraz because it’s a relatively low-cost producer with good cash generation. When times are good, the group pays very generous dividends.

Last week’s slump has left Evraz stock trading on just two times forecast earnings. According to broker forecasts, the stock could offer a 50% dividend yield for 2022. However, in a special situation like this, it’s even more important than usual for me to consider the risks. What could go wrong next?

I can see a range of possible problems. One is that Evraz’s exports outside Russia could be restricted. I’d guess Chinese sales would be safe, but the group’s operations in the US and Europe might be affected. Profits could slump, although I think it would be manageable.

Evraz share price: why I’m not buying

The biggest risk I can see for UK shareholders is that Evraz will delist its shares and move to a single listing on the Moscow Stock Exchange.

This might not be a big problem for the group’s controlling shareholders. These include Chelsea FC owner Roman Abramovich, who owns 29% of Evraz. Abramovich and four others control 66% of Evraz stock. My guess is that they’d be able to maintain their ownership and continue receiving dividends if Evraz moved to the Moscow Stock Exchange.

However, UK shareholders probably wouldn’t be able to own Moscow-listed shares. As a result, they could be forced to sell at a very poor price when the stock was delisted.

For me, this is probably the biggest reason for last month’s share price falls. I’m pretty sure Evraz will survive, but UK shareholders could be forced to sell at rock bottom prices.

This risk is impossible for me to measure, but it could do serious damage to my wealth. For this reason, I’m not going to buy Evraz shares, however cheap they might look.

Roland Head 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.

One of my favourite ways to earn passive income is from dividend shares. Many UK shares pay dividends but some pay more than others. Currently, the average FTSE 100 dividend yield is 3.7%. I’d rather receive that than the minimal interest I’d get in a bank savings account.

There are some factors to consider though. Investing in shares involves taking more risk than putting my money in the bank. Share prices can fall as well as rise, as can dividend payments. But by picking a few quality shares that have a good dividend record, strong balance sheet, and reasonable outlook, I’d aim to build a decent passive income.

Property vs shares

I’m often asked about passive income from property vs shares. In some ways they’re quite similar. As a property investor, I’d receive income in the form of rent. That’s like the income I’d receive from share dividends. The price of my property tends to rise over time, just like I’d expect the value of my shares do too. And just like a property would achieve differing rents dependent on location and tenant demand, shares distribute varying amounts of dividends depending on the business.

There is one key difference though. I’d need to invest a much larger sum to buy a property, whereas I could start receiving passive income from shares with as little as £5 a day. In fact, I could start with even less. But £5 a day equates to £1,825 over a year. If I receive the average dividend yield of 3.7%, that totals £68 a year in passive income.

Best shares for passive income

If that doesn’t seem like much, there are two points to note. Firstly, I can always add to my investment over time. Bit by bit I’d be able to grow my dividends as well as my total pot. Secondly, with some homework, I reckon I could pick some quality dividend shares that pay much more than the average.

For instance, I currently like the electricity provider SSE. It currently pays a dividend yield of 5%, and I see it as a reasonably stable play in uncertain times. Another dividend share I like right now is housebuilder Persimmon. With a dividend yield of 10%, it’s far above average. That said, it’s important to bear in mind that payments need to be sustainable. And if there is a risk to earnings, there could be a risk to the level of dividend payout too.

If I invested £5 a day into these two FTSE 100 shares, I’d end up with around £137 of passive income.

Reinvesting dividends

Now, I could withdraw this income and spend it on something nice. But right now I’d prefer to maximise my passive income in a few years rather than immediately. That’s why the next part of my plan involves reinvesting the dividends. This means that I would take my £137 of income and buy more shares. Those shares would pay more dividends, with which I could buy more shares, and so on. Reinvesting dividends is a great way to boost passive income over time and it can even be automated via an online broker.

Harshil Patel owns Persimmon. 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 Lloyds Banking Group (LSE: LLOY) share price fell sharply when Russia invaded Ukraine last Thursday, but the bank also released its 2021 results on this day. My feeling is that Lloyds’ annual report probably played a bigger role in stock’s slide.

Last week’s slide means that Lloyds shares were down by 6% at the end of February. Here, I’ll explain why I think the stock fell and why I’m tempted to buy Lloyds for my portfolio at current levels.

Profits up and the dividend is back

Lloyds generated a pre-tax profit of £6,902m last year, compared to £1,226m in 2021. However, the main difference between these two numbers is the bank’s £4.3bn allowance for bad debt in 2020.

Stripping out bad debt charges and other one-off costs, Lloyds’ underlying pre-tax profit rose by 6% to £6,833m in 2021. However, although profits rose, they were still slightly below analysts’ forecasts. This may be one reason why the Lloyds share price fell on Thursday.

Fortunately, the dividend was reinstated as expected. Shareholders will receive a total payout of 2p per share for 2021, giving a trailing dividend yield of 4%. There’ll also be a £2bn share buyback, which could provide some support for the share price.

£4bn growth plan

Lloyds’ new chief executive Charlie Nunn wants to boost growth. Over the next five years, he plans to invest £4bn to help Lloyds sell extra products to existing customers and attract new customers. Nunn is targeting the “mass affluent” — people with income or wealth of more than £75,000.

Lloyds says that, on average, its customers have 2.4 products with the bank, but seven financial products in total. Nunn wants to persuade customers to switch products such as insurance and wealth management from other providers to Lloyds. He reckons that this could generate £1.5bn of extra revenue each year by 2026.

To me, it looks like he wants to reduce Lloyds’ dependency on interest income from mortgages. Diversifying the group’s income in this way makes sense to me.

As the UK’s largest mortgage lender, Lloyds is heavily exposed to the housing market. After a decade-long housing boom, I think there’s some risk of a slowdown if interest rates continue to rise. That could hit Lloyds’ profits.

Lloyds shares: would I buy?

Nunn’s strategy looks a positive move to me, but it does seem a bit cautious. This may be another reason why Lloyds’ stock fell last week.

However, as a potential shareholder, I wouldn’t want too much excitement from Lloyds. I’m more interested in a reliable dividend income and steady growth. In my view, Lloyds could be well-positioned to deliver these benefits.

At current levels, Lloyds offers a well-supported 5% dividend yield and trades at a discount of more than 10% to its book value. For me, that looks like a good value income buy.

If I didn’t already own a UK banking stock in my ISA portfolio, I would be tempted to buy Lloyds shares today.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

When it comes to investment trusts for passive income, it’s hard to look past the ‘Dividend Heroes’. These are trusts that have consistently increased their dividends 20 or more years in a row.

Here, I’m going to highlight two of my favourite Dividend Heroes. If I was looking to generate passive income from the stock market today, I would definitely consider these two investment trusts for my portfolio.

Scottish American Investment Company

Let’s start with Baillie Gifford’s Scottish American Investment Company (LSE: SAIN). This is a global product that aims to be a ‘core investment’ for private investors seeking income. It predominantly invests in equities but also allocates capital to bonds, property, and other asset classes.

One thing I like about this particular Dividend Hero is that its portfolio is highly diversified. At the end of January, over 45% of the portfolio was allocated to European and Asian stocks. These two areas of the market are often neglected by UK investors.

I also like the kind of stocks this trust holds. At 31 January, the top 10 holdings included Big Tech giant Microsoft, healthcare specialist Novo Nordisk, and consumer goods powerhouse PepsiCo. These are world-class companies.

Now, the dividend yield here isn’t that high. Currently, it’s only about 2.4%. However, I’m not too fussed about this as the trust has a great track record when it comes to delivering high total returns (capital gains plus dividends). For the five years to the end of 2021, for example, its share price rose 93%. This means that total returns over that period were more than 15% per year.

It’s also worth noting that the trust has now registered 47 consecutive dividend increases.

Of course, past returns are not an indicator of future performance. There’s no guarantee this trust will provide good returns going forward. However, I see it as a great pick for passive income as part of a balanced investment portfolio. Ongoing charges are 0.70% per year.

Murray Income Trust

Another of my favourite Dividend Heroes is Murray Income Trust (LSE: MUT). This trust, which is managed by Abrdn and has now posted 48 consecutive dividend increases, aims to provide high and growing income along with some capital growth. It mainly invests in UK shares but has a little bit of exposure to international stocks. Top holdings at the end of January included Diageo, AstraZeneca, and RELX.

This trust also has a pretty good track record when it comes to performance. For the five years to the end of 2021, for example, it generated a share price return of 57%. That’s a solid return for a UK-equity product. By contrast, the FTSE All-Share index delivered a return of just 30% over that period.

As for the dividend payout, this is very appealing, in my view. Last year, MUT paid out income of 34.5p per share. At the current share price, that equates to a yield of about 4.1%. I’d be happy with that yield if my goal was to generate passive income. Dividends are paid quarterly too, which is handy.

It’s worth pointing out that dividends from investment trusts are never guaranteed. If the stocks owned by MUT reduced their dividends, the trust may have to reduce its payout too.

I’m comfortable with this risk though. Overall, I see MUT as a very solid product for passive income. Ongoing charges are 0.46% per year.

Edward Sheldon owns shares in Diageo and Microsoft. The Motley Fool UK has recommended Diageo, Microsoft, and RELX. 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 searching for some bargains to buy following recent market volatility. Here are two penny stocks that have caught my eye.

Poised to rebound?

The Accrol Group Holdings (LSE: ACRL) share price has sharply unravelled over the past year. The toilet and kitchen roll manufacturer’s lost 63% of its value in that time as rising input costs have smacked earnings and profit warnings have materialised.

But could now be a good time for long-term investors like me to invest? The problem of soaring input costs could continue well into 2022. However, the pace at which City analysts think earnings might rebound in the near future still makes it an attractive dip-buy, at least to me.

The number crunchers expect full-year earnings to drop 89% in the outgoing financial year (to April 2022). But they’re expecting profits to  rebound almost 500% in the period starting in May as costs normalise and sales to hospitality rebound. This leaves Accrol trading on a rock-bottom forward price-to-earnings growth (PEG) ratio of around 0.1

I like Accrol because its private label products sell much more cheaply than major brands like Andrex and Charmin. Thus it’s well placed to capitalise on the rising importance of value in the minds of modern consumers. The penny stock’s products can be found in most major supermarkets and discount retail chains, giving Accrol a massive opportunity to ride this retail trend.

Another penny stock I’d dip-buy

Foresight Sustainable Forestry Company (LSE: FSF) is a UK share you probably haven’t heard of. It only began trading on the London Stock Exchange in November and didn’t exactly get off to a flyer. It slumped in its first week of trading and, although recovering closer to its IPO price of 100p, it remains at a discount at 91p.

I think this stock could play an important role in Britain’s green economy, even though that disappointing IPO echoed the scepticism that still surrounds timber stocks. Foresight Sustainable Forestry Company raised £130m with its flotation, missing its target by a cool £70m.

It has two important roles to fulfil as the battle against climate change intensifies. It will help plant the trees needed to help the UK meet its net zero targets (the government plans to plant 75,000 acres of trees each year). And the timber it eventually produces will help service a growing market for sustainable building products. The trust reckons demand for timber products worldwide will quadruple between 2012 and 2050.

Investing in newly-created companies like this can be considered risky. After all, there aren’t stacks of trading reports available to help inform my investment decision. However, from what I’ve seen, I think this company has plenty of potential to deliver solid returns. I’ll do some more research here with a view to investing some of my own cash.

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.

Growth stocks have underperformed their value counterparts since the beginning of the year. This might mean that it is a good time to be looking for opportunities in growth stocks. In light of this, here are three growth stocks that I’m thinking about adding to my portfolio in March. 

Adobe

The first stock on my list of growth stocks to buy in March is Adobe (NASDAQ:ADBE). The company provides software on a subscription basis. Its gross margins are huge at over 80% and its net margins are in excess of 30%. The company’s balance sheet is strong, with interest payments on debt accounting for less than 2% of operating income. Lastly, the fact that it is the industry standard makes it extremely difficult for users to switch to different software, meaning the company has a huge economic moat. 

Over the last five years, the company has averaged revenue growth of over 20%. This is impressive, but if it shows signs of slowing, I suspect that the stock will fall as a result. I think, however, that Adobe’s competitive advantages will persist, and that this will prove to be a great growth stock for me to buy in March. 

Experian

The second growth stock I’m looking at this month is Experian (LSE:EXPN). The company provides credit information to lenders to help them make decisions about who to offer loans to. Like Adobe, the company has a huge competitive advantage. It has a huge database that is almost impossible for a competitor to regulate. Moreover, it provides a service that it is very difficult for its customers to live without.

The risk with Experian comes from the company’s negative working capital model. Experian regularly operates with current liabilities in advance of its current assets. This can limit the company’s financial flexibility. As a result, Experian’s share count has fluctuated in recent years. But the fluctuations have been minor and I think that Experian’s advantages are enduring. This means that Experian is a growth stock that I’d look to buy in March.

Tyler Technologies

The last company on my list of growth stocks to buy in March is Tyler Technologies (NYSE:TYL). This one might be less well-known than Adobe or Experian, but I think it might be a nice under-the-radar investment opportunity for me.

Tyler Technologies provides software platforms to government organisations. This facilitates things like paying water bills or filing court documents. Like Adobe, Tyler Technologies enjoys high gross margins. Unlike Adobe, Tyler Technologies operates in a niche where the competition is almost non-existent and the company has plenty of scope for expansion. 

Shares in Tyler Technologies come with a hefty price tag. The stock is not cheap and there is some significant growth already priced in. The lack of competitors, however, means that Tyler Technologies has a relatively clear path to growing its business for the foreseeable future, so I think that the risk of underperformance is somewhat limited.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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 FTSE 250 index can be a great place to find attractive shares to buy. In this area of the UK stock market, there are some stocks that are less researched, which means that there’s more potential for outsized investment returns.

Here, I’m going to highlight two top FTSE 250 shares I’d buy as we start March. Both of these companies have a lot of momentum right now, and I think they have the potential to be great long-term investments for me.

A top FTSE 250 stock

First up is Computacenter (LSE: CCC). It’s a leading independent technology company that helps businesses and government organisations across the world source, transform, and manage their IT infrastructure.

This FTSE 250 company appears to be ticking along quite nicely at present. In a trading update posted in late January, the company advised that it finished 2021 with a strong quarter that was ahead of its own expectations, and that revenue for the year was up 23%. Meanwhile, it also said that its product order backlog was at an all-time high and considerably larger than a year earlier. 

Looking ahead, I think CCC is well positioned to generate solid growth in the years ahead. That’s because all over the world, companies are undergoing digital transformation. There is the risk that growth could stall in the short term due to the fact that so many businesses brought forward tech spending during the pandemic. However, given that many businesses are yet to go digital, I think the long-term prospects here are attractive.

As for the stock’s valuation, it’s very reasonable, to my mind. At present, the forward-looking P/E ratio is about 18, which is not high given the company’s growth track record and prospects. At that valuation, I’m a buyer. A dividend yield of around 2.2% is a bonus.

A booming industry

The second FTSE 250 stock I want to highlight today is Tritax Big Box (LSE: BBOX). It’s a real estate investment company that owns a portfolio of large-scale logistics warehouses. These are rented out to retailers such as Amazon and Tesco.

A recent trading update from Tritax was very encouraging. The company advised that market fundamentals remain “strong”, with high occupier demand and “historically low levels” of available space. And it also said that it’s accelerating its development programme with significant development expected over the next 12 months. It believes its development portfolio has the potential to more than double contracted rent over the long term.

One issue to be aware of with BBOX is that the company sometimes raises capital from investors to fund its expansion plans. This can have a negative impact on the share price in the short term. Another risk is the stock’s P/E ratio of 30. This valuation doesn’t leave much room for error.

I’m comfortable with these risks, however, as I’m a long-term investor. The UK e-commerce industry set for strong growth over the next decade. So I think the long-term prospects here are very attractive. And with the stock offering a yield of around 3% right now, I see a lot of investment appeal. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Amazon and Tritax Big Box REIT. The Motley Fool UK has recommended Amazon, Tesco, and Tritax Big Box REIT. 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.