I am on the lookout for the best stocks to buy now that can make me a passive income through dividend payments. One pick I currently like for my holdings is Antofagasta (LSE:ANTO). 

Mining giant

Antofagasta is one of the largest copper miners in the world, based in Chile. It has many lucrative assets in the Latin American region.

As I write, Antofagasta shares are trading for 1,251p. At this time last year, the shares were trading for 22% higher at 1,535p.

I am not concerned by ANTO’s share price drop. Current macroeconomic issues, as well as the volatile nature of commodities have put pressure on the shares.

The best stocks to buy now have risks too

The volatile nature of the commodities market is a big issue for Antofagasta and all commodities firms. Prices and demand are often linked to the world economy and these prices can fluctuate. When not in favour, commodities prices can hamper a stock’s price and drive performance down, which can lead to less than stellar returns and even cancelled dividends.

Antofagasta is currently experiencing production issues in its Chilean mines due to a drought. It said in a recent update these production issues are short term and it has a plan to resolve them. If its plan of a water desalination plant to combat the drought does not work, financials and dividends could be affected.

Why I like Antofagasta

One of Antofagasta’s best characteristics is the quality of its mining assets and the red metals it mines. Demand for red metals is rocketing. As one of the world’s leading copper miners, this demand should boost growth and financials in the years ahead. Copper’s conductivity capability means it is a perfect material for the green revolution ahead. It will be needed in huge quantities to build electric vehicles, charging infrastructure, and wind turbines.

ANTO shares look reasonably priced to me with a price-to-earnings ratio of just 16. It currently sports a dividend yield of just under 4%. Some of my best stocks to buy now have a higher yield but operate in markets with a lot more uncertainty. The commodities market may be volatile but its products are essential to the world’s infrastructure and economy. The yield is still above the FTSE 100 average of 3.2%.

Antofagasta has a good track record of recent and historic performance. I am aware that past performance is not a guarantee of the future, however. Looking back, I can see revenue has grown year on year since 2018. Coming up to date, a Q4 and post-close update revealed full-year guidance had been achieved.

Overall, I do believe that Antofagasta is one of the best stocks for me to buy now to make a passive income. It possesses a good track record of performance and has excellent assets producing materials vital to the growth and expansion of the world economy and infrastructure. The dividend yield may not be the highest, but sometimes, a consistent above-average yield is more enticing to me than a higher volatile yield. I would add the shares to my holdings right now.

Jabran Khan 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 price of Meta Platforms (NASDAQ:FB) shares has fallen sharply from $323 to around $220. I’ve used this decline to add Meta Platforms stock to my portfolio.

The catalyst for the sharp decline was the earnings report the company posted on Wednesday evening. Investors appear to have been disappointed by the number of daily active users (DAUs) on Facebook and the weak forecast for revenue growth. I don’t think that either result is particularly alarming.

Declining DAUs

The number of DAUs on Facebook fell from 1,930m to 1,929m during Q4 2021. That’s not good, but looking at this result in a broader context gives me three reasons for optimism.

First, the decline in DAUs was somewhat uneven. While the number of DAUs declined in the US & Canada and Rest of World segments, it increased in Europe and Asia-Pacific. That indicates to me that there might still be room for growth in Facebook’s DAUs in certain areas.

Second, while the number of daily active users on Facebook decreased, the number of Daily Active People on Meta’s ‘Family of Apps’ segment (which includes Facebook, Instagram, and WhatsApp) actually increased from 2.81bn to 2.82bn. I think that this means that a decline in Facebook users might be offset by growth in users on other platforms.

Third, Facebook’s disappointing DAUs was compensated for by the business doing a more efficient job of monetising its users. Average Revenue per User (ARPU) increased in every region during the last quarter, meaning that overall revenues were higher. Overall, I take the view that having a broader perspective on the decline in users brings me to think that the decrease in DAUs doesn’t justify the share price drop.

Guidance

Meta Platforms forecasted revenue growth of between 3% and 11% for the first quarter of 2022. With a share price at $323, I accept that this looks disappointing. But with a share price having fallen to $220, I don’t have a problem.

The concern is that the company might not grow as fast in the future as it has done in the past. The company’s guidance indicates that it might be transitioning from a fast-growing company to a mature growth stock. But if we take the midpoint of the guidance given by management and assume that 7% is the new normal for the company’s revenue, then I believe that Meta Platforms stock is still a bargain.

At current prices, I estimate that Meta Platforms stock offers a business return of 6.6%. If revenues increase at 7% annually, I expect margins to expand and free cash flows to increase at around 8%. A 6.6% starting return that grows at 8% annually provides a return of 9.57% on average over the next decade. In my view, this is attractive enough for me to justify buying shares for my portfolio.

To my mind, nothing in the earnings call amounted to a serious cause for alarm. I think that the biggest investment risk going forward is the company’s commitment to the metaverse. The segment of the business focused on the metaverse lost $3.3bn in the last quarter. I’m watching my investment carefully to make sure that this doesn’t ultimately create too much a drag on my returns. But for now, I think that the sell-off in Meta Platforms stock is unjustified and I’ve been buying shares in the company.

Stephen Wright owns shares in Meta Platforms. 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 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.

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

Was this article helpful?

YesNo

Key points

• This FTSE 100 stock is cheap compared to its sector and competitors
• Strong revenue and profits underpin this company
• It has been active on the sales front, generating over $225m from two deals in the past two months

The FTSE 100 index contains some of the biggest companies in the world. When investing, I like to turn to these stocks to find solid and consistent growth for my own portfolio. Airtel Africa (LSE: AAF), a telecommunications provider operating throughout East Africa, is one such company that I have found. It has only just joined the index, but with growth in its fundamentals and active sales, it might just bolster my portfolio. Why so? Let’s take a closer look.

It’s a cheap FTSE 100 stock

An important metric used by investors to see if a stock is cheap or expensive is the price-to-earnings (P/E) ratio. This is found by dividing the share price by the earnings-per-share (EPS). In Airtel Africa’s case, it has a P/E ratio of 20.85. Taken in isolation, this doesn’t tell us all that much.

In comparison with another FTSE 100 telecommunications competitor, Vodafone, Airtel Africa is much more appealing, value-wise. Vodafone’s P/E ratio is 434.27, which is significantly higher. What’s more, the telecommunications sector has an average P/E ratio of 25.84.

What this tells me is that Airtel Africa is undervalued compared to its sector and a competitor. I therefore think I would be getting this stock on the cheap.

Strong fundamentals underpin this FTSE 100 stock

Revenue figures tell a story of sustained growth over the past three years. For the calendar year 2021, revenue stood at $3.9bn. This has risen from $3bn for the same period in 2019. This represents compounding annual growth of 9.1%. In spite of this, earnings per share have fallen over this time, from ¢19.54 to ¢9.

Over the past three calendar years, profits before tax have also grown. This figure has doubled in this time, increasing from $348m to $697m. Just this month, however, two funds sold 58m shares after the stock joined the FTSE 100 index, causing the share price to fall 10% in one day. While this may seem troubling in the short term, it should not make much impact in the long term.

For me, the fundamental data is going in the right direction and is testament to the profitable business model employed by this FTSE 100 stock.

Active on the sales front

There are two recent sales of note by Airtel Africa. The first was in December 2021 that consisted of the sale of part of the company’s mobile money business to Abu Dhabi-based Chimera. This generated $50m and demonstrates the strength of the business. The mobile money segment, for instance, generated profits of $185m for the year ended March 2021. It may also publicly list in four years.

Furthermore, the FTSE 100 company sold its Tanzania telecommunications tower equipment for $176.1m. The proceeds of this will go towards reducing the stock’s not insignificant net debt of $4.2bn.

Airtel Africa boasts strong fundamentals and, compared to its sector, is undervalued. Not only would I be getting a bargain, but I’d also be buying shares in a company that is eager to grow in the long term. I won’t hesitate to buy now!   

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

Was this article helpful?

YesNo

Many FTSE 100 stocks are still attempting to revitalise their fortunes after to the effects of the pandemic. Should I add InterContinental Hotels Group (LSE:IHG) shares to my holdings as a recovery play?

Worldwide hotelier

Best known as IHG, the FTSE 100 incumbent is one of the world’s leading hotel businesses. It has over 6,000 destinations throughout the world spread across 16 brands. Some of its best known brands are InterContinental, Holiday Inn, and Crowne Plaza.

As I write, IHG shares are trading for 5,080p. At this time last year, the shares were trading for 4,892p, which is a modest 3% return over a 12-month period. With pandemic restrictions easing, especially here in the UK, could IHG be a good long-term recovery option?

For and against investing

FOR: IHG’s business model is one of its best attributes, in my opinion. Its vast presence throughout the world, as well as a range of brands, caters to all types of consumers. It possesses luxury holiday brands, as well as budget and corporate business brands as well. In addition to this, due to its diverse operations, it has a strong domestic market in each of its territories. I believe these attributes could help boost recovery and performance in the coming months and years. If one area is struggling, for example, luxury hotels that may need international flights to reach them, this area can be offset by the urgeoning domestic vacation market.

AGAINST: The pandemic has not been easy to navigate for IHG and many other FTSE 100 stocks. Lack of custom and uncertainty about the virus itself, especially at the beginning, caused performance to drop. My concern here is that new variants, as well as differing restrictions around the world, could continue to hamper IHG’s longer-term recovery.

FOR: IHG has a good track record of performance prior to the pandemic and its recent update also offers me some insight towards potential future prospects. I do understand that past performance is not a guarantee of the future, however. A Q3 update released in October mentioned room revenue compared to 2020 levels is up 66% and edging closer towards 2019 levels. Operationally, it opened 79 new hotels in the quarter and has more in the pipeline. One eye on growth in the future is a sign of confidence, in my eyes.

AGAINST: IHG shares do look a bit expensive to me currently. If I factor in other macroeconomic pressures right now such as soaring inflation, rising costs and the supply chain crisis, all of which could affect recovery and financials, my bear case grows substantially.

A FTSE 100 stock I’d avoid currently

Overall, IHG looks like a great company on paper to me. It has a diversified business model with a worldwide presence and a decent balance sheet too. Performance has not quite reached pre-pandemic levels and the shares do look a bit expensive. I’m not going to add the shares to my holdings currently, due the ongoing pandemic-related threats as well as current macroeconomic pressures. I will keep an eye on developments, however, and reconsider my position if things change.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended InterContinental Hotels 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 past 12 months, the UK’s FTSE 100 index has risen 16.6%. Adding in cash dividends of roughly 4% takes this gain to around 20.6%. Not bad, agreed? In fact, it has actually beaten the US S&P 500 index (+15.6%, plus 1.3% in dividends) over one year. However, not all Footsie stocks have done well since February 2021. In fact, some blue-chip shares have performed terribly. Here’s one FTSE 100 share that has crashed spectacularly since early 2021.

Ocado shares explode in 2018-21

Ocado Group (LSE: OCDO) is a technology-driven online retailer founded in April 2000. It teams up with retailers around the world, providing technology and robotics to enable efficient processing of grocery orders. Ocado’s global partners include Morrisons in the UK, Kroger in the US, Sobeys in Canada, and Coles Group in Australia. Ocado listed in London in July 2010 and its shares were one of the FTSE 100’s best performers until 2021. However, despite 22 years of life, Ocado has been heavily loss-making throughout its existence.

Ocado shares floated at 180p and promptly dropped to 160.75p on day one, valuing the group at under £1bn. After lots of ups and downs, the Ocado share price closed at 397.1p at the end of 2017. But then this FTSE 100 stock shot up, ending 2018 at 790p and 2019 at 1,279p. However, in the market boom of 2020-21, Ocado stock exploded to new heights. On 30 September 2020, the shares hit their all-time high of 2,914p, before closing at 2,744p. At this record peak, the Ocado share price was more than 16 times its 180p float price. Wow.

This FTSE 100 share crashed 54% in 12 months

After tumbling in late 2020, Ocado shares rebounded to hit their 2021 high of 2,888p on 3 February 2021, before closing at 2,846p. On 28 January 2021, with the Ocado share price at 2,854p and Ocado valued at £21.4bn, I said, “I would not buy this FTSE 100 share today. For me, Ocado looks like a bubble waiting to burst.” Unfortunately for Ocado shareholders, my prediction was spot on. After rising more than tenfold over five years, Ocado stock went into meltdown.

In fact, over the past 12 months, Ocado shares have been the worst performer in the FTSE 100. Yesterday, Ocado stock crashed as low as 1,140.5p, before closing at 1,225p. As I write, OCDO trades at 1,243p, up 18p (+1.5%) today. This values the group at just over £9.3bn — £12.6bn down from its peak valuation of £21.9bn. So, with Ocado’s valuation slashed, are its shares now in Mr Market’s bargain basement?

I would not buy Ocado today

Over the past 12 months, this FTSE 100 share has collapsed by 54%. It’s also down 30.6% over six months, 19.7% over one month, and 18.3% over one week. Despite these falls, I’m still not tempted to buy Ocado stock today. That’s because the company’s latest full-year results showed slower revenue growth and rapidly rising labour costs. For me, a £9.3bn valuation for a company yet to make a profit in over two decades is simply too rich for my blood. I prefer to invest in large, solidly profitable companies with cheap shares and high cash dividends. But Ocado shares may well appeal to lovers of growth and tech stocks — especially if the tech bubble blows up again in 2022-23.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons and Ocado 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.

Was this article helpful?

YesNo

Admiral (LSE:ADM) is one of my best shares to buy now. Here’s why I’m looking to add the shares to my holdings at current levels and hold on to them.

Insurance giant

Admiral, set up in 1993, is one of the UK’s leading insurance providers. It is best known for its low cost car insurance for drivers of all ages and abilities as well as higher performance vehicles. It also provides home, travel, and pet insurance products. In recent times, it has played a major part in bringing multi-car products, where policies can cover multiple cars in the same household, to the market.

As I write, Admiral shares are trading for 3,052p. At this time last year, the shares were trading for 2,982p, which is a modest 2% return over a 12-month period.

The best shares to buy now have risks too

Admiral is in a very competitive market. The rise of insurance comparison platforms in recent years has provided consumers with many alternative providers of insurance products. Despite its catchy advertisements, and being one of the best known, there is a threat of losing market share to other players. This could hurt Admiral’s financials, performance, and growth.

One other risk associated with Admiral is its balance sheet, which is linked to an extensive investment portfolio. It uses this portfolio to help support claims. If the value of the portfolio were to decline or take a significant hit, this could severely hurt financials, operations, and returns.

Why I like Admiral shares

Admiral has defensive capabilities. Car insurance here in the UK is a legal requirement, meaning if there were economic issues or a market downturn, consumers would still need to purchase car insurance. In addition to this, car ownership is one the rise throughout the world, which should help boost Admiral and other insurance providers.

Admiral is a good dividend stock too. It currently possesses a dividend yield of over 5%. This is above the FTSE 100 average of 3.2%. Most of my best shares to buy now make a passive income. It also has a good track record of dividend payment and growth. I do understand that if performance levels dropped, or a market crash occurred or a similar significant market event, dividends could be cancelled.

Admiral has a good track record of performance, although I do understand past performance is not a guarantee of the future. Looking back I can see it has achieved revenue of over £1.2bn for the past three years. Coming up to date, Admiral’s last update was in August. This was a half-year report. Admiral reported turnover and profit increased and this led to an interim dividend, which was higher than the interim dividend last year. Full-year results are due next month.

Overall I think Admiral is an excellent stock with some really good attributes. At current levels, the shares look cheap with a price-to-earnings of 13. It has a good track record of performance and dividend payment history and growth too. Admiral is also expanding into international territories, which should support further growth. It is definitely on my best shares to buy now list and I would add the shares to my holdings now.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Admiral 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 have been bullish on vending machine operator Photo-Me (LSE: PHTM) for a while. It is almost a year since I chose it as my share of the month. The Photo-Me share price has risen 61% over the past year, so would have been a lucrative addition to my portfolio.

But I reckon there may be limited price upside left from the current position. Here is why.

Massive director buying

I have repeatedly flagged the fact that the company’s chief executive, Serge Crasnianski, has been steadily growing his ownership of the company. After a big share purchase last month, he now owns almost 138m shares in Photo-Me.

Following that transaction, Crasnianski and associated persons had interest in 36.5% of the company’s issued share capital. Under City rules, that means they need to make a bid for the whole company. This takeover bid has been pitched at 75p per share.

Bargain price

On one hand, this may look generous. After all, it is a premium to the share price before the bid was announced. It is also a substantial premium to where the shares have been trading for much of the past two years.

But I do not think that is the whole picture. After all, the Photo-Me share price had tumbled due to the pandemic. So, for example, the 75p a share bid level is a 22% discount to where the shares sat at the start of 2020. Worse than that, it is less than half of the Photo-Me share price five years ago.

The company did suffer during the pandemic, which explains its share price fall. But it has since been recovering. Indeed, trading performance in the company’s most recent quarter exceeded the board’s expectations. So, to me, the 75p a share offer looks like an opportunistic bid for the company at a point when its share price remains below its pre-pandemic level despite improving business prospects. That is legal and it is up to shareholders to decide whether or not to accept the bid.

Where next for the Photo-Me share price?

As the bidders already own so many shares in the company, I do not think it will be that difficult for them to get the required shareholder approval for the deal.

It is possible that some institutional shareholders will hold out for a higher price. If that happens, the bidders may add a sweetener, by increasing the offer price. But with their large holding and experience of the business, I think the bidders are in a strong position to be successful in their takeover attempt. For those reasons I also doubt any rival bid will emerge.

As the share price is currently hovering around the offer level of 75p, I see limited reasons for it to increase unless the bidders make a better offer. Paying more than the offer price for a share can lead to a loss if the offer becomes binding on shareholders. For now, I expect the bidders to wait and see how much shareholder support they can muster at the current level. So, although the Photo-Me share price has had a good run lately, I do not expect it to increase much from here. For that reason, I see no reason to add it to my portfolio now.

Christopher Ruane 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.