Gas often has a pleasing warm glow, but that is less true when it comes to shares of British Gas owner Centrica (LSE: CNA). The Centrica share price has spent years going off the boil. It plummeted from over £4 in 2013 to less than a tenth of that price in 2020.

But Centrica shares have recovered some ground in the past couple of years. This year it has reached as high as 80p. Can the shares hit £1 before the year is out?

Possible drivers for Centrica shares to move up

The bull case for Centrica now is much as it always has been. As the owner of the leading legacy gas supplier in the UK, Centrica enjoys a massive inbuilt advantage. It has a customer base of millions. So, even if it does not provide perfect service or compete on price, over time enough customers will probably stay with it to make it a profitable, if not very compelling, business.

More recently, a couple of additional considerations have come into play. Soaring energy prices have led to the possibility of big growth in profits. As so often with the firm, events are not quite as simple as they look. Given its large energy trading business, moves in gas prices actually pose a risk of hurting the company’s profits. Still, if its trading division stays on its toes, surging gas prices should turn out to be good for the company’s profits.

More importantly in the long term, Centrica has dramatically reshaped itself. After selling some businesses, it is now better focused on its core operations. I think that could make it a more consistent financial performer and see it as positive for the shares. The strategy already seems to be bearing fruit. Yesterday, Centrica’s results showed the company’s free cash flow surging 71% year-on-year to £1.2bn. That means the company is now trading for less than four times annual free cash flow. On that basis, its shares seem like a bargain.

Bearish thoughts on the Centrica share price

But as a Centrica shareholder, I have become used to its seemingly endless potential for disappointing surprises.

Specifically on this occasion, the results disappointed on the dividend. This was one of the main attractions for income investors until it was slashed in 2015 and then scrapped altogether in 2020. Given the strong business performance last year – basic earnings per share for continuing operations boomed to 10p – a dividend restoration might seem to be in order. But management just flannelled, saying there was a “clear path to restart paying a dividend”.

As a shareholder I am less interested in whether management sees the path than whether it actually pays a dividend. Failure to restore the dividend again, despite booming earnings, makes me think Centrica is saddled with lacklustre management.

Centrica beyond penny share status

Despite that, I continue to expect dividends to be restored at some point. Business is booming and the leaner, more focused group could keep performing strongly. Hopefully there will be fewer nasty surprises for investors in future.

With the wind in its sails, I think the Centrica share price could keep climbing and may reach £1 this year. That is not guaranteed, but I will continue holding it in my portfolio, hoping to benefit from the improved outlook.

Christopher Ruane owns shares in Centrica. 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.

I believe the BT (LSE: BT.A) share price could be undervalued by as much as 50%, at current levels. 

This analysis is based on the company’s current valuation and that of its peers, both in the UK and internationally.

Indeed, while the company does not have many direct peers here in the UK, it does have many internationally. These operate in the same sector and exhibit the same attractive qualities as the telecommunications giant. 

International comparisons

One of the largest telecommunications corporations in the US is Verizon. This company is a favourite of the billionaire investor Warren Buffett, and it has an expanding presence across the country in fibre broadband as well as mobile. 

Another example in Europe is Deutsche Telekom. This Germany-based group has an international presence and owns a growing footprint in emerging markets. 

Both of these companies are significantly bigger than BT. Their revenues are around four times the size of the UK establishment. Still, I think these organisations provide an excellent benchmark for investors to analyse the corporation’s valuation and position in the market. 

According to my analysis of international telecommunications enterprises, the average valuation is around 50% higher than that of the BT share price. This is based on the enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) ratio. 

I think this ratio is more appropriate when analysing telecoms companies because it considers a couple of factors that the price-to-earnings (P/E) ratio ignores. The ratio takes into account corporate debt and the cost of maintaining telecoms equipment.

Neither of these factors is reflected in the P/E ratio, which can be a significant drawback. Investors need to consider the high cost of maintaining telecoms equipment and the relatively high borrowing levels these companies tend to have. 

BT share price valuation

BT’s international peers are trading at an EV/EBITDA ratio of around 8, according to my analysis of companies that have a similar position in their respective markets.

Smaller companies may be able to command a higher valuation if they target more profitable consumers. That is something BT, Verizon and Deutsche Telekom tend to avoid. 

At the time of writing, the BT share price is selling at an EV/EBITDA multiple of 5.5. That is a discount of 50% to the peer average. 

Of course, there are reasons investors may not want to pay a higher multiple for the corporation. It has a lot of debt and massive pension obligations. These will only become more pressing as interest rates increase.

The enterprise will have to fork out more cash to meet its creditor obligations. Competition in the UK telecoms market is also increasing, presenting another challenge for the company in the years ahead. 

Nevertheless, considering the company’s discounted valuation, I think the BT share price looks incredibly attractive at current levels, even after taking these risks into account. 

As such, I would be happy to buy the stock for my portfolio today as a value play. 

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 great thing about the stock market is that anyone can take part. With an investment of just £1,000, I could buy a portfolio of stocks similar to those owned by the ‘Oracle of Omaha’, Warren Buffett himself. 

Indeed, there are a couple of companies in his portfolio that I would not hesitate to acquire right now.

My favourite Warren Buffett stocks

The first enterprise I would buy is the technology giant Apple. Shares in this company are currently changing hands for around £120 each ($170), suggesting I could acquire as many as eight for my portfolio, assuming I do not want to invest anywhere else. 

This might not seem like a lot, but even Buffett had to start somewhere. Apple is currently the largest holding in his portfolio. The company has been returning vast amounts of cash to investors by repurchasing stock and hiking its dividend payout. 

The Oracle likes the company because it has a solid competitive advantage. Consumers are essentially tied to its flagship iPhone as it is hard to move information on two different systems. This means they are more likely to upgrade year after year and pay more for the privilege. 

That is not to say the firm does not face challenges. It is facing increasing competition from other smartphone producers and, like many other businesses, the group also has to deal with the global supply chain crisis. 

Global network 

Another Buffett stock I would buy is financial services group American Express. Best-known for its credit cards, the firm is one of the world’s biggest card providers. It makes money when consumers spend on their cards and with interest and fee income. 

However, the organisation is facing pressure from competitors. Many offer lower fees and more flexibility for consumers. Overcoming these headwinds is going to be the company’s biggest challenge in the future. 

Buffett has owned this stock for decades. He likes its brand power and global network. I am also attracted to these qualities. Each share is worth around £150 ($200) apiece, suggesting I can buy two for my £1k portfolio alongside four shares of Apple. 

Rising profits 

I would also buy Chevron for my portfolio. With oil prices surging, this oil giant can capitalise on the market’s growth. Management is already returning billions to investors with dividends and buybacks, and this trend appears set to continue. 

Still, oil prices can be highly volatile. If they suddenly fall, the company’s fortunes could change overnight. 

Despite this risk, I would buy two of the company’s shares for my Buffett-style portfolio with the remaining balance. 

This is the approach I plan to use to replicate the Oracle’s portfolio with my own money. By starting with an investment of £1,000, I believe I can gradually increase my exposure with additional contributions while also potentially benefiting from asset price growth. 

American Express is an advertising partner of The Ascent, a Motley Fool company. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. 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 has cranked up several gears following the tragic conflict enveloping Ukraine. For UK share investors there could be more choppiness to come too, as inflation soars and central banks aggressively raise interest rates in response.

Should I still be looking for cheap stocks to buy for my portfolio?

As a long-term investor, the prospect of further market volatility hasn’t derailed my investment plans. History shows us that stock markets are, over a period of a decade or more, a great way to build wealth. The average yearly return for long-term share investors clocks in at around 8%.

This is why I’m continuing to search for cheap stocks to buy today. I may even be able to pick up a bargain or two following recent market volatility. Here are two ultra-cheap stocks I’m considering snapping up.

Riding the green revolution

Sales of bicycles soared during Covid-19 lockdowns and Halfords Group (LSE: HFD) has been a huge beneficiary. Demand for its two-wheeled products has since cooled however, and latest financials showed cycling revenues down 23.8% year-on-year in the three months to December. Much further pressure could be coming too as consumer confidence comes under pressure.

Those sales numbers are no surprise though, given the electrifying demand for its product in the prior year. In fact, as a long-term investor, Halfords still has plenty of appeal for me. I expect sales of its bikes to steadily rise this decade as people switch away from their cars and head for the great outdoors.

The desire to lead healthier lifestyles continues to rise across society in this post-pandemic age. People are also looking for more environmentally-friendly ways to travel as the climate crisis worsens. What’s more, spending on cycling infrastructure is steadily increasing too in a bid to encourage people to take up cycling.

A cheap stock to buy today

Just yesterday, Brompton announced ambitious expansion plans that illustrate the robust outlook for bike sales over the next decade, at least. The folding bike specialist said its new factory it intends to open in 2027 will manufacture 200,000 cycles each year. It currently sells around 70,000 of its products per annum.

Now Halfords is expected to see some turbulence in the near term as supply chain issues bite and sales slow from recent levels. City analysts think earnings at the firm will slip 20% in this outgoing financial year ending March 2022. But they think profits will stabilise in fiscal 2023 before rising 8% the following year.

Based on these predictions, I think Halfords is a terrific cheap stock to buy. At current prices of 277p per share, the retailer trades on a forward price-to-earnings (P/E) ratio of 8 times. I think this rating, below the bargain benchmark of 10 times, fails to reflect Halfords’ solid long-term profits outlook. I’d buy it today with the aim of holding it for years to come.

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.

At the time of writing, the Lloyds (LSE: LLOY) share price is trading close to 52p per share. The stock has traded above this level for much of the past five years.

Indeed, before the pandemic began at the beginning of 2020, the stock rarely traded below 50p. The stock traded at an average price of approximately 60p between the middle of 2017 and the beginning of 2020. 

Plenty has changed since the beginning of 2020, both for the company and the UK economy. Considering these changes, I am wondering if the Lloyds share price is worth the current price, or if the market is missing something? 

Lloyds share price outlook

Several factors determine a company’s share price. The most important are fundamentals and market sentiment. If a corporation is fundamentally solid, with growing profits and a strong balance sheet, investors should be willing to pay more for the business. 

Market sentiment can also impact a company’s valuation. Even if a firm is unprofitable, if investors believe it has a lot of potential, they may be willing to pay a high price for the business. 

I think the Lloyds share price is suffering from adverse market sentiment. The company’s profits have recovered rapidly from the lows of the pandemic, but its stock price is failing to reflect this growth. 

Indeed, at the time of writing, the stock is trading at a forward price-to-earnings (P/E) multiple of 6.3. In 2019, investors were willing to pay a double-digit multiple for the business.

What’s more, with profits of £4.4bn pencilled in for 2022, compared to just £3bn for 2019, the company will earn more in the year ahead than in 2019.

As such, I do not think it is unreasonable to say that the market should be willing to pay a higher multiple for the stock today than in 2019. 

Twin headwinds 

Interest rates and economic uncertainty are the two significant challenges the company will have to deal with over the next couple of years. And I think these challenges are having an impact on market sentiment towards the enterprise. I can understand why some investors might be concerned.

The cost-of-living crisis coupled with rising interest rates could significantly impact consumer spending and borrowing. These twin headwinds could prove to be a significant drag on the company’s profitability. 

Still, even after taking these factors into account, I cannot ignore the company’s current valuation. The Lloyds share price looks cheap on a fundamental basis, and I think the market is overlooking its future potential. 

As such, I do not think the stock is really worth 52p. I think it is worth a lot more. With this being the case, I would look to take advantage of the depressed market sentiment towards the business and buy the stock for my portfolio today. As earnings continue to recover, I think the market’s opinion of the business could begin to improve.

Rupert Hargreaves 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.

I think investment trusts are one of the best ways to invest in the stock market. These companies manage a portfolio of assets with the goal of producing positive returns for their investors. 

They are not limited to just stocks and shares. Trusts can buy a range of different assets. Today, investors can acquire trusts that own everything from plane leases to energy storage facilities. 

Indeed, the flexibility of these investment vehicles is the primary reason I think they can be the best way to invest in the stock market. And there is one investment trust that looks incredibly attractive to me right now. 

The investment trust approach 

The Herald Investment Trust (LSE: HRI) is an uncovered gem, in my opinion. It specialises in technology stocks.

Its overriding aim is to generate capital growth by investing in a technology and telecom equities portfolio. And it has achieved this goal over the past five years returning more than 100% over this period, outperforming its benchmark.

Unfortunately, as investors have moved away from high-flying tech stocks over the past couple of months, the trust’s performance has deteriorated. Over the past three months, shares in Herald have lost 22%.

However, I think this could present an opportunity to snap up some shares in this investment trust, which has a strong track record of creating value for shareholders at a discount. 

The firm’s top holdings give some idea of the approach the company’s managers are using to invest in the market. At the end of 2021, the star holding was GB Group, a leader in identity data intelligence. The trust initially paid £3m for its stake in the enterprise several years ago. At the end of 2021, the holding was worth £48m. 

GB Group helps governments and companies fight cybercrime, lower the cost of compliance and improve the customer digital onboarding experience. Demand for these services is only likely to increase as the world becomes more digitised. And it is a great example of Herald’s desire to seek out growth stocks with an edge. 

Finding an edge 

Unfortunately, this process does have some risks. Notably, investing in growth stocks is always going to be challenging. Therefore, despite the investment trust’s track record, there is no guarantee it will be able to find the next GB. Neither is there any guarantee that its existing holdings will continue to outperform. 

As well as these issues, the trust also charges a management fee of more than 1%. This could eat into investor returns. 

Despite these challenges and risks, I would invest £500 in this investment trust today. I think it offers a unique package of exposure to the tech industry and fast-growing smaller companies. As the global tech sector continues to expand, I believe the trust is one of the best ways to invest in tomorrow’s firms via an experienced investment management team. 

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.

Last week’s news triggered a sharp sell-off for the Rolls-Royce (LSE: RR) share price. As I write on Friday morning, the stock is down by 12% in a week.

Russia’s invasion of Ukraine is probably a negative for Rolls-Royce, but the company doesn’t make much money in Russia. I think the real reason for the share price slump is the news that chief executive Warren East plans to leave. I’ve turned bullish on Rolls in recent months, but is now the right time to buy the shares?

CEO departure is a blow

I’m disappointed to learn that East plans to leave at the end of 2022. He’s highly rated by the markets. I’ve been impressed by the way he’s worked through some serious problems since taking charge in 2015.

He’s reshaped the organisation and dealt with serious technical issues on the Trent 1000 engine. He then led the business through the pandemic, cutting more than £1bn of annual costs and raising funds to provide a secure financial base for a recovery.

In the background, Rolls’ defence business has continued to grow, providing stable profits during a difficult period.

Finally, East has increased investment in lower carbon and net zero technologies. The group is now seriously committed and is spending 50% of its R&D budget on this work.

Financial results aren’t there yet

East has probably not been the luckiest CEO. I think he’s done the right things at the right time, but his plans have been delayed by events outside his control.

I think last week’s results reflect this. Although flying hours for Rolls’ large engines in 2021 were 11% higher than in 2020, they were still a long way below 2019 levels. As a result, the group’s civil aerospace business reported a loss of £172m last year. Fortunately, this was offset by profits of £457m in defence and £242m in power systems.

At a group level, Rolls-Royce returned to profitability with an underlying operating profit of £414m in 2021. However, the group continued to burn through cash, with a net outflow of £1,442m last year. As a result, net debt rose to more than £5bn.

East expects cash flow to turn positive in 2022, but was reluctant to give specific guidance last week.

Rolls-Royce share price: can it take off?

Broker forecasts suggest that Rolls-Royce’s earnings per share will rise to 4.8p in 2022 and 7.8p in 2023. These estimates price the stock on 21 times 2022 earnings, falling to 13 times earnings next year.

On a long-term view, I think this is probably cheap. The group remains a world-class engineering business with a sizeable share of key markets.

However, I’m aware there are still risks ahead. We don’t know how quickly long-haul flying will recover following the pandemic. Although Rolls doesn’t generate much revenue in Russia or Ukraine, this conflict may still cause further disruption.

I’m confident Rolls’ recovery will be a success. But I think there’s still some risk of further delays. Although I’d be happy to start buying Rolls-Royce shares for my long-term portfolio, I’d probably buy in stages, in case the share price has further to fall.

On balance, I don’t expect Rolls-Royce shares to lift off rapidly. I think a slow and steady recovery is more likely.

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.

I hold penny shares in my portfolio for a number of reasons. Although they trade for pennies not pounds, that does not in itself make them good value. Instead, I am looking for companies with positive long-term prospects, trading at an attractive price. I have been thinking about UK penny shares to buy now for my portfolio.

Two of them have dividend yields of 4% or more. Here they are.

Assura

The property landlord Assura (LSE: AGR) has seen its shares slide 20% over the past year. That means that the healthcare-focussed company’s shares now yield a healthy 4.8%.

I do not think the company is worth 20% less than a year ago. It has been growing its portfolio of properties, which ought to help it increase it income in future. The healthcare system remains busy and I expect demand to stay strong from the sorts of tenants Assura has, such as ambulance centres and doctors’ surgeries. That income helps sustain the dividend and a yield I now think would make an attractive addition to my portfolio.

One risk I see is the political risks in profiting from healthcare. That could make it harder for Assura to negotiate rent increases in future, hurting profits. But I expect it to keep seeing lots of demand from tenants. I think its tenants are likely to pay their rent, which makes it more attractive to me than some other commercial property landlords with struggling private sector retail tenants.

Lloyds

It seems odd that banking giant Lloyds (LSE: LLOY) is on my list of penny shares to buy now for my portfolio. But despite a market capitalisation of £33bn, the Lloyds share price does trade in pennies. That means that while its newly announced annual dividend of 2p per share may sound modest, the yield on these shares is now 4%.

I was disappointed by the size of the dividend increase. I also think the bank’s plans to expand into new areas of business increases its risk profile. On the positive side, though, it could help Lloyds diversify its business. That could give it some protection in the event that a property downturn leads to higher defaults on its large mortgage book. Meanwhile, its enormous UK banking operation remains hugely profitable, with post-tax profits last year reaching £5.9bn. 

Penny shares to buy now

Assura’s price fall has made it more attractive to me than it was before. Lloyds, on the other hand, is now 27% costlier than it was a year ago. Despite that, I like both of the companies as potential holdings for my portfolio that could boost my passive income streams.

Both companies are committed to increasing their dividends annually. Assura has done a better job of delivering this than Lloyds, whose dividend is now much lower than it was before the pandemic. But both offer me a yield of 4% or more, which is attractive enough to make me consider buying them for their income potential. Dividends are never guaranteed, so by buying two different companies I would reduce my risk. I would also get exposure to two different growth stories in diverse parts of the economy.

Christopher Ruane owns shares in Lloyds Banking Group. 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.

The global hydrogen market was worth an estimated $120bn in 2020. The market is expected to grow at a compound annual rate of 6% per annum over the next decade as this technology plays a vital part in the green energy revolution.

Considering this projection, I have been searching for high-quality hydrogen stocks to add to my portfolio. I have come across at least two companies that I would invest £5,000 in right now to capitalise on the market opportunity. 

Hydrogen stocks for growth

As the hydrogen sector is still in its early stages of development, I am not willing to invest a large percentage of my portfolio in the green energy sector. 

Most companies are still at the experimental stage, and many are likely to fail before commercialising their products. Still, I believe some businesses are better positioned than others. 

Ceres Power (LSE: CWR) is a great example. Last year, it raised over £200m from investors to fund its growth plans. This should give the firm the resources it needs to push its growth plans forward over the next few years. It also removes the risks of the group running out of cash. 

At the same time, Ceres has inked deals with some major manufacturers to licence its hydrogen production technology. Chinese engine specialist Weichai and Ceres are collaborating on a fuel cell for commercial vehicles. German manufacturing giant Bosch has also joined the duo. 

As well as this venture, South Korean multinational conglomerate Doosan is building a £90m plant to manufacture Ceres’s technology. 

These agreements mean the firm is miles ahead of its competitors and much further along the path of getting its tech to market. 

Still, there could be further challenges along the way. This market is incredibly competitive, and there is no guarantee the company’s technology will perform better than peers over the next 10 to 20 years. There is always the chance a cheaper technology could emerge. 

Growing green energy publicity

AFC Energy (LSE: AFC) is an expert in alkaline fuel-cell technology, which gives it a competitive edge. More importantly, the company’s technology is already out there, generating publicity and revenue. 

Back in November, AFC demonstrated its Extreme E hydrogen fuel cell generator to the Prince of Wales at the COP26 conference. The fuel cell helps Extreme E racing vehicles produce clean, green hydrogen wherever they are in the world. 

This is the sort of edge I am looking for in speculative hydrogen stocks. AFC has been building its presence in the market, and while the company is not yet earning much cash, this publicity could be worth its weight in gold. 

Nevertheless, just like Ceres, AFC faces risks. These include potential funding issues and completion from peers. Its publicity is not worth much if the firm does not have the funding to keep the lights on. 

Despite these challenges, I would invest part of my £5k lump sum in AFC alongside Ceres today, considering its potential over the next few years. 

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.