Key points

• Earnings and revenue results are historically strong
• The firm has a lower P/E ratio than a major competitor
• Free cash flow is expected to be in excess of £1bn

A stalwart of the aerospace and defence industry, BAE Systems (LSE: BA.) operates across the US, Europe, Middle East, and Australia. With strong historical results and a relatively low price-to-earnings (P/E) ratio, I think the BAE share price could soon rise. To that end, I think it could be a central component of my long-term portfolio. Let’s take a closer look.    

Strong and consistent results

Results from the calendar years 2016 to 2020 tell a story of sustained growth, both in earnings and in revenue. For 2016, the earnings-per-share (EPS) was 40.3. By 2020, however, this figure had risen to 46.8p. By my calculations, this means that the company has a compounding annual EPS growth rate of just over 3%. While this is far from heart-stopping, it is nevertheless consistent for shareholders.

Furthermore, the firm’s revenue has increased steadily over the same period. Specifically, it has increased from £17.7bn in 2016 to £19.2bn in 2020. This is testament to the long-standing demand for the company’s aerospace and defence products. These strong results are what underpin the BAE share price.

Interestingly, the P/E ratio is 10.91. On its own, this means very little, but compared to a competitor it can indicate if a stock is over- or undervalued. QinetiQ Group, a business that is also engaged in aerospace and defence and a strong competitor, has a P/E of 19.94. This is above the BAE P/E ratio and may suggest that the BAE share price is undervalued.

The BAE share price and recent developments  

The business published its interim results in November 2021. It stated that free cash flow was expected to be in excess of £1bn. Furthermore, guidance was for a 10% rise in profit and 3%-5% increase in EPS. Indeed, the firm has completed around 60% of a share buyback programme. This allows BAE to return cash to shareholders by repurchasing its own shares.

The interim results also show a healthy order pipeline involving electric, air, and maritime segments. Altogether, this amounts to just short of $2bn. The same month, the business announced the purchase of Bohemian Interactive Solutions. This is a military training simulation software company and is a move by BAE into the field of simulated training products.

JP Morgan recently downgraded the company on account of its exposure to the US market, that is “now in a slowdown“. Nonetheless, BAE believes its diverse geography enables it to better “counter evolving threat environments“. It makes special mention of its maritime relationship with Australia. Indeed, this relationship aims at securitising the Asia Pacific region.    

This is a company enjoying strong growth and delivering for shareholders year in, year out. The business is expanding and may be undervalued. With its order pipeline and free cash flow, I think the BAE share price could soon take off. I will be buying shares without delay.

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

When shareholders in Facebook owner Meta (NASDAQ: FB) look at recent moves in the share price, few will ‘like’ it. The shares have plummeted 39% this year. Over the past 12 months, they are down 23%.

Here is what I think is going on – and how I plan to react.

Meta and value destruction

Such a big fall is not just a reflection of investor nervousness about US tech stock valuations in general. It reflects some very specific concerns about Meta.

In its fourth-quarter results statement, the company announced that revenue was 20% higher than in the same period a year before. But there was a lot of bad news too. Net income, operating profit margins, and diluted earnings per share all fell. There was even more bad news in the company’s outlook. It expects continued challenges from competition. Not only does that involve users preferring platforms from other companies, it also includes the company’s own users shifting to less lucrative parts of its app ecosystem such as videos. The company also warned that it could be hit by declining ad spend, a shift in advertising policies at Apple, and exchange rates.

That is a significant set of challenges that threaten to hurt Meta’s business model both now and in the future. The massive value destruction seen in Meta’s market capitalisation since the announcement reflects investor worries that Meta could struggle to grow profits at an attractive rate in future.

A bull case for the Meta share price

From a contrarian perspective, the sort of crash we have seen in the Meta share price over the past few weeks could look like a buying opportunity. After all, the company posted healthy revenue growth. It has a huge installed user base, which gives it a strong competitive advantage. Although net income fell, it still topped $10bn in a single quarter. For the year, net income grew 35% to $39bn.

The company is now trading at a price-to earnings ratio of 15. For a tech company like Meta with its unique assets, I think that valuation looks low.

Multiple challenges

Despite the fall in the Meta share price, I am not sure it is a bargain for my portfolio.

At the current level, the shares are basically just back to the price at which they traded a couple of years ago at the start of the pandemic. In that time, the Facebook business model has shown some of its strengths – but also mounting problems. The challenge of keeping users engaged is becoming harder as competitors evolve.

The number of monthly active users on the Facebook platform in December grew by just 4% compared to one year before. That suggests that the company’s days of rapid growth are behind it. That might not be problematic for Meta if it engages its existing user base and maintains advertising rates. But in an increasingly crowded digital space, I think it may struggle to do that at the sorts of levels that could justify its previous valuation.

Due to its massive user base and attractive price-to-earnings ratio, I have been considering adding Meta to my portfolio after its share price crash. But I reckon other tech companies have a more promising outlooks, with fewer competitive challenges. So I will not be acting on the Meta share price fall.

Christopher Ruane has no position in any of the shares mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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.

The recent collapse in the share price of tech stocks has caused many to fear that the bubble has finally burst for the FAANGs. With this in mind, I was curious to understand whether indeed tech stocks are over-valued, and if the recent market slide might be a buying opportunity for me?

Looking beyond the popular consumer-focused companies, I set out to identify three listed technology stocks that manage to combine a mature business model and strong competitive market position.

Broadcom (NASDAQ: AVGO) produces many of the “nuts and bolt” components that power our technology devices.

Its share price currently sits some 15% below recent highs and the company has provided investors with stellar returns over the past five years.

This is no “newbie” company, though. Its heritage goes back to 1999, when Hewlett Packard chose to spin off its semi-conductor division as Agilent Technologies.

After more than 20 years of acquisitions and growth, Broadcom now generates annual revenues of around $27.5bn and has consistently increased both profits and margins in recent years. It is also pays out a regular dividend, which (at a yield of 2.8%) is not to be sniffed at in this sector.

Possible headwinds include continued supply chain issues and accusations of anti-competitive behaviour both in the EU and US.

However, I think that the market will shrug off these issues and, with estimated earnings of around $33 per share this year — at a price-to-earnings (P/E) ratio of 17.5 — Broadcom looks an attractive buy to me.

Another major player in the worldwide semi-conductor market, Dutch company ASML Holding (NASDAQ: ASML) was similarly affected by recent global supply chain issues, as well as a damaging fire to its Berlin manufacturing plant at the turn of the year.

These issues are likely to have a knock-on effect to the output of certain chip products that it supplies around the world – most notably where it holds a virtual monopoly in certain niche product areas.

The company has, however, put in place a plan to hire an additional 35,000 workers in 2022 in order to reverse its sales decline and to meet demand, which is running at up to 50% above current capacity.

These operational issues have led the market to hit the share price hard, and ASML now trades at around 25% below its 52-week high.

It will take some time for this company to restructure itself for the future, but I take comfort from the fact that it has good products that are in demand. On this basis, I am confident that ASML is a good bet for the long term and I will be adding some shares to my portfolio at $662.

The last of my three picks is chip maker Qualcomm (NASDAQ: QCOM). This is a company that has powered the evolution of mobile devices and smart phones for many years now.

Over the last three years, Qualcomm has demonstrated impressive profits growth, while at the same time reducing its heavy debt burden. Interest rate rises will be a worry for the future but, at $166 per share, Qualcomm is trading well below most analysts’ expectations.

With a forecast P/E ratio of just over 14 times, I believe that this stock offers good value and has more to give.

Fergus Mackintosh does not have a position in the companies mentioned. The Motley Fool UK has recommended ASML Holding and Qualcomm. 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.

Over the past year, electric car manufacturer NIO (NYSE:NIO) has experienced a lot. From supply chain disruption to investor concern around electric vehicle (EV) sector valuations, NIO shares have been volatile. So looking back over this time period, would I currently be in profit if I’d bought £1,000 worth of the shares a year ago? Should I be considering buying now?

A difficult year for NIO shares

Firstly, let’s run the numbers. At this time last year, NIO shares closed at $54.43. Using the current price of $24.72, I can see that I’d have lost money over this period. My £1,000 would be worth £454, an unrealized percentage loss of 54.6%.

Before I discount this as a viable investment, I need to better understand the reasons behind this move. In my opinion, I can group them into more broader sentiment-driven reasons and then company-specific reasons.

Firstly, sentiment. Last year, relations between the US and China became more strained, particularly when it came down to corporate activities. One example that was flagged up was the cab riding app Didi, that delisted from the US due to pressure from the Chinese authorities. Even the e-commerce giant Tencent faced pressure from local authorities about the way it does business abroad. For NIO, this negative sentiment likely contributed to investors deciding there was too much risk in holding the shares. 

Sentiment was also at play at the end of last year, when we saw a broader sell-off in the EV sector and growth stocks in general. Even though some valuations looked high (I’ve been a long time Tesla critic), NIO got caught up in this move despite already being down on the year.

For company-specific factors, the company was also been hit by supply chain disruption. As an example, such problems caused a 65% reduction in month-on-month car deliveries for October.

Finding value at the moment

Despite the bad news mentioned above, I think there’s a lot of reasons to like NIO shares at the moment. At a broad level, I’m able to buy now at a heavy discount to where it was trading a year ago. I think there is a lot of pessimism priced in going forward that I don’t think is completely fair.

For example, the situation between the US and China has cooled off over the past month, as the focus is now on Russia. In terms of growth stock valuations, the correction in the NASDAQ index in January is behind us. While it’s still uncertain as to the longer-term direction, I think it’s fair to say value is appearing in certain areas.

Fundamentally, NIO is also performing very well. The latest quarterly results from November showed that car deliveries in Q3 were up 100% on the same quarter last year, and also up 11.6% on Q2 2021. This helped to boost revenues by 116.6% year-on-year. The CEO noted, “Our demand continues to be strong and our new orders reached a new record high in October”.

On this basis, even though NIO shares would have lost me money over the previous year, I’m considering buying some now.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Tesla. 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.

Shares in streaming device company Roku (NASDAQ: ROKU) are having a tough time in 2022. Today, the stock has crashed more than 25% on the back of the company’s Q4 2021 results.

What’s interesting about Roku, to my mind, is that the stock is a key holding for fund manager Cathie Wood, who is seen as one of the world’s top growth/innovation investors. Currently, it’s one of the largest positions in her ARK Innovation ETF.

Should I add this Cathie Wood stock to my portfolio after the recent share price fall? Let’s take a look.

Why Roku’s share price tanked

Looking at Roku’s Q4 results, it’s easy to see why the share price fell.

For starters, Q4 revenue came in at $865.3m (up 33% year on year), well below the consensus forecast of $894m, and also below management’s guidance of $885m to $900m.

Secondly, income from operations for the period was down 67% year on year. Income was impacted significantly by sales and marketing expenses, which jumped 70% year on year.

Third, guidance for Q1 2022 was quite disappointing. This quarter, Roku expects revenue growth of 25% – below the consensus forecast of 30%. The group blamed supply chain disruptions and lower advertising budgets of some negatively affected companies for the deceleration in top-line growth.

2021 highlights

There were plenty of positives in the results, however.

One was that the group added 8.9m active accounts in 2021, and ended the year with over 60m active accounts. And average revenue per user (ARPU) grew to $41.03, up 43% year on year.

Another was that the company was the number one streaming platform in the US, Canada, and Mexico by hours streamed for the year. It’s worth pointing out that the Roku OS also remained the top selling smart TV OS in the US, representing more than one in three smart TVs sold.

Meanwhile, the group had success with its Roku Channel in 2021. Here, streaming hours more than doubled year on year for the full year.

This all suggests that the company is still a major player in the streaming space, and enjoying plenty of success right now.

Can Roku keep growing?

My main concern here though is in relation to the sustainability of the company’s growth levels.

While Roku’s streaming devices added a lot of value for consumers in the past, they could be less relevant in the future. That’s because today, most TVs come equipped with smart functionality. As people continue to upgrade their TV sets to new smart TVs, and buy products from the likes of Samsung, LG, and Sony, Roku’s growth could slow. Roku is addressing this issue by exploring the idea of manufacturing its own TVs. I still see a lot of uncertainty, however, as I don’t see a genuine competitive advantage here.

Another concern for me is the valuation. For 2022, analysts expect Roku to generate earnings per share of $1.63. At the current share price, that puts the stock on a forward-looking price-to-earnings ratio of about 65. That’s quite high. If future growth is disappointing, the stock could continue to underperform.

Roku stock: my move now

Given the risks surrounding the valuation and future growth levels, I’m going to leave this Cathie Wood stock alone for now. To my mind, the risk/reward skew doesn’t look so attractive.

All things considered, I think there are better growth stocks for me to buy today.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Roku. 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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If I had a spare £300 right now, I could decide not to invest it. My thinking might be that it hardly seems worthwhile. After all, with £300, how much income could I really hope to generate through UK dividend shares once I pay dealing charges?

The answer, in my opinion, is hopefully enough to make it worth my time. In fact if I had £300 to invest right now, I would split it between two UK dividend shares.

British American Tobacco

Tobacco shares can make good passive income ideas because they often pay hefty dividends. Tobacco is a highly cash generative industry. Manufacturing costs are low and there is often little requirement to spend money developing new business areas.

That has changed a bit in recent years. The risk of declining cigarette sales causing revenues and profits to fall has led British American Tobacco (LSE: BATS) to invest heavily in next-generation products. That has been costly so far as it takes money to build new brands. But non-cigarette revenue at the company jumped 42% last year to £2bn. Meanwhile, price increases helped the company grow its cigarette revenues by 4%, excluding the impact of exchange rates.

For a global company like BAT, exchange rate swings are a real threat to revenues and profits. Swings in consumer habits are clearly another risk, even though, so far, the company is tackling them head on. But for now, the financial performance remains impressive. It has increased its annual dividend yet again and currently yields 6.3%.  

Legal & General

My second choice among UK dividend shares to buy for my portfolio would be financial services group Legal & General (LSE: LNG).

The insurer famed for its multi-coloured umbrella logo currently yields 6.5%. Not only that, but it has proven itself to be a solid dividend payer in the long run. Early in the pandemic, when rivals like Aviva cancelled their dividends, Legal & General kept paying. It has set out plans to keep increasing its dividend in the coming years, although (as with any company) that is never guaranteed to happen. With its large customer base and brand recognition, I continue to see Legal & General as an appealing UK dividend share for my portfolio.

New rules on renewal pricing in UK insurance might hurt profits. But they could also lead to a less complicated system of insurance pricing. Ultimately, that might actually help the profitability of firms like Legal & General.

I would buy and hold these UK dividend shares

Putting £150 into each of these UK dividend shares today would give me a prospective annual passive income of around £19. That is not a huge amount. But instead of squandering £300 on a big night out or a pair of overpriced shoes, putting it to work and hopefully setting up annual passive income streams of £19 from it seems like an appealing move to me.

Both companies have strong business prospects. Over time, I would actually hope to see the dividends I get from them grow. That is a hope not a certainty, though – and it certainly will not happen if I do not buy the shares in the first place!

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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 (LSE: LLOY) share price has been perennially disappointing for investors. The stock has underperformed over the last five years. However, year to date, the Lloyds share price is actually up 31.5%. This has inspired an already die-hard and resilient cohort of investors to stick it out for a bit longer. But an improved performance on the stock market right now is not the only thing that has investors believing the next few months could be better for Lloyds. So could this be a great moment for me to tap into a potentially lucrative upswing in the fortunes of this stock?

A potential catalyst event

Deutsche Bank analysts have described Lloyds’ upcoming full-year earnings report as a “potential catalyst event”. This means that the share price could get a boost. In fact, Deutsche Bank went one step further stating that it is anticipating “financial targets above consensus and above other UK banks”. The full annual report, which will come out on 24 February, is therefore cause for lots of anticipation.

In the same vein, it is expected that Lloyds will announce a £1bn share buyback and a 1.5p-2.07p dividend. If that materialises it will mean an annual dividend yield of 8%-9%, which is handsome reward for investors who got a 0.67p dividend in 2021. Even if this does not happen though, it is looking very likely that Lloyds will post very strong numbers next Thursday. 

A strong year

The company has delivered with its performance so far for 2021/22. After nine months, net income was sitting at a healthy £11.6bn, which is 8% higher than at the end of the previous year’s Q3. Come next Thursday, this is expected to translate to just under £7bn of net profit. This would significantly outstrip any net income the company has produced in the last five years. To me, it would also justify the 60p price target that some analysts are placing on the stock. At the time of writing, the Lloyds share price is 51p. This is why I think that it may be a very opportune time for me to buy this stock, in the short term. Long term though, I am aware that the rise of Fintech banks such as Wise, which went public in July last year, threatens to disrupt already inconsistent returns on traditional banks such as Lloyds.

Still undervalued 

The Lloyds share price is undervalued right now, with a forward P/E ratio of just 7.82. Were it not for the chronic underperformance of this stock over the past few years, it would be a no brainer for me. It must be mentioned though that Lloyds has been operating in a very low-interest-rate environment. Interest rates were as low as 0.1% to stave off the effects of the pandemic. With inflation above 5% now though, the Bank of England will have to raise rates. Perhaps the Lloyds share price will finally realise the potential that its earnings suggest. For me, the long-term risks still outweigh the benefits. I will be keeping a close eye on this one for now but not buying. I want to see how the downsides play out.

Stephen Bhasera 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.

Over the course of the past few months, dividend stocks have been in focus. This has partly been due to rising dividend yields, but also because of high inflation. In my opinion, a lot of focus has been on FTSE 100 dividend stars from the mining and commodity space. Given the generous yields on offer, it’s easy to see why. However, I think there are some other strong players that have slipped under the dividends radar and that I’m keen to buy now.

A growth stock with income potential

The first FTSE 100 dividend stock is Royal Mail (LSE:RMG). I’ve written about the company before, but focused on the share price growth. In fact, even though the stock price is down 11% over the past year, it’s up an impressive 128% over two years. 

With the business enjoying a strong 2021 due to the pandemic, with lockdowns seeing more online ordering and deliveries. It also managed to hold its position in the market, despite tough competition from rivals. Although the momentum is returning now to a pre-pandemic baseline, I still think the business has built up enough positivity to leave the pandemic in a much stronger position than where it started.

Part of this is reflected by the dividend payments. The business had cut the dividend briefly during the pandemic, but now it’s back and enjoys a dividend yield of 3.96%. Personally, I think this makes the stock appealing. Not only can I pick up income, but if the share price moves higher in coming years then my ending profits will be in excess of just the current dividend yield.

However, I do need to be aware that the dividends aren’t guaranteed. Unlike some other FTSE 100 dividend picks, Royal Mail has cut the dividend before, so it could happen again. Further, pressure could be on the dividend due to the thin profit margins that the business works off. 

FTSE 100 dividends from property income

The second company I think has gone under the radar for income is Land Securities Group (LSE:LAND). It currently has a dividend yield of 4.16%, with the share price up almost 25% over the past year.

It’s the largest commercial development and investment company in the UK. Some of the plots include Xscape in Yorkshire, the Ibis at London Heathrow and some prime central London buildings.

LAND is classified as a Real Estate Investment Trust (REIT), which means that it needs to pay out a certain amount of income to investors as dividends to achieve favorable tax status. This means that the dividends should be consistent and reliable.

I think the FTSE 100 stock has gone under the radar since the start of the pandemic. A fall in rental income spooked investors in 2020, as well as the announcement that the company would selling off a chunk of assets due to the pandemic impact. The negative impact of footfall is still a risk I see, but the latest results show that the financials are bouncing back. Profit before tax for the six months to the end September was £275m versus a loss of £835m from the same period the previous year.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Landsec. 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.