Last week, shares in PayPal (NASDAQ: PYPL) plunged more than 20% after the company reported its Q4 earnings. It’s fair to say the results, and the outlook, were below investors’ expectations.

As a PayPal investor myself, I’m now wondering what the best move now is. Should I load up on more PYPL shares at a lower price? Or should I cut my losses and sell the stock? Here are my thoughts.

Why PayPal’s share price tanked

Let’s start by looking at what caused PayPal’s share price to tank. To my mind, there are a few issues at play here.

The first is that management has changed its strategy. Last year, management was saying that its goal was to hit 750m users by 2025. That would have represented significant growth on the 400m or so users it had in 2021.

However, it has now said that it’s no longer focused on achieving this 750m target in the medium term. Instead, its goal is to boost user engagement. That’s because it has realised that engaged users bring in far more revenue than users that are minimally engaged.

I actually think this is the right move in the long run. However, the strategy shift – which has clearly spooked investors – has raised some questions about management’s credibility.

Secondly, eBay’s migration to managed payments has hit revenues. This migration – which occurred faster than anticipated – put $1.4bn of pressure on the company’s top line in Q4, and is likely to put another $600m of pressure on the top line in the first half of 2022. I see this as a short-term issue. However, again, it raises some questions about management’s ability as it didn’t anticipate the speed of this migration.

Third, guidance for 2022 was below expectations. Before the earnings, Wall Street had been expecting revenue growth of 18% for 2022. However, PayPal said that it now expects growth of 15-17%.

Looking at these issues, there’s nothing that’s a deal-breaker for me. Having said that, the leadership team really needs to deliver now. If future results come in below guidance, I’d expect PayPal shares to be crushed.

Is the growth story still intact?

Moving away from the negatives, there were certainly things to like in PayPal’s Q4 earnings.

For starters, total payment volume (TPV) for the year came in at $1.25trn, up 33% year on year.

Meanwhile, PayPal advised that its ‘super app’ is showing “extraordinarily promising early results” and leading to much higher levels of revenue per user.

Additionally, it said that it’s having a lot of success with buy-now-pay-later (BNPL). In Q4, growth here was 325% year on year.

This leads me to believe that the growth story is still intact.

Is there value on offer?

Turning to the valuation, PayPal advised that it expects earnings per share of $4.60 to $4.75 for 2022. This means that at the current share price, the forward-looking P/E ratio is about 27.

In my view, that valuation is about right given what’s going on right now. In other words, I don’t see PayPal stock as particularly cheap. To my mind, it’s probably fully valued at present.

PayPal stock: my move now

Putting this all together, I’m not going to buy any more PayPal shares at the moment.

I will hold on to my current position for now. However, I won’t be buying more stock until I see that the company is achieving its goals.

Edward Sheldon owns PayPal Holdings. The Motley Fool UK has recommended PayPal Holdings. 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’ve spent many years investing in shares, and I’ve learnt many lessons along the way. It has been a lucrative journey overall but if I were to start with my first investment again, I’d do things a little differently.

Investing in shares for beginners

Firstly, I’d try to think in five-year blocks of time, or more. Investing in shares for shorter time frames is possible but it’s much harder and riskier, in my opinion. Share prices can often be volatile. If I plan to invest for longer than five years, it should allow more time for my shares to grow. If the business does well and manages to grow its earnings, it can lead to higher share prices over time. A word of warning, though. There are many other factors that affect share prices like the number of shares in issue, expected future earnings, or the overall economic cycle.

Next, I’d plan to automate and invest a fixed amount every month. There are two main reasons for doing so. The main reason is that it could minimise downside risk. If share prices move lower, my automatic monthly investment would be buying shares at these lower prices. This is known as pound-cost-averaging. Another reason is that it’s difficult to time the market. There is an old investment phrase along the lines of, “time in the market beats timing the market”. I’d say that’s pretty accurate, especially if I’m investing alongside my day job.

Boosting returns with dividends

If my shares distribute dividends, I’d reinvest this share of the profit to buy more shares. By doing so, I’d own more shares that distribute dividends and the cycle can continue over time. This is known as compounding returns and its power shouldn’t be underestimated. Let me explain with an example. Over the past five years, the FTSE 100 returned just 1% per year. But by reinvesting its dividends, its total return was 5% per year. Over time, the difference in returns can make a meaningful impact on the total pot. In this example, after five years, I’d have gained an astonishing 21% more by reinvesting the dividends.

What to invest in

Next, I’d need to pick some investments. There are thousands of potential options including managed funds, index funds, shares, bonds, and many more. I’m more interested in investing in shares (also known as equities), so that’s where my focus would be.

If I wanted exposure to the US equity market, I could invest in a diversified fund like the Vanguard S&P 500 ETF. This is an exchange-traded fund that attempts to replicate the performance of the S&P 500 index.

Alternatively, I could try to be more selective and pick and choose individual shares that I think will grow over time. For instance, right now in times of soaring inflation I’d be keen on buying shares in BP, Vodafone, and Centrica. Not only do I think they could offer some protection against rising prices, but they also provide a juicy 5% dividend yield.

Lastly, I’d use resources including The Motley Fool to learn more about a variety of companies and what drives their performance. I’d also learn more about the risks of stock market investing and the various pitfalls to look out for. Overall, with a bit of knowledge, I find investing in shares to be both lucrative and enjoyable.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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 Darktrace (LSE: DARK) share price has been volatile since its initial public offering in April last year. The shares listed at 250p, rocketed up to 1,000p in September, and have fallen back to 373p as I write today.

However, City analysts have a consensus target price of 797p for Darktrace stock. That would be a 111% return, or a more than double my initial investment if I bought the shares today. Analysts aren’t always right, though. So, it’s important for me to form my own view before I buy any shares. Let’s take a closer look at the company.

The investment case

Darktrace operates in the cybersecurity industry. It’s area that I think will be in increasing demand as the world becomes more digital. This should, in theory, benefit Darktrace in the years ahead. Indeed, according to Fortune Business Insights, the cybersecurity market is expected to grow from $166bn in 2021 to $366bn in 2028.

On its website, Darktrace says it’s a world leader in autonomous artificial intelligence (AI) for cybersecurity. The signs look promising, too. For example, there are currently 6,531 customers using its cybersecurity products according to the recent trading update for the six months to 31 December (HY22). Customer numbers actually increased by 39.6% over the same period in 2020. Furthermore, Darktrace says its AI solutions are able to interrupt cyber attacks in seconds.

The recent trading update also showed strong growth in the business. Revenue increased 50% in the first six months of HY22. Guidance was also raised for its full-year revenue expectations to 30 June, and margins should increase, too. I can see why City analysts are expecting the share price to more than double if this growth continues.

Should I buy at this Darktrace share price?

However, Darktrace is still loss-making, which does make the investment riskier. The company isn’t expected to turn a profit for at least the next three years either. Based on a forward price-to-sales ratio though, the shares are valued on a multiple of seven. I consider this quite high. But if revenue continues to grow by double-digits, and the company maintains a 90% gross margin, then it isn’t unreasonable, in my view.  

My biggest issue today, though, is with the product. In fact, some customers have likened Darktrace’s products to “snake oil” due to the disconnect between the marketing of what its AI-driven solutions offer, and what it actually provides. This does make me question whether Darktrace’s AI is as good as it says it is. And although the recent trading was positive, it could be down to excellent marketing, rather than a world-leading cybersecurity product.

On this last point, Darktrace did say that churn had significantly improved over the half-year to 31 December. This does suggest that customers are sticking around and finding value in its products.

Nevertheless, there are too many risks on the product side for me to invest today, even though analysts expect the share price to double. Therefore, I think there’ll be considerable share price volatility ahead. Until Darktrace addresses the concerns over its product offering, I won’t be investing.

Dan Appleby 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.

For investors with a massive appetite for risky shares, there is no roller-coaster ride wilder than Tesla (NASDAQ: TSLA) stock. Five years ago, Tesla stock closed at $53.85 on 10 February 2017. At the end of 2019, the shares closed at $83.67. That’s a return of more than half (+55.4%) in under three years — not bad, but hardly earth-shattering. However, Tesla became the ultimate meme stock in 2020-22, with millions of retail investors leaping aboard Elon Musk’s high-tech bandwagon.

Tesla stock exploded in 2020-21

During 2020’s Covid-19 crisis, Tesla stock collapsed to a low of $70.10 on 18 March 2020, before closing at $72.24. By the end of 2020, the shares had exploded, rising tenfold to peak at $718.72 on 31 December. TSLA closed 2020 at $705.67, but was lifted to even greater heights in 2021. At its 2021 low on 5 March, Tesla stock slumped to $539.49, before closing at $597.95. The shares then skyrocketed again, peaking at an all-time high of $1,243.49 on 4 November 2021.

Tesla collapses yet again

Since early November, Tesla stock has dived, soared, and plunged again. Just over a month ago, the shares closed at $1,199.78 on 3 February. A week ago, they dropped to their 2022 low of $792.01 on Monday, 28 January. As I write, TSLA trades at $919.94. That’s a collapse of almost $280 in less than four weeks. Is it just me, or is this the craziest price action ever by an S&P 500 stock?

Tesla has become a market monster

So we know that Tesla stock is massively — even crazily — volatile. In fact, the stock has moved by 10%+ on 49 out of 529 trading days in 2020-22. What’s more, on 13 to 20 March 2020, the stock moved by between 11.9% and 26.1% every single day. What causes such massive intra-day moves in the Tesla share price? It’s not merely down to its popularity as one of the world’s most favoured stocks.

According to Robin Wigglesworth of the Financial Times, Tesla stock is being hurled about by frenzied options trading. Last November, Robin wrote that the nominal daily trading value of Tesla options had been $241bn in recent weeks. Stock options trading for Amazon was $138bn a day and for the other 498 members of the S&P 500 combined, it was $112bn a day. In other words, trading in Tesla options is routinely half of all single-stock options trading for the whole S&P 500. On some days, trading in Tesla options is six times as much as the rest of the S&P 500 combined. Holy moly!

For Tesla stock, fundamentals don’t matter

At $919.94 a share, Tesla’s current market value is $931.9bn — about $300bn below its November peak. Tesla trades on a price-to-earnings ratio of 189.8 and an earnings yield below 0.53%. With Tesla stock down almost a quarter (-23.3%) since its 3 January high, some investors will back it to soar once more. But not me. To me, Tesla’s valuation has become completely detached from its underlying business. As an old-school value investor, I think Tesla stock is far too risky and volatile for my blood.

However, growth investors and traders may take the opposing view. Some believe Tesla’s destiny is to become the world’s #1 carmaker. That might indeed happen. Meanwhile, Tesla made under 1.4% of the world’s car output in 2021. Thus, it has a long, long way to go. With every car made by Tesla being valued at almost $1m, this sure looks like a bubble stock to me. But my opinions don’t matter, nor do the company’s fundamentals. Only Tesla’s options trading matters today!

Cliffdarcy has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon and 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.

Key points

• With a P/E ratio around 7, this stock could be a great bargain
• The underlying fundamentals indicate controlled expansion
• Earnings growth has been strong for the past five years

Royal Mail Group (LSE: RMG) is one of the most recognisable companies in the UK. Its brands include Royal Mail and Parcelforce Worldwide. With many people ordering more online during the pandemic, the company has been performing rather well recently. There are two reasons why I think the Royal Mail share price is worth a close look for the future too and why this company could be a shrewd investment for my portfolio.

The Royal Mail share price is a ‘bargain’

I think that using a company’s price-to-earnings (P/E) ratio is a usually good way to gauge if a stock is over- or undervalued. This is found by dividing the Royal Mail share price by its earnings per share (EPS). 

Royal Mail currently has a P/E of 7.05. That’s a figure generally seen as low but on its own, doesn’t really tell me all that much. However, the average P/E ratio for the industrial transportation sector is 36.8. Furthermore, one of the company’s global rivals, FedEx, has a P/E ratio of 13.4. This suggests that the Royal Mail share price could be undervalued. I believe I could be getting a bargain at current levels.

The underlying fundamentals are strong   

Royal Mail Group has also produced solid earnings for its shareholders over the past five years. For the years to the end of March, EPS has grown from 44.1 in 2017 to 52.1 in 2021. Looking at its compounded annual growth rate, EPS has risen 3.4% each time. This is both strong and consistent. 

A recent trading update from the firm for the three months to 31 December 2021 provided some welcome news. Domestic parcels revenue grew 44% compared to the same period in 2019. That said, when compared with the same period in 2020, revenue fell 5%. This is perhaps unsurprising given that people were no longer dependent on ordering online. But it’s also an indication that the recovery from the pandemic hasn’t been great for Royal Mail’s business.

On another front, recent pandemic developments have also been negative. With about 15,000 staff absences from the Omicron variant in early January, the company’s service capability was negatively impacted. For me, however, this is a short-term issue that should subside in the very near future. The leadership team is also spending £70m in an attempt to “streamline operational management”. This will reduce the management workforce by 700 and save around £40m per year.

I see The Royal Mail share price as underpinned by strong and consistent earnings growth and think it’s a bargain when compared with its sector and competitors. Yes, there are some issues, but I think these can be resolved. I will therefore be buying Royal Mail shares for long-term growth. 

Andrew Woods 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’m searching for the best FTSE 100 stocks to buy right now. Here are two top blue-chips on my wishlist.

The FTSE 100 fashion star

I’m tempted to load up on JD Sports Fashion (LSE: JD) to make big money from the casual sportswear (athleisure) market. Sure, trading could come under pressure as inflation rockets across its key UK, US and European territories. Tesco chairman John Allan said at the weekend that food prices could rise by up to 5% by the spring.

Many consumers will have to be more careful with how they spend their cash as a result, which is a risk for a company that sells discretionary items. However, as a long-term investor, I think JD remains an attractive buy.

Demand for athleisure is expected to continue growing at an impressive rate as people embrace more versatile, sports-led healthier lifestyles. The rise of homeworking is also encouraging people to trade out of suits and trousers for more comfort wear.

Analysts at Reportlinker.com think the athleisure market will expand at a compound annual growth rate of 6.54% between 2020 and 2026. JD will be well-placed to exploit this industry boom too, as it expands its global store estate and e-commerce channel.

I believe the company’s failed takeover of Footasylum last year is just a minor setback in its quest for world domination.

10.4% dividend yields!

There’s a lot of macroeconomic and geopolitical tensions that makes Polymetal International (LSE: POLY) attractive to me. It’s my opinion there are many factors that could send gold prices to the stars, and with it, profits at precious metals miners like this.

Runaway inflation is perhaps the most obvious possible gold price driver. This has the potential to derail the economic rebound. Rocketing prices also have the potential to scare investors over the value of paper currencies and drive demand for more ‘tangible’ currencies, like gold.

There’s also the threat of fresh economic turbulence if new Covid-19 restrictions are introduced. Finally, an escalation of the Ukraine crisis would also likely supercharge demand for safe-haven bullion.

As anyone knows, prices of traded assets can go up and down. And gold could actually reverse sharply — along with Polymetal’s share price — if central banks raise rates more severely than expected to curb inflation.

But as things stand, demand for gold is steadily improving. According to the World Gold Council, bullion-backed exchange traded funds (ETFs) saw inflows of 46 tonnes in January. This was the highest figure for eight months.

Polymetal produces metal from sites in Russia and Kazakhstan. So, understandably, its share price has sunk as concerns over war in Ukraine have risen. Still, I think the scale of investor selling has been harsh. And at its current price, I think Polymetal’s share price could be too cheap to miss.

The gold miner trades on a P/E ratio of just 6.3 times for 2022. It also carries a mighty 10.4% dividend yield, making it one of the biggest yielders on the FTSE 100.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

A stock market crash is a sharp drop in prices in a short amount of time. Fortunately, they’re infrequent. Unfortunately, they’re also inevitable.

The stock market has already had a bumpy start to the year and in case the markets take a turn for the worse, I’m now thinking about how I can make the most of it with this Vanguard exchange traded fund (ETF).

Vanguard S&P 500 ETF

For my own portfolio, during a downturn, I would choose Vanguard S&P 500 ETF (LSE: VUSA). Out of all the S&P 500 ETF options in the market, this sits in the middle in terms of size ($37bn) and management costs (0.07%).

This fund includes all the companies from the index, which are some of the strongest and most stable corporations in the US. It contains 500 large companies that are selected by a committee. Firms must have a big enough market cap, have at least 10% of shares outstanding and meet liquidity and profitability requirements.

It includes big-name companies such as Microsoft, Apple and Amazon. In terms of industries, the index includes a variety of sectors such as technology, retailers and banking.

One downside is that the index only includes companies from the US. It’s true that many of these firms derive some of their earnings from outside of that country, but this percentage has been falling over time.

Another issue with buying the S&P 500 is that I limit my returns to those of the index. I could be wrong, but by picking individual stocks I might be able to outperform it.

However, this ETF allows me to invest in 500 companies by holding a single share. For me, it’s a low-cost way of diversifying massively across companies and sectors. I’m happy to forgo the possibility of a higher return from investing in individual companies for the ease of this diversification.

Performance and reasoning

In 2021 the share price of this ETF increased by around 30%. However, year to date it’s been a different story. At the time of writing, the fund is down around 5%. That said, it’s already bounced up from its four-month low and is possibly set for a further rise.

If there’s a stock market crash, while some of these companies might take a hit in the short term, they’re very likely to recover. This is because of the S&P 500’s selection criteria. In essence, they must be fundamentally solid with a long history of earning positive average returns.

Indeed, the US index has averaged around 10% returns per year since 1957 and though nothing is certain, I’m hopeful that even after a brief interlude during a market decline, we might see a similar performance.

Also, this fund pays a dividend, which means that even if the share price declines, I’m still earning a return.

All things considered, I believe the ETF could be a strong investment for my portfolio. Even in the case of a stock market crash.

Niki Jerath owns shares in Vanguard S&P 500 ETF. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m thinking of buying these FTSE 100 dividend stocks. Here’s why I’d hold them for the next decade.

Silver surfer

I think there’s a strong chance gold and silver prices could rise strongly in 2022. There’s a wealth of trouble out there (including, but not exclusive to, military tension in Eastern Europe, soaring inflation, and China’s wobbling property sector) that I believe could supercharge precious metals prices.

I’m not thinking of investing in these metals however. I’d rather put my cash in Mexican mining giant Fresnillo (LSE: FRES), the world’s largest silver miner. This way I can profit from rising gold and silver prices while receiving a dividend in the process. This FTSE 100 firm’s dividend yield currently sits at a chubby 3.3% for this year, by the way.

I wouldn’t just buy Fresnillo to hold it for the short term. I think owning it indefinitely is a good idea to protect myself from unexpected crises that can send markets plunging and safe-havens like gold soaring at a moment’s notice. I’d buy it despite the constant danger of production issues that can hit miners’ profits hard.

A FTSE 100 powerplay

I’d also buy SSE (LSE: SSE) to protect myself from the inflation boom. Electricity is one of the few things we as humans cannot do without, so energy producers — like healthcare stocks and residential landlords, for example — can expect demand for their services to remain strong. Consumers will find other things to cut back on before power.

I also like SSE today because its dividend yield sits at a mighty 5.4%. There aren’t a huge amount of stocks that offer yields close to the current rate of inflation above 5%. This gives me a good chance to make a positive return on my invested cash.

My main concern with investing in SSE is that, like any utility stock, it has a lot of debt on the balance sheet. The cost of servicing this could rise sharply if central banks significantly raise rates.

One final thing. SSE’s focus on renewable energy could provide exceptional long-term returns as the fight against the climate crisis ramps up.

Red alert!

Antofagasta (LSE: ANTO) is expected to endure some near-term profit woes as output slips. Production at the copper miner could fall up to 9% year-on-year in 2022 as a drought in Chile hits its operations. The FTSE 100 firm has said output should steadily improve as the year progresses, though of course earnings could take a heavy whack if these predictions slip.

I’d invest in Antofagasta because of the world-class quality of its Latin American assets. I think they’ll enable the company to make exceptional profits as demand for its red metal rockets. Copper’s excellent conductivity makes it a perfect material for the green revolution where it will be used in huge quantities to build wind turbines and electric vehicles and charging infrastructure.

Antofagasta’s forward dividend yield isn’t as large as SSE’s. But at 3.5%, it still beats the broader FTSE 100 average of 3.2%. I’d buy the miner for strong profits and dividend growth as the decade progresses.

Royston Wild 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.

Dubbed ‘Britain’s Warren Buffett’, Terry Smith has produced an annualised return of 17.4% since 2010 for investors. I think that makes him worth listening to. 

Here are three take-home messages I’ve spotlighted from his latest letter to shareholders. 

Running winners

The real Warren Buffett once quipped that his ideal holding period was ‘forever‘. While Smith hasn’t gone this far, he has frequently made it very clear that part of Fundsmith’s strategy is not to trade very often and run its winning picks.

He made this point again last month:” Someone once said that no one ever got poor by taking profits. This may be true but I doubt they got very rich by this approach either.“

As an illustration of his commitment to not jumping in and out of stocks on a whim, Smith still holds seven companies that were originally bought when the fund kicked off in 2010. That might not seem like many. However, his fund is highly-concentrated, only holding between 20 and 30 shares at any one time.

A quick check reveals that I’m a lot worse at running profits than Smith. Positively, I am getting better, having held Somero Enterprises, IG Group and Greggs for a few years now. I’ve no intention of selling up either!

Buy quality

Buffett famously bought into very cheap stocks early in his career and made a killing. That said, his investment strategy would later change to buying only the highest-quality companies he could find. These had some kind of ‘moat’, or competitive advantage, over rivals. This may take the form of a very strong brand or enormous marketing budget or control over distribution. Think Coca-Cola. 

Smith adopts a similar approach, name-checking Buffett in January’s letter. In his view, “the biggest problem with any investment in low-quality businesses is that on the whole, the return characteristics of businesses persist.” 

This is why Fundsmith’s leader vehemently refuses to temporarily invest in stocks that may benefit the most from the post-pandemic recovery in economic activity. So no IAG or easyJet for Smith.

Having owned one, two or seven real stinkers in my time, I’m now a fully signed-up member of ‘Team Quality’. In addition to my stake in Fundsmith Equity, I’ve been topping up my holding of Smithson — the small/mid-cap-focused investment trust that also adopts Smith’s strategy.  

Don’t obsess over price

Having highlighted the importance of buying good businesses, Smith then turns his attention to the issue of valuation. In his view, “highly rated does not equate to expensive any more than lowly rated equates to cheap.“

For me, this has links to Buffett’s suggestion that it is better to buy a great company at a reasonable price than the other way around. 

Not obsessing over the price I’m required to pay for a stock has taken me years of practice. I’ve lost count of the number of times I’ve waited for the prices of great stocks to ‘correct’ only for this to never happen. More often than not, a top growth company’s valuation has remained fairly constant while its share price has soared. 

However, I do think that I’m steadily getting better at it. In fact, there’s one FTSE 100 stock that I’d be very happy to buy right now, despite still being very highly rated. 

Paul Summers owns shares in Fundsmith Equity, Smithson Investment Trust, Greggs, IG Group and Somero Enterprises, Inc. The Motley Fool UK has recommended Somero Enterprises, Inc. 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 deadline for the current Stocks and Shares ISA year is 5 April. I make that just under two months away. Given how quickly the weeks go by, I want to ensure I’m not left scrambling at the last minute to put my excess cash to work. Thankfully, the £20,000 allocation resets each year, but regarding the spare cash I have now, I’d rather put it to work before the deadline. Here are a few of the stocks I’m thinking about adding.

Adding dividend-payers

The main benefit of the Stocks and Shares ISA is that it’s a tax wrapper. This means that I don’t pay dividend tax or capital gains tax on the gains from stocks I own. The lack of dividend tax is great for when I’m trying to add reliable income stocks for the future.

There are some attractive yields available within the FTSE 100 and FTSE 250 at the moment. I’m considering adding one high-yield stock and one that’s been growing the dividend per share for two decades.

The high-yielding option is CMC Markets. The current dividend yield is 11.06%. The retail trading platform should do well this year, as I expect high volatility in financial markets to continue. After all, in January, the Nasdaq had one of the worst New Years ever, dropping almost 10%. Conversely, the business does need to ensure that it doesn’t rest on its laurels from all the new accounts opened during the pandemic, as many of these could easily go inactive.

I’d also consider adding Unilever to my Stocks and Shares ISA. Even though the dividend yield is only 3.78%, it has grown the dividend-per-share for the last two decades. This gives me confidence that it could be a reliable income provider for many years to come. I’m keeping an eye on the management team though, following the ill-thought-out failed bid for GlaxoSmithKline’s Consumer Health unit.

Growth stocks of tomorrow for my ISA

To take advantage of the lack of capital gains tax, I also want to include some growth stocks that have multi-year potential. To this end, I’m considering adding Boohoo to my Stocks and Shares ISA. This is a high-risk play, with the share price having fallen 72% over the past year. Yet I think it’s quickly becoming undervalued. I think supply chain problems and cost inflation won’t be long-term issues. Rather, I think the share price could bounce from current depressed levels in years to come.

A fourth option is Meta. Some might shy away from buying due to the miss in earnings last week that saw the share price fall 26% on the day. The stock is down 11% over the past year, but I think this is a good dip to buy. With the pivot towards the metaverse (which I believe is the right thing to do), I feel it’s a long-term company to hold in my Stocks and Shares ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Jon Smith has no position in any share 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 GlaxoSmithKline, Unilever, and boohoo 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.