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The grind of January is now behind us, with February here with knowledge that the year is now properly off and running. As I mentioned last month, one of my key aims for 2022 is to enhance the yield on my income portfolio by picking top dividend stocks. With high inflation along with weak cash rate returns, here’s where I’d look to invest £500 this month.

A top dividend stock with a high yield

The first company I’d invest in is Direct Line Insurance Group (LSE:DLG). It currently has a dividend yield of 7.31%, with the share price gaining 1.67% over the past year.

The primary operation of the business is insurance. Motor insurance is the highest revenue division, followed by home and then rescue and other personal lines. The full-year results are due out later this week for 2021, although the Q3 results from November give a good indication of how the year worked out. 

Total group revenue came in at £857.1m, up 0.7% on the same quarter last year. For the nine months through to the end of September, revenue was down 0.8% on the previous period in 2020. I don’t see this as much of an issue, as it highlights the steady (if not spectacular) demand from the insurance market.

When looking for a reliable dividend stock, it always helps to have a company that has a low risk business model with good cash generation. For me, Direct Line ticks this box.

In terms of risks, profits might suffer due to the new pricing policy brought in by the FCA. It means providers need to be much clearer on costs to customers, as well as giving customers the ability to opt out of auto-renewal. 

Strong growth in dividends over decades

The second top dividend stock for February that I like is National Grid (LSE:NG). The stock has a dividend yield of 4.57% and has returned an impressive 27% over the past year.

One thing that I’ve noted for the business is that the company has grown the dividend per share for the past 22 years. One of the reasons for this is the fact that it operates as an established business in a mature market. It owns and operates a large electricity transmission network in the UK, as well as some operations in the US.

Part of the gains in the share price over the past year are thanks to higher profits due to the acquisition of WPD. The entity is the UK’s biggest electricity distribution business. The economies of scale gained from this helped to push half-year pretax profits to £1.08bn, up 86%.

However, it’s not all plain sailing for the top dividend stock. It has the same risk as Direct Line in that the regulators are trying to tighten up things. Last year, National Grid appealed the latest changes to the regulatory framework due to concerns over the cuts to investor returns.

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.

January was a tough month, with investors getting their first whiff of a stock market correction since March 2020’s meltdown. The US S&P 500 index lost 5.3% last month. The tech-heavy Nasdaq Composite index fared even worse, losing 9% in January. However, the UK’s FTSE 100 index shrugged off worries over pricey US stocks. Indeed, the Footsie added almost 80 points in January, rising 1.1%. As I write, the FTSE 100 stands at 7,542.93 points, up almost 2.2% in 2022. But not all Footsie stocks did well last month.

FTSE 100 winners and losers in January

Though the FTSE 100 rose by 1.1% in January, individual shares’ returns within the index were widely dispersed. This is to be expected, with some stocks doing far better than others. In January, 40 of the 100 shares rose in value. Gains among these 40 winners ranged from 20% to 0.1%, with the average rise being 5.6%. At the other end of the scale lie 60 FTSE 100 losers. Declines among these 60 losers ranged from 0.5% to a brutal 28.8%, with the average loss being 9.6%.

The Footsie’s five biggest fallers

As a veteran value investor, I delight in hunting for ‘fallen angels’. These are otherwise sound FTSE 100 businesses whose share prices have taken a battering lately. In my experience, yesterday’s dog stocks can become tomorrow’s star shares (and vice versa). That’s why I often rummage around in Mr Market’s bargain bin, looking for deeply discounted cheap shares. For the record, these five shares were the biggest fallers in the FTSE 100 in January:

As you can see, losses among these five losers range from almost 20% at Scottish Mortgage Investment Trust to nearly 30% at Fresnillo (LSE: FRES). The average decline across all five slumpers is 22.7%. Ouch.

Which of these flops would I buy today?

I definitely would not buy Scottish Mortgage Investment Trust today, as I explained yesterday. Likewise, three of the remaining four fallers don’t particularly grab me or catch my eye. The FTSE 100 flop that stands out to me is Fresnillo.

Fresnillo has been listed in London since 2008, but is also quoted on the Mexican Stock Exchange (Bolsa) and headquartered in Mexico City. The company is the world’s largest producer of primary silver (silver from ore) and Mexico’s second-largest gold miner. Its flagship mine has been operating for almost 500 years. Currently, Fresnillo has seven operating mines, three development projects, and six exploration prospects. In 2020, this FTSE 100 miner produced 53.1m ounces of silver and nearly 770,000 ounces of gold.

Of course, Fresnillo’s cash flow, profits, and earnings are driven by the prices of silver and gold. Both have declined over the past year. As a result, this FTSE 100 stock has been very volatile in 2021-22. A year ago, Fresnillo shares hit a 52-week high of 1,193.5p on 1 February 2021. Yesterday, they hit a 52-week low of 612.6p, before rebounding to close at 624.8p.

As I write, Fresnillo is up strongly, trading at 657.4p after leaping 32.6p (5.2%) today. This values the miner at £4.8bn. Today, FRES trades on a price-to-earnings ratio of 10.6 and an earnings yield of 9.4%. The dividend yield of 3.6% a year is slightly below the FTSE 100’s 4%. This looks too cheap to me. I don’t own Fresnillo, but I’d buy today. However, I’d expect an equally volatile ride in 2022-23!

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International, Fresnillo, and Halma. 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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After three years of rising global stock prices, investors got a whiff of a stock market crash in January. The US S&P 500 index hit a record 4,818.62 points on 4 January, then plunged. At 2022’s low, it had lost nearly 600 points, hitting 4,222.62 on 24 January after diving 12.4%. But this correction didn’t last and the index closed at 4,515.55 on 31 January. Even so, the S&P 500 was down 5.3% last month, its worst January since the global financial crisis of 2007-09. But had it not bounced back since Wednesday, the S&P 500 would have suffered its worst start to a year in history.

Meanwhile, the tech-dominated Nasdaq Composite index peaked at 16,212.23 points on 19 November 2021. It ended 2021 at 15,644.97, before crashing to a low of 13,094.65 on 24 January. At this point, the Nasdaq had slumped by 16.3% in 2022. However, it also rebounded, ending the month at 14,239.88 to lose 9% in January. This was the index’s steepest monthly fall since November 2008. No wonder investors increasingly worry about the risks of a market meltdown. Here’s what mega-billionaire investment guru Warren Buffett has to say about stock market crashes.

Warren Buffett on stock market crashes

1. Warren on momentum trading

In an interview with CNBC on 10 January 2018, Buffett made this comment about momentum-driven market bubbles. “If you’re buying something because it went up yesterday or last week, that is not a good reason for buying anything. It will get you in trouble over time”. We know that momentum buying can drive up asset prices relentlessly for some time. While the music keeps playing, investors will keep on partying. But when the US Federal Reserve takes away the punchbowl, the party’s over. That’s why many investors worry that rising US interest rates could trigger a stock market crash.

2. Buffett on leverage

Leverage has been a factor in every major stock market crash since 1929. And since 2019, there has been a huge increase in US investors using leverage to enhance returns. Leverage involves borrowing money or using financial derivatives to magnify gains (and losses!) from trades. I view leverage as a double-edged sword, because it can harm as well as help. In 2010, Buffett said, “If you don’t have leverage, you don’t get in trouble. That’s the only way a smart person can go broke, basically. And I’ve always said, ‘If you’re smart, you don’t need it; and if you’re dumb, you shouldn’t be using it’”. 

3. Warren on bubbles and stock market crashes

Near the peak of the dotcom boom, Buffett gave this warning in his letter to Berkshire Hathaway investors in 2000. “A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons”. These lessons were that Wall Street “will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest”. For me, 2020-21 was the most speculative period I’ve seen since the dotcom bubble burst in 2000. That’s why I’ve been worrying about a stock market crash for several months.

4. Buffett on the next bubble

With 80 years of investing experience, Warren Buffett is a world-class expert on investing psychology and the human condition. In this inquiry interview on 28 March 2010, Buffett testified, “We will have other bubbles in the future. I mean, there’s no question about it”. For me, it’s not a question of if there will be another stock market crash, only when!

Cliffdarcy 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.

In December, I shared my top UK share for January. I noted that several directors had recently added to their holdings. I also observed that strong trading performance did not seem to have been fully reflected in the share price.

So, what happened next?

39% share price increase in January

The share in question is car dealership Lookers (LSE: LOOK). Over the course of January alone, the Lookers share price shot up by 39%. It has climbed by 149% over the past year.

What has caused this surge – and could it continue?

Why this UK share rose

There are several reasons behind the strong price performance in January. I think the key one is the revelation that European car sales giant Constellation Automotive, which owns brands including auction house BCA and digital sales platform Cinch, bought a 19.9% stake in Lookers.

As an existing industry player, that stake may be based more on strategic considerations than purely financial ones. But I think the swoop for a sizeable stake suggests that Constellation felt it was getting good value for money. Even now, I still think there may be further potential upside to the Lookers share price. If Constellation decides to bid for all of Lookers at some point, it may need to offer a premium to the current share price to win shareholders over. Even if Constellation just maintains its current shareholding, I think the strong business outlook for Lookers could drive up revenues and profits. On top of that, the company has already signalled to the market that it plans to restore its dividend this year. That could boost the Lookers share price further.

There could be risks ahead, too. For example, difficulties in the car supply chain might lead to stock shortages hurting revenues and profits. Rising petrol prices are adding to fleet operators’ costs. So they may drive a harder bargain when it comes to buying vehicles. That could hurt Lookers’ profit margins. But for now I continue to see possible upside to the Lookers share price. I would still consider adding it to my portfolio even after January’s price surge.

What I am considering in February

Nobody knows what will happen next in stock markets. But the reasons I felt Lookers was a UK share that might rise in January were there for anyone to spot, in my opinion.

For example, like other listed companies, Lookers is required to publish details of directors’ purchases or sales of its shares. Just because a chief executive buys 100,000 shares, as happened at Lookers in December, does not necessarily mean a company is undervalued. But in general I regard substantial director purchases as suggestive that, with expertise in the industry, the executive sees a share price as cheap. I already thought that about the Lookers valuation. It had reported a sharply improving business outlook. Its established dealer network and brand give it a competitive advantage. Its property portfolio alone was valued higher than the company market capitalisation at the start of January. So the chief executive’s share purchase was one more data point in my thought process.

I am thinking now about what moves to make in my portfolio in February and beyond. But I will keep applying the same analytical approach which led me to Lookers.

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

I think video games developers could be some of the best stocks to buy as acquisition action in the industry heats up. Sony has just splashed out $3.6bn to bring software maker Bungie under its control. It follows the $69bn blockbuster acquisition of Activision Blizzard by Microsoft last month.

I wouldn’t be shocked to see suitors line up to acquire London-listed tinyBuild (LSE: TBLD) either. Thanks to popular titles like the Hello Neighbor franchise this particular developer exceeded its own trading expectations in the second half of 2021.

Takeover target?

tinyBuild builds software that can be played across various platforms. This gives the business strength through diversification. Aside from just making games for PCs and consoles the business also has its toe in the mobile gaming segment. This is a segment of the gaming industry that’s being tipped for particularly explosive growth in the years ahead.

According to Statista, smartphone games accounted for 50% of all global video games revenue in 2020. The researcher reckons worldwide spending on mobile games will burst through the $100bn barrier by the end of next year too. tinyBuild is rolling out big-hitting titles (like Secret Neighbor, a spin-off of Hello Neighbor) to exploit the mobile gaming boom, too.

Expensive but exceptional

Like many tech shares, tinyBuild comes with a premium rating attached. At a price of 195p this UK share trades on a high price-to-earnngs ratio of 32.5 times. A hefty rating like this could cause the share price to reserve sharply if growth projections start to look a bit fragile, for example, if one of tinyBuild’s new titles receives a frosty reception and sales flatline.

Still, as a potential investor I’m encouraged by tinyBuild’s strong record of producing well-loved games. Its Hello Neighbor title for example has just broken through the significant 100m-downloads marker. Even if a suitor doesn’t emerge I’m confident this UK share could still make me a heap of cash over the long term.

Making an impact

Before you go I’d like to talk about TPXimpact Holdings (LSE: TPX). It’s a stock you may not have heard of as, until late last year, it went by the name of Panoply. This a UK growth share I’m considering buying as a way to capitalise on the artificial intelligence boom.

Competition among the AI specialists is high. Some of them have colossal budgets to operate with compared with smaller operators like TPXimpact, too. But this UK growth share is no small fry and it continues to build its position through shrewd acquisitions. Its most recent deal saw it snap up digital and cloud-based transformation consultancy RedCortex to capitalise further on the automation revolution.

TPXimpact’s latest financials showed revenues soar 77% between April and September. I fully expect it to continue pulling up trees as companies spend increasingly-colossal amounts to digitalise their operations.

Royston Wild 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.

This 0.8% month-on-month increase means we are seeing the strongest start to the year for the housing market in 17 years. According to Nationwide, the average house price now stands at £255,556.

Robert Gardner, Nationwide’s chief economist, says its latest figures reveal that the demand for housing remains strong. He explains: “Housing demand has remained robust. Mortgage approvals for house purchases have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.”

Gardner goes on to explain how the number of property transactions is nearing record levels. This is despite the UK’s low levels of housing stock.

He explains: “The total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck.

“At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.”

How is the housing market forecast to fare in 2022?

Average house prices are roughly £25,000 higher than they were a year ago. As a result, many budding homeowners will be eager to know whether the housing market will cool this year.

According to Nationwide’s Rob Gardner, while house prices might not crash in 2022, prices may (finally) begin to cool. He explains: “While the outlook remains uncertain, it is likely that the housing market will slow this year. House price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, housing affordability has become less favourable.”

Gardner warns that the typical deposits needed for first-time buyers are already stretching budgets. He suggests that this cannot continue indefinitely. He explains: “…a 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long-run average, despite mortgage rates remaining close to all-time lows.

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The share prices of both Tesla (NASDAQ: TSLA) and NIO (NYSE: NIO) have struggled over the past few months. Indeed, NIO stock has sunk around 27% over the past month and is down 57% over the past year. Tesla stock has similarly fallen over 20% in the past month yet is still up around 12% over the past year. But following these dips, should I be buying either of these EV shares.

Tesla continues to dominate the market

Tesla has managed to dominate the EV market over the past few years and is still viewed as the current market leader. This is represented in the company’s share price, which has soared nearly 1,800% in the last five years.  However, there are a few reasons why the shares have fallen recently. For example, there was the broad tech sell-off in the Nasdaq, which dragged Tesla down with it. Secondly, Elon Musk recently told investors that Tesla would not launch any new model vehicles in 2022. This was disappointing for investors, as it may mean growth slowing down.

I also worry about the competitive landscape in the current EV market, which includes new market players such as Rivian and Lucid Motors, and traditional automotive companies like Volkswagen and Toyota.

Even so, there are plenty of positives around the shares. For example, due to its market-leading position, Tesla is likely to profit from the increasing shift into electric cars. Further, largely due to cost reductions, the company has managed to increase its profit margins, and this seems likely to improve further. These positives are not quite enough to tempt be into buying Tesla stock, however.

NIO stock: is the sell-off overdone?

There have been several reasons for investor worries around NIO. For example, as a Chinese company, there are worries that the tensions between China and the US will have negative consequences. This is because Chinese regulators have recently cracked down on the country’s companies listing in the US, and at worst, this may lead to the delisting of NIO.  

Further, recent levels of inflation have also had an incredibly bad effect on growth stocks. This is due to the threat of far higher interest rates, which will make it more expensive for these companies to fund growth. NIO stock has suffered in particular as the EV maker is still unprofitable.

Despite this, there are signs that the sell-off may be overdone. For example, demand for NIO’s products continues to be strong and deliveries in January 2022 managed to reach 9,652. This is a 33.6% year-on-year rise. Recently, the company also launched the ET5, which is a mid-size premium smart saloon, with deliveries expected in September 2022. The fact that new products are being released helps differentiate NIO from Tesla and is one reason I think it’s a better buy for me.

I also like that NIO stock is a cheaper alternative to Tesla. In fact, it trades on a price-to-sales ratio of around 8. In comparison, Tesla has a far higher P/S ratio of around 16. This indicates that either Tesla is far too expensive, or NIO stock is too cheap. I think it’s a mixture of the two. Therefore, I’m very tempted to buy NIO, while I’m also willing to leave Tesla on the sidelines.

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

In the last few decades, society has seen a tech revolution. The way in which we live has changed forever. One company that is a major shareholding of Warren Buffett, which has undeniably been a leader in this change, is Apple (NASDAQ: AAPL). When it comes to mainstream consumer electronics, Apple has defined the last two decades, culminating in being the first company valued at $3 trillion just a few weeks ago.

However, in accordance with company heritage, it continues to innovate and lead the way with new products. Airpods, smart watches and streaming services have been recent examples of this. Without a doubt, Apple will continue to innovate and find new revenue streams from which to grow.

There is no doubt that Apple is a great company. However, is it a good investment for me, as a Foolish investor with a long-term view?

Warren Buffett certainly thinks so, with around 50% of Berkshire Hathaway’s shareholdings being a huge stake of Apple, valued around $160bn. He has “put his money where his mouth is”, which suggests I should do too.

Let’s look at the bull and bear cases for Apple going forward.

Bull case

The bull case for Apple relies partly on continued domination of the market. Maintenance of its market share relies on consistent ability to update systems, software and improving products currently on the market. Moreover, the societal attitudes towards Apple products must continue to be strong. The fact that Apple can bring out new iterations of the iPhone yearly and continue to lean on consumer loyalty is a huge pull, with revenues from the iPhone to the tune of $39bn in the fourth quarter of 2021 alone. This is one side of the business that is fundamentally sound.

Other products currently on the market have seen growth: the Airpods and streaming services (Apple TV and Apple Music) are both promising sources of revenue. If they continue to grow, it would only further add value to the company.

For an exaggerated bull case, Apple needs to continue to innovate. Bringing out new products and services will be central to growth in the decade to come. After all, this is the fundamental of most tech companies. The ability to grow is paramount to positive movements in share price.

Bear case

The bear case for Apple in regards to share price could be a result of market repricing of growth companies in favour of value investments, as well as a reduction in liquidity due to hawkish policy-making in order to fight inflation.

In the very worst case, a fall in market share — or a change in the way society responds to Apple products such as the iPhone — would be devastating for the company.

Conclusion

Considering the recent poor performance of US ‘Big Tech’ stocks, paired with the current market correction, this could be a great opportunity for me to follow Warren Buffett and invest.

The fundamentals are solid and the scope for future revenue growth is substantial. I like this company and think this is my time to get in.

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