There is a growing threat in the global economy that I believe could cause an FTSE 100 stock market crash. Many investors are currently concentrating on risks, such as inflation and rising interest rates. Nevertheless, there is another challenge in the background that analysts, and the broader markets, seem to be overlooking. 

This challenge could overwhelm the global financial system and cause a significant economic depression if left unchecked. 

FTSE 100 threat

The FTSE 100 is a relatively unique index. The majority of its constituents are resource and banking stocks. This means the index is particularly exposed to economic shocks, as these two sectors tend to feel the pain more than any other industries.

One of the most significant risks to global economic growth at present is debt. Since the financial crisis, global debt has been rising, and growth really accelerated during the pandemic. 

This was not such an issue when interest rates were pinned to the ground. However, now that central banks are starting to increase interest rates to deal with rising inflation pressures, these debt mountains could become a problem. 

Unfortunately, this risk is already having an impact on the global economy. Several highly indebted Chinese property developers have become insolvent over the past couple of months, which has impacted China’s giant property sector.

China’s construction market consumes a vast amount of resources every year. And if demand drops significantly, commodity prices may slump. This would hit profits at companies like Rio Tinto, a principal FTSE 100 constituent. A Chinese crisis could also hit profits at HSBC, another major player in the blue-chip index. Depending on the scale of the losses, these headwinds could cause a stock market crash. 

And the impact of these insolvencies is already being felt around the world. A construction project in London’s Battersea region has ground to a halt after its Chinese owner stopped paying contractors. It is unclear how this development will hit the already fragile UK construction industry. 

Other emerging economies are also struggling with rising debt levels. They may have to significantly reduce spending and increase taxes to meet their obligations to creditors. These changes may have a knock-on impact on their economies. 

Stock market crash risks

While debt levels are a growing threat to the global economy, it is not all bad news. Some corporations are holding record levels of cash. The private equity industry is also sitting on a record amount of cash, or so-called dry powder. These investors could step in to rescue companies struggling to meet their obligations. These buyers could help offset the negative impact of a debt-induced FTSE 100 stock market crash.

What’s more, while I believe that rising debt levels have the potential to cause a stock market crash, as a long-term investor I am not bothered about short-term market headlines. I concentrate on long-term fundamental growth factors, and I am excited about the potential for the global economy over the next decade. 

As such, while I plan to keep an eye on debt risks, I will not let these challenges dictate my investing actions. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC 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 think the Royal Mail (LSE: RMG) share price is one of the most interesting stocks on the London market. 

The company provides an essential service for tens of millions of people every day, yet it is constantly fighting for market share. It has an obligation to provide a delivery service across Great Britain, But it has to work through the challenges of doing so itself. 

Meanwhile, competitors can pick and choose the markets they want to serve. That means they can concentrate on the markets with the greatest potential for profit, such as London, where they can serve millions of consumers with just a few key depots.

Royal Mail cannot do the same. The company has to provide the same level of service to remote islands in Scotland as it does to the rest of the country. This presents a massive logistical challenge for the group and one that is continually working to improve and streamline.

Valuable brand

Despite these drawbacks, the company has a treasured brand that consumers across the country trust. This was particularly evident when the coronavirus pandemic began at the beginning of 2020. Consumers relied on Royal Mail to send parcels and letters to loved ones.

The pandemic had a meaningful impact on how consumers interact with the enterprise and how the business operates. The boom in e-commerce deliveries and transactions encouraged the company to rethink how it does business.

It launched a stay-at-home parcel pickup service and has begun to roll out parcel postboxes across the country. These initiatives mark some of the most significant changes to the postal service in its long history.

They are just some of the changes management is trying to push through to improve efficiency and enhance the company’s standing with consumers in an increasingly competitive environment. 

A hidden asset in the Royal Mail share price

I think the market often overlooks the company’s international business when analysing the establishment. The enterprise is more than just a UK postal service as it also owns a sizable international business, which management plans to expand significantly.

The GLS international division allows Royal Mail to do what its competitors are doing in the UK, but internationally. It can pick and choose profitable markets in which to operate.

While GLS has only around half the revenue of the UK arm, it is expanding rapidly. The group can leverage the experience of operating in the UK market across its international business. This will help it take on the likes of UPS and DPD. 

Over the next couple of years, management wants to increase the size of this division. It is targeting an increase in operating profits to €500m by 2024-2025 and revenue growth of 12% per annum over this period. If the group can hit these growth goals, management believes the division can generate €1bn of free cash flow.

To help meet this aim, towards the end of last year, Royal Mail acquired a Canadian company Rosenau Transport. 

Growth targets 

Based on the growth targets for the international business and the company’s expanding presence here in the UK, City analysts believe the corporation can generate a net profit of £596m in the 2022 financial year, rising to £613m in the 2023 financial year.

It is far easier to predict a corporation’s potential over the next couple of years than it is over the next decade. Nevertheless, as a long-term investor, I always like to analyse a company’s potential over the next five and 10 years to understand how the opportunity will develop. If I can build some idea of how the enterprise will grow over the next decade, I can better assess whether or not it will be a good addition to my portfolio. 

The Royal Mail share price has a lot of potential over the next couple of years. Still, it would be silly of me to ignore the company’s challenges as well. 

As well as the competitive factors outlined above, the firm will also have to deal with the rising cost of living. This may push up wage costs for the group. As the enterprise has a mixed history of worker/management relations, this challenge could become a headache. 

The company also faces high costs as it tries to modernise its operations. Automating the parcel sorting process is one of its key aims. Automation should ultimately reduce costs in the long run. In the meantime, it will mean higher capital spending requirements. 

To help offset rising costs in some parts of the business, Royal Mail plans to lay off several hundred managers. This is all part of the group’s ambition to streamline operations and improve efficiency. 

The problem with a strategy like this is that it could lead to more problems down the line. Cutting staff could hit employee morale and rob the company of vital experience. 

Royal Mail share price valuation 

Despite these challenges, I think the Royal Mail share price is undervalued compared to its long-term potential. The company essentially has a captive market across the UK.

As long as it can maintain its relationship with customers and employees, it should be able to build on the growth it has achieved over the past couple of years. 

This suggests profits and earnings should rise steadily from current levels over the next decade. As the stock already looks cheap compared to its earnings potential, I think this means the shares could produce a solid positive return over the next decade.

Indeed, at the time of writing, the stock is trading at a forward price-to-earnings multiple of around 7.5. That is significantly below the market average of approximately 12. On top of this attractive valuation, the shares also support a dividend yield of 5.7%.

I think this is incredibly attractive in the current interest rate environment and only adds to my conviction that the stock is an attractive addition to my portfolio. 

Rupert Hargreaves 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.

The end of the tax year is fast approaching. So I am starting to think about how I will invest my Stocks and Shares ISA allowance for the year ahead.

I usually like to make the most of my ISA allowance as soon as possible at the beginning of every tax year. Indeed, research shows that investors who use as much of the allowance as possible, as quickly as possible, can generate better tax-free returns.

However, what really matters is my own personal financial situation at the end of the day. If I cannot take up the entire allowance at the beginning of the tax year, it is not the end of the world. 

It is still possible to invest regular sums throughout the year as there is no restriction on when I can invest in a Stocks and Shares ISA. The only limitation is the amount of money I can put away during the tax year. This is limited to £20,000.

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.

Choosing Stocks and Shares ISA investments

When looking for investments for my ISA, I focus on both income and growth plays. I think these allow me to capitalise on the unique tax advantages provided by these wrappers. 

I also look for a mix of investment funds as well as single stocks. One of my favourite investment funds at the moment is BlackRock Throgmorton. This trust tries to outperform by acquiring a portfolio of small-cap growth stocks. It also offers a modest dividend yield of 1.3%, at the time of writing.

I think this trust provides the perfect blend of growth and income to hit my ISA goals.

That said, this trust does charge a performance fee as well as a regular management fee. These fees could eat away at my returns in the long run. And if the fund fails to pick the right investments, performance could be even worse. These are the most significant risks and challenges of using an investment trust to invest in the stock market. 

These risks are why I would also buy a portfolio of single equities for my Stocks and Shares ISA.

Single stocks to buy 

Two equities I would buy are BAE Systems and Vodafone. With yields of 4% and 6% respectively, these companies are desirable income investments. They also have growth tailwinds. BAE’s sales and profits should benefit from increasing military spending. Meanwhile, the mobile data revolution could drive growth at Vodafone. 

Challenges these companies may face as we advance include rising costs and competition, which could hit profit margins. However, considering their growth and income potential over the next few years, I think these corporations would make fantastic additions to my tax-efficient portfolio.

Rupert Hargreaves 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.

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Inflation throughout the world is currently soaring. This means that the value of my money is effectively dwindling. I’m on the lookout for UK shares to boost my holdings that pay a dividend and can make me a passive income to beat inflation!

Dividend investing

I work hard to save money but when inflation is rising, these savings are losing value while sitting in my bank. There aren’t many financial products that can offer me a return of over 5%, which is currently the inflation level in the UK.

Dividend investing is a popular method many investors use to make their cash work for them and make them a passive income. This involves identifying the best UK shares that pay a consistent dividend. I do understand dividends can be cancelled, however. I have my own method of dividend investing.

Dividend investing is a long-term strategy, in my opinion, and I invest for the long term. My mantra involves finding the best firms with the potential to increase the size of their dividends over time. I find the best firms are those with a good balance between current profitability and future growth potential.

When reviewing a dividend stock for investment viability, I look at a number of factors. First, I examine fundamentals such as performance track record, balance sheet, and of course, the dividend yield as well as dividend payment record.

Finally, I always research the UK share I am interested in the current news cycle. What I mean by this is if there are current company specific or market news items that could affect any shares I am interested in. An example of this type of news could be a takeover or acquisition.

Tobacco giant

One UK share I believe could help me beat inflation is smoking giant Imperial Brands (LSE:IMB), with its juicy dividend yield of over 8%. It is worth mentioning the FTSE 100 average dividend yield is 3%-4%.

Smoking firms often have reputation issues due to the health issues caused by smoking. As a smoker myself, this particular issue does not bother me. However, ethical investing is on the rise, which could hinder the investment viability of firms like Imperial. 

As I write, Imperial shares are trading for 1,732p. At this time last year, the shares were trading for 1,429p, which is a 21% return over a 12-month period. As well as the enticing dividend yield, Imperial shares look cheap with a price-to-earnings ratio of just under six.

Reviewing some of the other fundamentals, I can see Imperial has a good track record of recent and historic performance, although I understand that past performance is not a guarantee of the future. Recent full-year results posted in November were impressive. Revenue, profit, and dividend per share increased. Furthermore, Imperial decided to look at next generation tobacco alternative products. This tells me it is keeping one eye on future growth prospects. Imperial also has plenty of free cash flow, which will support dividend payments I hope to receive.

Imperial is the perfect UK share to help me beat inflation through dividend investing. It has a good track record of performance, a strong position in its market, is adapting to changing smoking habits, and has lots of cash to pay dividends. I’d add the shares to my holdings at current levels.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

Possibly the most successful investor of all time, Warren Buffett is an inspiration for millions around the world. I believe his strategy for finding the best stocks is a good way to grow my own portfolio. Taking an ultra long-term view, one of his main tenets is compounding growth. This is the constant rate of return over a given period of time. He also seeks the stocks that earn most for their shareholders. I’ll unpack these techniques and apply them to two FTSE AIM growth stocks that fit the bill. Let’s take a closer look.    

Warren Buffett’s compounding growth

In 1999, a shareholder asked Buffett how he achieved such staggering wealth. He said, “Start early … I started building this little snowball at the top of a very long hill. The trick to have a very long hill is either starting very young or living to be very old.” For Warren Buffett, therefore, time is the greatest barrier to amassing a fortune. 

This is because we can usually only see the power of compounding growth over a relatively long period. It might be surprising, but Buffett acquired 99% of his $100bn after the age of 50 years old. 

So, how do we go about calculating compounding growth? It may be achieved through this formula: 

(V_final/V_begin)^1/t − 1, where V = value and t = time

Breaking this down, we may have a set of data like earnings per share (EPS), that begins in 2017 at 1.3p and ends in 2021 at 4.5p. The ‘final value’ is 4.5p and the ‘begin value’ in 1.3p. Dividing these gives us 3.46. The time period is five years, so t = 5. We therefore calculate 3.46^(1/5), which equals 1.28. Finally, 1.28 − 1 = 0.28, so our compounding annual growth rate of this set of EPS is 28%.

Some of Warren Buffett’s biggest holdings, like McDonald’s, exhibit consistent growth in this way. It is therefore a key part of his investing strategy.

2 FTSE AIM stocks that fit the bill

I’ve found two FTSE AIM shares that have consistent earnings growth based on Warren Buffett’s technique. The first, Atalaya Mining (LSE: ATYM), is a copper mining company operating in Spain. Using the formula above, I have calculated its earnings growth over the five calendar years from 2016 to 2020 as 14.4%. 

What’s more, the company is using the profits that it keeps, the ‘retained earnings’, for further expansion. For instance, it is building a new industrial plant to create more efficient mining of copper and reduce its carbon footprint. Just last month, however, it stated that the budget may need to be revised if gas prices stay as high as they are.

The second stock is dotDigital Group (LSE: DOTD), a software marketing automation platform. As per the calculation, for the period between the years ended 30 June 2017 and 2021, this company boasts a compounding annual growth rate of 10.8% for its EPS. Again, this is strong, consistent, and adheres to Warren Buffett’s principle.

Although Canaccord recently downgraded the shares based on apparent “slowing momentum”, retained earnings are being directed towards research and development. This has resulted in a 22% increase in revenue from better product functionality, as recorded in a trading update for the six months to 31 December 2021.

Strong earnings growth and the competent deployment of retained earnings are important to Warren Buffett. These techniques give me a good chance of obtaining consistent growth over the long term. I will be buying both Atalaya Mining and dotDigital now.   

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital 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.

Warren Buffett is best known for his great stock picks over the past decades. His ability to consistently generate positive returns for investors has given him somewhat of a legendary status in the finance world. Yet one part that often slips under the radar are his dividend picks. Some of his largest holdings are in companies like Coca-Cola and Verizon, both of which pay out regular dividends. As a result, here are two things I’ve noted from his approach to owning dividend stocks.

Targeting reliable dividend payers

The first point that stands out to me is the type of dividend stocks that Warren Buffett owns. These aren’t ultra-high-yield stocks that have volatile earnings, such as commodity firms. Rather, they are mostly in the consumer staples or consumer discretionary sectors. The benefit of this is that although the yields might not be very high, the dividends are steady and consistent. As a long-term investor, this is appealing.

For example, take Verizon. The telecommunications business has a dividend yield at the moment of 5.03%. The dividend growth over the past three years has been 6.46%. In fact, it has grown the dividend for the past 17 years. For me, this is the type of company I’d like to include in my income portfolio.

When I look at other examples of stocks owned by Buffett (via his company Berkshire Hathaway), the same story often appears. I think it’s a clear theme of his to target this type of stock.

Helping to stay in the green

The second point I’ve picked up on from Warren Buffett was following his comment, “Rule No.1: never lose money. Rule No.2: never forget rule No.1”. 

The great thing with dividend stocks is that it provides me with income that can help to offset movements on the share price. It can either add to my profits or compensate for a loss, but either way it helps me try to stick to the first rule of not losing money!

For example, I might have bought a stock with a dividend yield of 5% and held it for two years. Over this time, the share price might have fallen by 7%. Yet due to the 10% overall yield from income, my overall net position if I sold the stock would be +3%. This is also a helpful point to note if I think that a stock market crash is coming. Dividend stocks can help to provide income during a period where share prices are falling.

Learning from Warren Buffett

Taking onboard the points on reliable dividend payers and using the income to offset share price movements should help me going forward. Earlier this week, I wrote about two stocks that I think fit the bill. These are Direct Line Group and National Grid. I’m thinking about buying shares in both companies at the moment, explained in more detail here.

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 of Facebook’s parent company, Meta Platforms (NASDAQ: FB), are down over 20% in extended trading after the company reported disappointing earnings. I think that the sell-off in Meta shares might mean that it is time for me to buy Facebook.

Meta Platforms now consists of two segments. The first is the family of apps segment, which includes apps such as Facebook, Instagram, Messenger, and WhatsApp. The second is the reality labs segment, which is involved with hardware, software, and content for augmented and virtual reality. 

Poor quarterly performance

Neither segment performed well in Q4 2021. The family of apps segment reported a decline in daily and monthly active users on Facebook. The reality labs segment posted an operating loss of $3.3bn. Overall, Meta Platforms missed analyst expectations on revenues, earnings per share, and guidance for Q1 2022. In sharp contrast to Alphabet, whose shares rose 8% after a strong earnings report on Tuesday, Meta shares fell over 20% in extended trading following its earnings report. While it’s impossible to say how low Meta shares might go in the short term, I think that the reaction to the earnings call means the stock might be a buy for my portfolio.

The sell-off of Meta shares in extended trading reduces the company’s market cap to around $700bn. The company’s balance sheet at the end of 2021 revealed just under $14bn in total debt and around $16.6bn in cash. Free cash flow for 2021 came in around $38.5bn, implying a return of around 5.5% from an investment perspective.

Buying opportunity

I view this is attractive and think that the reaction to the earnings call creates a buying opportunity. The future success of reality labs is difficult to predict, but I think the family of apps segment by itself, which produced just under $57bn in operating income in 2021, justifies the current market cap. I also think that the disappointing decline in active users on Facebook is somewhat offset by the increase in daily active people across its other platforms in the family segment, as well as the increase in average revenue per person across the family of apps platforms.

Meta’s financial position is, in my view, extremely strong. The company’s $66.6bn in current assets more than cover its total liabilities of around $41bn, meaning that the company could erase its debts in a hurry. The company is also repurchasing shares and has authorisation to spend up to $38.79bn on further share buybacks. A lower market cap allows Meta to buy back more of the company, increasing the value of its repurchasing scheme.

The biggest threat to Meta’s position that I can see comes from the lingering threat of antitrust action. Regulatory scrutiny has dampened the company’s earnings before in 2019 and concerns about how the family of apps businesses handle user data present a significant risk. But I think that the sharp decline in Meta’s share price means that investors have already priced in this risk. I’ll be thinking seriously about adding Meta shares to my portfolio in the next few days.

Stephen Wright has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, 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. The Motley Fool UK has recommended Alphabet (A shares). 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.

Penny stock EnQuest (LSE:ENQ) released an operations update today. Let’s take a closer look at the update and recent events. Could there be an opportunity to buy cheap shares in this growth stock for my holdings?

Oil prices on the up

EnQuest is an offshore oil production firm that operates in the UK North Sea, and Malaysia. Formed in 2010 through the combination of assets of Petrofac and Lundin Petroleum, it added its Malaysian assets in 2014.

Penny stocks are those that trade for less than £1. As I write, EnQuest shares are trading for 20p. At this time last year, the shares were trading for 12p, which is a 66% return over a 12-month period.

Oil prices are currently at seven-year highs. The pandemic in 2020 caused oil prices to plummet as demand fell and stock markets crashed. Prices have continued to climb as the world economy has attempted to kick start and demand has increased.

Penny stocks have risks

EnQuest is a small fish in a large pond with many players involved. This means it can often be out-muscled or outmanoeuvred in terms of production and be beaten to the best drilling assets. This can lead to performance being affected as well as any shareholder returns.

The oil market at the moment looks quite volatile. Supply chain and production issues have led to fears that demand is currently outstripping supply. Smaller firms, such as EnQuest, are those that suffer first due to their lack of cash, size, and operational ability.

Recent performance and outlook

EnQuest’s 2021 operations update and outlook released today was mixed, in my opinion. The firm’s average production of oil barrels stood at just over 44,000. This is significantly lower than 66,000 in 2020. Net cash came in at a handy $395m and net debt reduced too, both of which are positive. 

In EnQuest’s last update, it mentioned production issues at two of its prominent sites, Kraken and Magnus. I believe these disruptions have contributed towards the overall fall of production.

Despite issues, EnQuest has taken steps to mitigate the production issues and its sites mentioned and recently acquired a new asset, Golden Eagle, to help boost performance and growth. This acquisition cost the company $325m. Any penny stock that is able to complete such large acquisitions warrants my attention.

The outlook ahead is bright despite recent issues, in my opinion. Rising oil prices will boost the bottom line and its new asset could provide a timely boost after a difficult 2021.

EnQuest shares are dirt cheap, but there is a lot of uncertainty involved and recent market issues, including supply chain constraints, coupled with EnQuest’s small slice of the market put me off investing my hard-earned cash. I believe there are better penny stocks out there that could offer me a superior return on my investment. I would not add the shares to my holdings at current levels, but I will keep an eye on developments.

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.

On the first trading day of 2022, the Nasdaq closed at 15,832. On the same day, Apple became the first company to reach a $3trn valuation. What a difference a month has made, though. On 27 January, the Nasdaq closed at 13,352, a decline of 16%. Although the index has recovered some of its losses since, it is still down 10%, which puts it firmly in correction territory.

Meanwhile, the FTSE 100 has been largely oblivious to this dramatic fall and has risen slightly in that time frame. Does this bode well for the index?

The FTSE 100 – a bubble developing?

At over 7,500 points, the FTSE 100 is near its all-time high. However, many innovation-related stocks in the tech-heavy Nasdaq have more than halved over the last year. Therefore, is there an argument for saying that a bubble is actually developing in value stocks, which are the main constituents of the FTSE 100, rather than in tech stocks?

The FTSE 100 is packed with what I describe as old economy businesses. These are primarily banks, oil & gas, and miners. The stand-out sector from these three has to be oil & gas. Over the past year, Shell and BP have had their best performances in over 30 years. Many factors have contributed to this outstanding performance, but for me the key has been rising inflation. A very similar argument can be used to explain the surge in bank stocks lately, too.

Therefore, the continued share price gains of these old economy businesses could very well hang on how long high inflation persists.

In the face of supply chain problems, companies have ramped up their inventories significantly. But if they have overreacted to these problems and supply chain issues begin to unwind that could lead to slower growth. In such an environment, companies would be forced to slash prices to try to clear their bloated inventories. With slow or no growth and falling prices, then deflation rather than inflation, would be the real danger. In such a circumstance, many of the FTSE 100 heavyweights would likely crash.

Is the Nasdaq a bargain?

Clearly, many investors think that the Nasdaq’s recent market correction has thrown up some bargains; that is why it has clawed back some of its losses lately. However, I am not interested in short-term share price rises if my underlying thinking hasn’t changed.

The scenario I laid out above, which could lead to deflation rather than inflation, is not actually one I subscribe to. However, I like to consider all angles when building my macroeconomic case. I expect inflation to rise not only throughout 2022 but also next year too.

In this scenario, is the Nasdaq a bargain? I think not. I think fear, uncertainty, and doubt are gripping tech stocks at the moment and will do so for some time. As reporting season for the mega-cap and FAANG stocks are in full swing, any company that fails to meet analysts’ growth forecasts are getting crushed. Yesterday, it was PayPal. Today, it is the turn of Meta. The contagion that started in speculative stocks last year, is now spreading like wildfire. In such a setting, I am sitting on the side-lines.

Andrew Mackie 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 and 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.