I’m a big fan of investment funds and exchange traded funds (ETFs). They’re a great way to diversify investments at relatively low cost, in my opinion. In my Stocks and Shares ISA, in addition to several individual shares, I also own a few carefully selected funds.

There are some factors to look at when searching for a suitable fund. First, I’d see if it leans towards value, growth or a blend of both. Next, I’d look at its geographical and sectoral focus. For instance, does it typically invest in the UK, US or elsewhere, and does it focus on any particular sectors like technology or healthcare. I’d then look at its top holdings, and past performance.

Top investment funds

My number one pick that I’d buy right now, even though I already hold it, is Fundsmith Equity. Managed by the highly-regarded investor Terry Smith, Fundsmith continues to be a staple in my portfolio. I really like its approach to investing. It aims to be a long-term investor in the shares it owns, so it doesn’t trade in and out of shares frequently. This keeps costs low and allows time for companies to perform. Fundsmith also tries to only own high-quality stocks with businesses that are difficult to replicate. This requirement for a ‘moat’ was popularised by esteemed investor Warren Buffett.

The numbers

So how has the fund performed so far? Well, performance at Fundsmith has been nothing short of exceptional, in my opinion. Since its inception in 2010 it has grown by 17% per year. More recently, over the past five years, it has more than doubled, achieving an annualised return of 15%. Looking at the shares that it owns, more than 70% are listed in the US and the largest holdings include Microsoft, and Novo Nordisk. Lastly, Fundsmith has been buying some new positions recently. One of these includes Google and Youtube owner, Alphabet. I reckon that’s a phenomenal business and I’m glad to see it become a holding.

That being said, there are a couple of stocks that could hold the fund back in the short term. Fundsmith owns shares in Paypal and Meta. Both of which recently suffered 20%+ share price declines after disappointing earnings reports. Overall though, I reckon it’s diversified enough to withstand near-term shocks in a few of its holdings.

UK’s top 100

When picking funds, I like to ensure they cover a few different locations and sectors. That’s why in addition to a global vehicle like Fundsmith, I’d consider a UK-oriented option like ishares FTSE 100 UCITS ETF (LSE:CUKX). The objective of this one is to replicate the performance of the FTSE 100 index. And one reason why I’d want to do that is because it includes several sectors outside technology.

I calculate 40% of FTSE 100 shares are either financials or industrials. This should provide me some diversification and allow me to invest in some established, and cash-generative businesses like Diageo, Tesco and BP. Bear in mind though, if I had invested in this UK fund five years ago, I would have achieved only an annual 5% return. That’s much less than the 15% per year achieved by Fundsmith. That said, I’d still own both right now. The next five years could look quite different to the last five, and I favour a mix of shares such as these two offer.

Suzanne Frey, an executive at Alphabet, 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. 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. Harshil Patel owns Microsoft and units in Fundsmith Equity. The Motley Fool UK has recommended Alphabet (A shares), Diageo, Microsoft, PayPal Holdings, and 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.

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Last year, I was a vocal critic of Darktrace (LSE:DARK) shares, even as the price rose higher. The share price doubled in three months, but I had concerns about the high valuation and lack of strong financials. Since Q4 last year, Darktrace shares have crashed. Although the share price is still up 51% from the IPO level last April, the stock is down just over 50% since the start of October. So, at what point should I be a buyer?

Why Darktrace shares have been falling 

Before I can think about the levels at which I’d consider buying, I first need to understand why there has been a reversal in the share price. November was a particularly bad month, with a 40% drop seen. One of the reasons for this was the end of the lock-in period for early-stage investors. There are usually measures in place to prevent large share sales in the first six months following an IPO. Yet when this period ends, large funds or others that were involved early on are free to do as they wish.

The six-month grace period ended in November, and unfortunately there were some chunky share sales. This also has a compounding effect on smaller investors. If some early investors are selling out, why should I continue to hold on? Do they know something I don’t?

Another reason for Darktrace shares moving lower has been negative research reports from brokers. Two notable ones that come to mind are Peel Hunt from October and Shadowfall just a few weeks ago. The criticisms raised in these reports centered around the company being overvalued and having style over substance.

Given the weight that these reports carry with them, it’s easy to see why some investors decided to pull the plug and sell the stock.

Thinking about buying

From my point of view, the current share price of 377p is too expensive. The IPO price was set at 250p last April. I’d need to see it closer to this level before I’d consider buying. The main reason for this is that I think it’s a risky stock to get involved with.

Apart from the reasons mentioned above, news in the past couple of days has broken that Mike Lynch has stepped down as an adviser to the company as he faces extradition to the US on criminal charges. He was one of the very early investors in the business from 2013. This could cause reputational damage to the company.

However, I do feel that the company has fundamental value. The behavioural cyber defence software that the business has is incredibly smart and sophisticated. I also believe that cyber security is going to be a growing area in years to come as we continue to become more digitally savvy and spend more time online.

On that basis, I’m keen to invest in Darktrace shares, but not yet. I think the share price can move lower in the near term, so will be eyeing up 250p to get involved.

Jon Smith and The Motley Fool UK have 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.

Shares in Facebook owner Meta Platforms (NASDAQ: FB) have seen a big pullback recently. Last week, the stock fell more than 25% after the company posted its Q4 earnings.

In the past, large pullbacks in the Big Tech space have been fantastic buying opportunities. So, is now the time for me to snap up Meta stock? Let’s take a look.

Why Meta’s share price crashed last week

Looking at Meta’s Q4 results, the company clearly has some challenges right now.

For starters, Facebook is losing users. For the fourth quarter of 2021, the social media platform had 1.929 billion daily active users compared to 1.93 billion in the previous quarter. This was the first time it has lost users in its 18-year history. One reason user numbers have stalled is that a lot of people have switched to TikTok. The problem here is that, unlike some of the other Big Tech companies, Facebook doesn’t have users ‘locked in’ to its platform. It’s easy to switch from one social media platform to another.

Secondly, the company is struggling to deal with Apple’s recent privacy changes. This has had an impact on its ability to offer targeted advertising. The group said that this would cost it about $10bn in advertising revenue this year.

Third, Meta is losing a ton of money on the metaverse. On the company’s earnings call, CEO Mark Zuckerberg said that its metaverse buildout lost $10.2bn in 2021.

Finally, revenue growth is slowing. For Q4, revenue growth was 20%, which isn’t too bad. However, for Q1 2022, Meta said it expects top-line growth of just 3-11%. That’s low. The consensus forecast here was 15%.

Should I buy Meta stock now?

Given the challenges that the company is facing at the moment, I’m not convinced that it’s a good time to buy Meta shares for my portfolio. 

There are certainly some reasons to like the stock. For example, after the recent share price fall, its price-to-earnings (P/E) ratio is now under 20. That’s a low valuation for a Big Tech stock. Meanwhile, the company is still generating cash hand over fist. Last year, it generated operating cash flow of $58bn.

However, the drop off in growth is concerning, in my view. It seems that Facebook’s popularity may have peaked.

It’s worth noting that, unlike the other Big Tech companies, Meta doesn’t have multiple revenue streams. Microsoft can generate revenue from business software, cloud computing, and gaming, Meanwhile, Alphabet can generate revenue from advertising and cloud. However, Meta only has advertising. So, it’s a bit of a ‘one-trick pony’. 

Additionally, there are ethical issues here. Last year, a former Facebook employee accused the social media company of prioritising profits over public health and safety. These issues seem to have been forgotten about recently as a result of the company’s shift towards the metaverse. They’re still there though. And I think we could see some regulatory intervention down the line as a result of these issues. This adds risk to the investment case.

Of course, Meta has plans to be a major player in the metaverse. This could boost growth in the future. However, realistically, this is still a long way off. And the metaverse is going to cost the group a lot of money in the near term.

For now, I think there are better stocks for me to buy.

Suzanne Frey, an executive at Alphabet, 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. 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. Edward Sheldon owns Alphabet (C shares), Apple, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), 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.

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When I last covered Argo Blockchain (LSE: ARB) in early January, I said I was going to leave the stock on my watchlist. In hindsight, that was the right move. Since that article, Argo Blockchain’s share price has fallen more than 20% on the back of the slump in crypto.

What about now though? Has the recent share price fall created a buying opportunity for me? Or could the stock fall further? Let’s take a look.

3 reasons to like Argo Blockchain shares now

I can certainly see some appeal in Argo Blockchain shares right now. For starters, the valuation is very low.

For 2022, analysts expect the bitcoin miner to generate earnings per share of 12.6p. This means that at the current share price, the forward-looking price-to-earnings ratio is just 5.7. Given Argo’s recent growth, that’s a very undemanding valuation.

Secondly, unlike a lot of other high-stocks, Argo is already profitable. For 2021, analysts expect the group to generate a net profit of £42.9m. Meanwhile, for 2022, they expect a net profit of £72.5m.

Third, there are several things that could potentially drive Argo Blockchain shares higher in the near term. One is a rebound in crypto prices. This year so far, they’ve been hammered. If we see a rebound, Argo’s share price is likely to rise. At the end of 2021, Argo owned 2,595 Bitcoin or Bitcoin Equivalent.

Another is mining capacity expansion. Last year, Argo purchased 20,000 new mining machines for its facility in Texas, which is currently being developed. These are expected to be installed later this year.

A high-risk growth stock

Having said all that, Argo Blockchain remains a high-risk growth stock, to my mind. One reason I say this is that it has little control over its revenues and profits because these are tied to the price of Bitcoin. If the Bitcoin price keeps falling, Argo’s revenues and profits are going to take a hit. And its share price probably will too.

Another reason I see Argo as high risk is that there’s a lot of regulatory uncertainty in the crypto space. Last year, China banned crypto mining. Meanwhile, Russia recently announced that it plans to ban the use and mining of cryptocurrencies on Russian territory. It wouldn’t surprise me that much if we saw other countries make similar moves in the near future.

A third concern for me is that I see little in the way of a competitive advantage here. Ultimately, there’s nothing to stop a competitor stealing market share because there are no real ‘barriers to entry’ in the crypto mining business.

Argo Blockchain shares: my move now

Weighing everything up, I don’t see Argo Blockchain as a strong buy right now. Sure, the stock is cheap. And it could rebound if crypto prices bounce. However, to my mind, the risks remain high.

So, it’s not on my ‘best stocks to buy’ list right now. 

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Edward Sheldon 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.

Shares in Deliveroo (LSE: ROO) have underperformed in 2022. Year to date, the food delivery company’s share price is down about 30%. That’s a disappointing result for investors.

In the past, one of my concerns about Deliveroo was the company’s valuation. However, after the recent share price fall, this is now significantly lower than it was. Is it time to buy this growth stock then? Let’s take a look.

Is the growth story still intact?

Looking at the most recent trading update from Deliveroo, the growth story appears to be intact. This showed that gross transaction value (GTV) rose 36% year-on-year for the fourth quarter of 2021, and 11% sequentially, to £1.73bn. Meanwhile, orders for the period came in at 80.8m, up from 56.8m a year earlier.

I think this growth is very impressive, given that in late 2020, many countries were on lockdown. The numbers suggest Deliveroo still has plenty of momentum post Covid-19.

It’s worth noting that City analysts expect the company to keep growing at a healthy rate. For 2022, the consensus revenue forecast is £2.3bn, representing growth of around 27% on the top-line figure expected for 2021.

This is all very encouraging, in my view.

Is the company making any money?

However, just because a company is growing rapidly doesn’t mean it’s a good stock to buy. We also need to look at profitability. If the company is losing a ton of money, it could be a poor investment.

Looking at analysts’ profit forecasts, the outlook here is not great. For 2021 and 2022, they expect Deliveroo to post net losses of £226m and £196m respectively. This lack of profitability adds risk to the investment case.

Are Deliveroo shares cheap?

Of course, we also need to look at the valuation. If I overpay for the stock, it could hurt me. Deliveroo doesn’t have a P/E ratio because it doesn’t have earnings. However, it does have a price-to-sales ratio and that’s 1.2 on a forward-looking basis.

That valuation strikes me as quite low. By contrast, rivals Doordash and Just Eat Takeaway.com currently have price-to-sales ratios of around six and two respectively. So on a relative basis, Deliveroo looks cheap.

What are the risks?

Finally, we need to look at the risks here. Is there anything that could derail the growth story or impact the company’s profitability?

Well, one risk is new regulation in Europe. Right now, the European Commission is reportedly planning new rules that would force Deliveroo and other gig economy companies to reclassify some of their workers as employees. This is a concern as it could raise Deliveroo’s costs significantly.

Another risk is competition from rivals such as Uber and Just Eat Takeaway.com. The issue here is that there’s nothing to stop consumers switching between platforms. That’s not ideal from an investment perspective.

Deliveroo shares: my call now 

Putting this all together, Deliveroo is not a buy for me right now.

Yes, the company is growing. And yes, the valuation seems reasonable. However, to my mind, the risks here are quite high. All things considered, I think there are better stocks to buy today.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings 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.

Key Points

• A stock market correction can be a nerve-racking time
• However, it can also present an opportunity to invest
• A dividend-paying FTSE 100 ETF is one way of trying to take advantage of a fall in share prices

A stock market correction is generally thought of as a 10% decline in an index. Though it can be nerve-racking to invest when there’s a big fall in the markets, for investors with a long-term time horizon, it can represent a buying opportunity. Indeed, for my own portfolio, I believe that a stock market correction can be the perfect time to put money into a FTSE 100 exchange traded fund (ETF).

A potential opportunity

The average stock market correction is usually short-lived and lasts only a couple of months. When share prices fall, this can present a chance to buy more stocks for the same amount of money I might have invested in a much smaller number previously.

The Footsie has had a great run over the last 12 months. However, it’s really only just getting back to pre-pandemic 2020 levels. As we move into February 2022, I’m still hopeful that the flagship UK index has some way to rise. This is for two main reasons.

First, I’m bullish on the UK economy as the UK has some of the highest Covid vaccination rates in the world. Second, the FTSE 100 is rich in companies operating in sectors that could surge this year, such as banking and energy. Banks tend to perform well when interest rates are rising. Energy firms are likely to benefit from rising oil and gas prices.

That said, the market jitters in January remind me that nothing is certain. Indeed, both inflation and supply chain disruptions still have the potential to hurt firms’ earnings. Also, the past is no guarantee of the future. Just because previous corrections have been short-lived, they might not be so in the future.

However, I think that a fall in the stock market could present an opportunity for me to take advantage of reduced UK share prices by investing money in a FTSE 100 ETF.

FTSE 100 ETF

There are a lot of choices when it comes to a FTSE 100 ETF. The fund I’ve selected for my own portfolio is iShares FTSE 100 (LSE: ISF). By size it’s the largest at over £10bn, It’s among the cheapest with an ongoing charge of 0.07% and it’s consistently one of the most popular ETFs in the UK.

One of the benefits of the Footsie is that there are so many established, large companies in the index paying dividends. Although I have a choice of whether to leave my dividends to be reinvested or to take the cash, for my own portfolio I prefer the latter. Currently, the dividend yield is 3.71%.

The issue with a sharp fall in stock prices, is that it’s impossible for investors to predict when the market will bottom with any kind of accuracy. However, the fact that this ETF pays a dividend means that even if the share price declines further, I should still be earning a return.

Although a stock market correction is unnerving, for my own portfolio, I would consider buying more of this fund if prices take a tumble.

Niki Jerath owns shares in iShares FTSE 100. 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.

Already this year, the Shell (LSE: SHEL) share price has surged 26%. It’s even more impressive over one year as the stock has rallied a huge 59%. As it stands, the company is the most valuable member of the prestigious FTSE 100 index.

Let’s take a look to see if there’s further room for the share price to run.

Why has the Shell share price surged?

Shell is a large integrated oil and gas company. In fact, the Oil Products division accounted for 70% of its total revenue last year. Revenue and profit growth were excellent for 2021 too, at 45% and 623%, respectively. However, these growth rates reflect a much reduced level of revenue and profit during 2020 due to the impacts from the pandemic.

Indeed, the price of oil crashed at the onset of the pandemic as demand for the fuel plummeted. Consumers were no longer going on holidays which reduced oil demand from airlines. And even domestic travel largely stopped due to lockdowns so vehicles weren’t being used. The result was a crash in the price of crude oil, which reached a low of close to $22.50 a barrel in March 2020.

However, since the price crash, crude oil has rallied to an eight-year high. As Shell still generates a majority of its sales from crude oil, the company’s share price has surged along with the oil price.

The risks ahead

There will be continued volatility in Shell’s profits for as long as it derives most of its revenue from crude oil. Commodity markets are known to be volatile. As such, I’d have to be comfortable with this risk if I bought the shares today.

Then there’s the environmental factor and global efforts to decarbonise our economies. Therefore, Shell’s primary product is operating in a structurally declining sector due to the rise of renewable energy sources.

Should I buy Shell shares?

I previously wrote about Shell back in December. The share price has rallied 25% since I considered the stock a buy for my portfolio so I should have bought it at the time. The forward dividend yield has dropped to 3.5% now though. I’d want this to be higher if I decided to buy the shares in my portfolio today. Furthermore, the crude oil price has continued to rally, and I don’t expect this to keep rising indefinitely. Any fall in its price, and Shell’s profitability will likely suffer.

However, one final point to note is that activist investor group Third Point has built a stake in the firm. It sees potential for the company to be split up into a legacy oil business, and other separate businesses focused on clean energy. Triple Point says this will unlock hidden value in Shell that the market doesn’t currently recognise.

I agree with Triple Point. Shell is investing heavily in renewable energy solutions, which I think is often overlooked due to its dominant oil and gas operations. Nevertheless, there’s no guarantee that Triple Point will succeed in any restructuring aims. So for now, I’m putting Shell back on my watchlist.

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.

There’s been a lot of discussion and analysis regarding a potential stock market crash recently. Michael Burry – of The Big Short fame – said he thought there’s been considerable overvaluation and speculation in financial markets. Only last month, Jeremy Grantham said the US was in a ‘superbubble’!

Both of these investors are US-based. So here, I want to focus on the UK stock market in more detail. Could there be a stock market crash on the horizon?

The UK stock market

When discussing the UK stock market, it’s often in terms of the FTSE 100. This is a large-cap index of stocks listed on the London Stock Exchange. Typically, these companies have market values of at least £5bn.

The FTSE 100 is heavily biased towards sectors such as energy, financials and mining. If we’re to see a stock market crash, as measured by the FTSE 100, then these sectors would likely have to crash.

It’s not all about the large-cap stocks, though. The FTSE 250 is a UK mid-cap index of stocks that are more domestically oriented. This means the companies in the index are exposed to the UK’s economy somewhat more than the international stocks in the FTSE 100.

The FTSE 250 has underperformed of late. Over one year, the index has increased only 3% against the FTSE 100’s over 16% rise. And so far in 2022, the FTSE 250 has fallen a steep 7.5%, while the FTSE 100 is up 2%.

Does this point to an imminent stock market crash for mid-cap UK stocks?

The main risks to consider

#1 Inflation: For me, this is the biggest risk today. The Consumer Price Index rose by 5.4% in December, according to the Office for National Statistics. This is the highest reading since 1992. Inflation can have a big impact on companies’ profit margins, and therefore earnings. Consumers may also be less inclined to spend if inflation is high.

#2 Rising interest rates: This is linked to inflation. The Bank of England has started to raise interest rates as it attempts to influence and deter price rises. But in doing so, it lowers the potential for economic growth. For example, businesses are less likely to invest if the cost of a loan is more expensive. Also, the housing market might slow if mortgages rates rise.

Both of these risks are more likely to impact the FTSE 250 index due to its greater exposure to the UK economy. On the other hand, certain stocks in the FTSE 100 may benefit from rising interest rates. Companies such as HSBC and Lloyds should be more profitable if they can charge higher interest rates on loans. Meanwhile, the oil price is at a multi-year high, which boosts the profitability of Shell and BP. All of these companies are significant players in the FTSE 100 and have supported the index’s positive return so far in 2022.

Could there really be a stock market crash?

There’s always a risk of a broad stock market crash. But today, I see greater likelihood of a crash in the FTSE 250 specifically due to the prospect of rising inflation and interest rates.

I view the prospects for the FTSE 100 more favourably. Commodity prices have risen, and higher interest rates should be a near-term boost for banks’ profitability.

Nevertheless, if a stock market crash does happen, I’d look to snap up even cheaper UK shares if the businesses are still trading well.

Dan Appleby owns shares of London Stock Exchange Group. The Motley Fool UK has recommended HSBC Holdings 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.