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When I bought IAG (LSE: IAG) shares last year, I knew it would be a long wait before they would pay off. My big motivation for buying them was their low price compared to what I saw as their real value. This was to be expected of travel stocks during the pandemic. As the Covid-19 situation improved, however, these stocks started picking up, including the IAG share price. And at many times since buying it, I have made notional gains on the investment. 

IAG share price weakness

However, since yesterday, travel stocks have once again been impacted. The stock markets took quite a wobble as Russia went to war with Ukraine. Cyclicals, in particular, have weakened. These are stocks like banks, travel, and leisure, that are highly sensitive to potential macroeconomic fluctuations. And that includes IAG. It plunged some 6.3% yesterday. It has recovered some of these losses in trading so far this Friday afternoon. I reckon this is partly because the stock markets have stabilised a bit today, but also because the company released its full-year 2021 results. 

Results are encouraging

The numbers are encouraging. The company’s revenues are up by 8.3% and its post-tax loss has declined significantly by almost 58%. And things are about to get even better for it. CEO Luis Gallego says in the results statement “We are confident that a strong recovery is underway”. This is also evident in the company’s projections for 2022. While it expects to continue clocking a loss in the first quarter of this year for reasons like seasonality and the impact of Omicron, it sees operating profits from the second quarter. For the year as a whole, it expects “both operating profit and net cash flows from operating activities to be significantly positive for the year”. 

Don’t forget the risks

However, there are still risks associated with the stock too. The big one of course is the return of Covid-19. We have likely put the pandemic behind us only until such time that a new variant is discovered. If another one does in fact come along, we might just go back into lockdowns. And that would be a huge negative for IAG, whose debt is already mounting. I am also concerned about the impact of inflation on IAG. Even though it is hedged against the impact of rising fuel prices, non-fuel costs could rise along with overall inflation. This is something I am looking out for in the near future.

Why I’d buy IAG shares

Overall though, I think risks to the IAG share price have declined significantly over the past year. The company’s own projections give me confidence, as does the improving macroeconomic environment as well as the fact that Covid-19-related restrictions are a thing of the past now. There are risks, of course, that include high inflation and the appearance of another coronavirus variant, but on balance they are not as big as the risks last year. I will increase my holdings of the FTSE 100 stock in 2022. 

Manika Premsingh owns IAG. 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

• Hochschild’s revenue grew 30% to $811.4m in 2021
• The company has benefited from increasing silver prices
• The ongoing military situation aside, Ferrexpo has displayed strong earnings growth

Given recent world events, I’m watching two FTSE All Share stocks that have excellent growth potential. While both are involved in mining, they operate in different parts of the world. Hochschild Mining (LSE: HOC) is engaged in gold and silver production in Argentina, Chile, and Peru. Ferrexpo (LSE: FXPO) is involved in the manufacture of iron ore and steel production. Why do I think these are both good growth stocks? Let’s take a closer look.

A FTSE All Share gold and silver miner

For the 2021 calendar year, Hochschild reported a 30% revenue increase to $811.4m, which can be partly explained by the rise in the silver price over this time. The firm’s cash balance grew to $386.8m, compared to just $231.9m for the same period in 2020. While there is a risk of further Covid-19 variants impacting the company’s operations, these recent results strongly suggest the business is going in the right direction.

Furthermore, the firm’s forward price-to-earnings (P/E) ratio is just 7.23. When compared with a major competitor in the precious metals market, Fresnillo, which has a forward P/E of 35.84, it is possible that Hochschild is undervalued.     

What’s more, the company’s earnings have increased consistently. Between the 2017 and 2021 calendar years, earnings per share (EPS) rose from ¢8 to ¢14. This shows growth has been both strong and consistent.

An iron ore growth stock

Ferrexpo produces iron ore pellets for use in the steel industry. With operations in Ukraine, the share price understandably plummeted as military action in the region progressed. 

The company released a statement that it would “prioritise the safety of its workforce” given the current events. While the situation is concerning, and is something that is on my mind, the firm’s results are attractive.

For the three months to 31 December 2021, for instance, Ferrexpo’s cash position stood at $117m. For the same period in 2020, this figure was just $4m. Indeed, EPS grew between the 2016 and 2020 calendar years from ¢33.6 to ¢108.1. Aside from the current military situation, this company is appealing to me, a potential investor.

Indeed, the business has a forward P/E ratio of just 5.09. When compared with a rival like Rio Tinto, we see that Ferrexpo may be undervalued at current levels. Rio Tinto’s forward P/E ratio is slightly higher at 7.5. This may suggest that Ferrexpo shares are currently cheap.

Both of these companies are exciting growth stocks. Due to the rapidly changing geopolitical situation in Ukraine, I’ll have to wait longer before buying Ferrexpo. I want to ensure its growth continues. Hochschild is also strong and the increasing revenue and cash position means I will be buying this company without delay.

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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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After Russia launched a full-scale invasion of Ukraine, stock markets had a mini-meltdown yesterday. From high to low, the FTSE 100 index’s range was almost 295 points (4.1%). However, the Footsie is a long way from a full-blown stock market crash. As I write, it has lost under 300 points (-3.9%) from its 52-week high. Even so, yesterday’s heightened volatility threw up some bargains. Here are three FTSE 100 shares I don’t own, but would gladly buy today.

Cheap share #1: Lloyds Banking Group

On Monday, I wrote about Lloyds Banking Group (LSE: LLOY) with its shares at 50.83p. After Thursday’s mini-crash, Lloyds shares are now even cheaper. Yesterday, LLOY was a big FTSE 100 faller, dropping to 46p before recovering to close at 46.54p. Had I been home yesterday, I would have bought at these levels. However, as I write, the Lloyds share price has rebounded and trades at 49.16p, up 5.6% today. This values the Black Horse bank and its many subsidiaries at £34.9bn. I think that’s too cheap for a group with 30m customers that made £6.9bn before tax in 2021. The shares trade on a price-to-earnings ratio of 7.5 and an earnings yield of 13.3%. Based on the full-year dividend of 2p, the dividend yield is 4.1% a year — slightly above the FTSE 100’s cash yield. Although rising consumer prices and any economic pullback might hit Lloyds’ profitability, I’d still buy at these levels.

Discount stock #2: Rio Tinto

Global mining colossus Rio Tinto (LSE: RIO) is the second of my second cheap shares following yesterday’s minor stock market crash. At Thursday’s low, Rio shares dipped to 5,385p, before closing at 5,467p. Today, they have added another 9p (+0.2%) to 5,476p. This values the Anglo-American miner of iron ore, aluminium, copper, and lithium at £91.9bn, making it a FTSE 100 powerhouse. With metals prices soaring in 2021-22, Rio’s cash flow, profit, and earnings have soared. Nevertheless, its shares trade on a price-to-earnings ratio of 6.4 and an earnings yield of 15.5%. Furthermore, Rio’s dividend yield is 10.6% a year (more than 2.5 times the FTSE 100’s cash yield). Almost unbelievably, Rio’s total dividends for 2021 total $16.8bn (£12.6bn) — larger than many Footsie firms. Though my family portfolio will buy Rio shares soon, history has taught me that mining stocks can be highly volatile and risky.

Stock market crash share #3: British American Tobacco

The third and final of my cheap shares following yesterday’s short-lived stock market crash is British American Tobacco (LSE: BATS). As a leading global supplier of cigarettes and tobacco, BAT’s products are harmful and addictive. Hence, this cheap share is unpopular with ethical, social, and governance (ESG) investors. But a fifth of all adults still smoke (including me, alas). As a result, BAT generates huge cash flows and earnings. Yesterday, its shares dropped as low as 3,222.5p, before closing at 3,229.5p. As I write, they trade at 3,302.24p, up 2.3% today. This values the tobacco giant at £75.8bn. At this level, the shares trade on a price-to-earnings ratio of 11.3 and an earnings yield of 8.9%. They offer an attractive dividend yield of 9.84% a year, almost six percentage points above the FTSE 100’s yield. I’d buy BAT stock for these chunky dividends. However, this share is riskier than it looks, as BAT has over £40bn of net debt on its balance sheet!

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and 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.

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As geopolitical tensions increase and the first Russian troops enter Ukraine, oil has surged to over $100 a barrel, reaching its highest level in over seven years. But what does the sky-rocketing oil price mean for the fortunes of the share price of BP (LSE:BP) and Shell (LSE:SHELL)?

The unintended consequences of ESG

The world today faces a climate emergency. The need to accelerate toward a low-carbon economy has never been more pressing. In the rush to meet the goal of decarbonising our energy mix, however, we have forgotten about how we are going to meet the basic needs of society in the near-to-mid-term. As huge amounts of capital (both human and financial) have flowed into technology over the past 10 years, the natural resources sector has been left behind. But if the world is to meet its ambitious climate change targets, then this imbalance must be addressed, and soon.

Activist investors, changing public sentiment and increased regulatory pressures from governments have all contributed toward negative sentiment toward big oil. Although the industry as a whole continues to clean up its operations and improve its public image, for me only a concerted effort across many stakeholders (including governments and society) will help us navigate toward a greener economy. Without it, my fear is that the chronic dearth of talent enrolling in earth sciences and related university degrees will continue to remain low. In this scenario, meeting the public’s desire to meet net zero emissions by 2050 or before is unlikely to be achieved.

Given the macro economic forces I have outlined above, I still believe the prospects for BP and Shell throughout this decade remain strong. We’re already seeing large institutional investors rotating out of overvalued US equities and into tangible assets. Software might be eating the world, as Marc Andreessen once famously said; however, you can’t live on it! And as inflation really begins to take off, investor sentiment and with it, capital could begin to flow back into oil stocks, boosting their share prices.

How high can oil go?

Both BP and Shell recorded a huge surge in free cash flow in their annual results a few weeks ago. Although sentiment in the industry has improved in recent months, many investors remain wary about the prospects for the oil and gas industry long term. However, I have been adding to my positions in both companies recently. This is why.

The last time we saw oil at over $100 a barrel was in 2014. A similar situation occurred leading up to the global financial crash in 2008. Back then, oil reached $150 a barrel. Subsequently, when the housing bubble burst, the oil price collapsed too. Many analysts believe that we’re in a similar set-up today and that oil prices will fall from here. I am not sure, though:

• Headline CPI today is double what it was back in 2008
• In 2008, inflation was being caused mostly by energy and housing. Today, a much broader set of factors are in play as I outlined in a recent article
• In 2008, every oil major was pumping money into exploring for new fields. Today, we’re at record low levels of investment relative to the oil price

These macro factors, together with continuing recovery from Covid, will keep oil prices high for some time.

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

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Shares in FTSE 100 growth stock and property portal Rightmove (LSE: RMV) are in heavy demand today. And I don’t think it’s just down to the general rebound in the UK market following yesterday’s heavy selling session. This morning’s encouraging full-year numbers must be playing a role too. 

Revenue and profit rocket!

Revenue for 2021 came in at just under £305m. That’s a jump of 48% on 2020. This makes sense given that everything came to a virtual standstill in the latter and Rightmove was required to offer discounts to estate agents. 

For this reason, it’s probably better to compare last year’s numbers with those achieved two years earlier. Tellingly, the former is up 5% on the pre-pandemic £289.3m achieved in 2019. In other words, Rightmove seems to be doing all the right things and getting customers to sign up for more products and package upgrades.

A similar pattern emerges when it comes to profit. Compared to 2020, underlying operating profit in 2021 was 67% higher (£226.1m). However, it was also 6% up on 2019.

Now none of this should really come as a surprise. After all, every prospective homeowner knows just how hot the UK property market has been. For evidence, the average UK house price hit £275,000 by the end of 2021.

The key question therefore, is whether it can continue.

More to come?

Thanks to ongoing innovation in its product offering, Rightmove thinks recent trading momentum is here to stay. That said, it does expect the number of transactions to slow as the housing market “normalises“. That seems infinitely prudent to me. 

Sure, a holding in the FTSE 100 member certainly isn’t without risk. The UK property market may easily go into reverse if the post-pandemic economic recovery stalls (perhaps due to high inflation). Even if the company is confident it won’t be “materially impacted by the property market cycle“, I’d still need to ensure I was sufficiently diversified, just in case. 

There’s also scope for the price to fall further if traders continue to shun growth stocks en masse. Despite today’s uplift, the share price is still down around 17% year-to-date.

An escalation of fighting in Eastern Europe, further news on rising prices and/or some other ‘known unknown’ could quickly erase today’s gains and send stocks crashing down again.

I wouldn’t like to be a trader right now. Thankfully, I’m far more Foolish than that. 

FTSE 100 market leader

I believe that quality counts for an awful lot when it comes to generating great returns over the long term. And, based on its fundamentals, Rightmove is very much a quality business.

Some of the numbers in today’s statement were truly mind-boggling. Property hunters spent an average of 1.5 billion minutes per month on the site in 2021. That’s up from 1.3 billion in 2020 and 1 billion two years ago. Site visits were also up 56% from 2019.

To me, the £6bn-cap has the sort of ‘economic moat’ that most businesses would kill for and Warren Buffett would likely approve of.

Yes, a valuation of 26 times forecast earnings before the market opened may look expensive, given current events. However, I think it’s a price worth paying. Considering its sky-high margins and a bulletproof balance sheet, Rightmove continues to look like a great candidate for a growth-focused portfolio like my own.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.

Setting a substantial passive income goal and figuring how to achieve it can feel rewarding. Once the income hopefully starts flowing in, it could be rewarding financially too.

If I wanted to target £5,000 in passive income next year — and hopefully in the years that follow — I would do it by investing equally in the five UK shares below. Their average yield is 7.3%, so to hit my annual target of £5,000 in passive income I would need to invest around £68,500. If I had a smaller amount I wanted to invest, I could still target the same average yield by buying these five shares for my portfolio. But with less money invested, my passive income would also be reduced accordingly.

Legal & General

Insurer and financial services group Legal & General (LSE: LGEN) has a yield of 6.5%. There are other financial services groups with a higher yield, but there are a couple of reasons I would choose Legal & General specifically for my portfolio. First, it has proven to be committed to its dividend. For example, during the pandemic when many peers suspended their payouts, Legal & General kept its dividend. I also think the company’s marketing concept of “Inclusive Capitalism” shows that it is thinking hard about how to maintain its commercial relevance even after over 180 years in business.

Dividend history is not necessarily a guide to what will come in future. Although the company has set out a plan that anticipates increasing its payout annually in coming years, dividends are never guaranteed. Legal & General does face risks. Its marketing push is a reminder of how competitive the financial services market is. Fierce competition could mean lower profit margins in the future than in the past.

But I think the company has some important strengths too. Its famous multi-coloured umbrella logo has given the firm lasting awareness in the minds of millions of potential customers. Its investment management business also helps bring more diversity to its activities, giving it wider growth opportunities than some pure play insurers.

National Grid

It takes a lot of time and money to build an electricity distribution network. That is why such networks often have no competition. That can be good for profits, especially as electricity is an essential part of daily life and demand tends to be robust.

UK utility National Grid is a dividend share I would add to my portfolio to benefit from this. It can be rewarding in terms of passive income, offering a 4.5% yield. National Grid has been a consistent dividend raiser in recent years. There are risks, such as a shift in patterns of electricity consumption as hybrid working takes root. That could require capital expenditure to update the network, eating into profits. But I see National Grid as a classic utility share, with long-term business potential and an attractive dividend.

M&G

Investment manager M&G (LSE: MNG) sometimes looks unloved by investors. The M&G share price has increased 8% over the past year, in line with the FTSE 100. But its dividend yield is 8.9%, which is unusually high for a FTSE 100 member.

Does that suggest investors have doubts about the sustainability of the dividend? After all, the company has plainly stated that it plans to maintain or increase it – and yields close to 9% are rare. Or could it be that the City has never properly understood the M&G business since it demerged from Prudential several years ago to become a standalone listed company?

I think both things could be true. Although management does not plan to cut the dividend, payouts are never guaranteed. M&G does face risks, including the risk of client outflows hurting revenues and profits. In its first half, such outflows continued in the retail asset management arm. But the institutional arm saw net inflows and reached a record amount of assets under management. The scale of its assets under management and its M&G’s established reputation make me think it can be a lucrative business over the long term. Whether it is popular or not, I like the income generation potential of M&G. I would consider adding it to my passive income portfolio.

Passive income ideas in tobacco

Tobacco shares are common passive income ideas. That is partly because of the high yields on offer. But while tobacco shares are higher-yielding than much of the market, they still yield less than shares in sectors such as mining. So why do I consider tobacco shares as some of my most rewarding passive income ideas? It is because of the economic characteristics of the tobacco industry. Production costs are low. But the addictive nature of the product and the power of premium tobacco brands mean that the products can be sold for a big profit. Unlike mining, for example, the demand for tobacco tends to be fairly stable from year to year.

British American Tobacco

In the longer term, however, the demand picture becomes less clear. Cigarette use is in structural decline in most developed markets. That will reduce revenues for manufacturers. Pricing power may offset some of the fall in profits, but in the long term, markedly lower revenues will hit profits at some stage.

Lucky Strikes maker British American Tobacco actually saw cigarette revenue rise last year, due in part to price increases. I think its vast cigarette business will generate substantial cash flows for years to come. But it is also expanding into new product categories to try and diversify its business. It expects those new areas to become profitable in 2025. This month it raised its dividend as it has annually for over 20 years. The current yield is 6.6%. I would happily hold it in my passive income portfolio.

Income & Growth Venture Capital Trust

The fifth pick for my portfolio would be Income & Growth Venture Capital Trust. The trust invests in a portfolio of up and coming companies, many of which are not listed on a stock market.

That gives me exposure to a broad range of emerging businesses. If the trust managers choose their investments well, they can generate income that is passed on to shareholders as a dividend. That might not happen: many early stage companies fail and that could hurt profits at the trust. But when it does work,  it can be rewarding. Currently, the trust yields 9.8%. That would make a very tasty addition to my passive income portfolio.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Prudential. 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.