Investing in funds can be a great way to generate passive income. With funds, investors can pick up regular cash payments for doing absolutely nothing.

Here, I’m going to highlight two of my favourite income-focused UK funds. I’d be comfortable buying both today for passive income.

TB Evenlode Income

One of my top picks for passive income is TB Evenlode Income (Class B – Income). This is an under-the-radar fund from West Oxfordshire-based investment firm Evenlode that aims to deliver a healthy, growing dividend stream along with attractive capital returns over the long term. It mainly invests in UK companies but also has a bit of exposure to international companies.

One thing I like about this fund is that the portfolio managers take a ‘Warren Buffett-like’ approach to investing. In other words, they invest in high-quality businesses that have strong competitive advantages. This tends to provide stability. Top holdings at the end of 2021 included Diageo, Unilever, Reckitt Benckiser, and GlaxoSmithKline.

I also like the performance track record here. According to Hargreaves Landown, the fund has delivered total returns (capital gains plus dividends) of about 49% over the last five years. That’s a much higher return than the FTSE 100 has generated (about 26%). It’s worth noting that it has delivered that return with much less volatility than the FTSE 100.

Now, the yield here isn’t super high. Currently, it’s about 2.4%. There are plenty of other income funds that have higher yields than this. However, I’m not too concerned about this due to the fact that total returns have been excellent.

All things considered, I think there’s a lot to like about this fund. Fees are 0.87% per year through Hargreaves Lansdown plus platform fees.

FTF Franklin UK Rising Dividends

Another fund that I rate as a good pick for passive income is the FTF Franklin UK Rising Dividends (Class W – Income). This aims to beat the FTSE All-Share index over a three to five-year period by generating a growing level of income as well as investment growth. Top holdings currently include the likes of AstraZeneca, Unilever, Diageo, and Royal Dutch Shell.

Like Evenlode Income, this fund has delivered solid total returns over the long term. According to Hargreaves Lansdown, it has generated a total return of about 36% over the last five years. Even after fees, that’s much higher than the return from the FTSE 100. It’s achieved this outperformance with a lower level of volatility than the index.

At present, the yield here is around 2.8%. I see that as a very healthy yield in today’s low-interest-rate environment. It’s higher than I could get from a savings account. Of course, yields from funds are never guaranteed. If stocks in the portfolio reduced their dividends, investors would mostly likely receive a lower yield. And the risk level is much higher than a savings account.

Overall, however, I see a lot of potential here from a passive income perspective. Fees are 0.54% through Hargreaves Lansdown, plus platform fees.

Edward Sheldon owns shares in Diageo, Hargreaves Lansdown, Reckitt, and Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Unilever. 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.

It’s been a rocky start for some UK shares in 2022. This week, the market started gaining momentum again, but the FTSE 100 index is still flat since the beginning of the year. Yet other stocks haven’t been as lucky against the elevated level of volatility.

The culmination of inflation and rising interest rates has built up a significant degree of uncertainty. And as history has proved time and time again, uncertainty and growth stocks don’t work well together. But this may have created excellent buying opportunities for my portfolio. So, with that in mind, let’s explore two UK shares that I’m thinking of buying right now.

Building wealth with science

Judges Scientific (LSE:JDG) is quite a niche business. It develops scientific instruments used throughout various industries, including pharmaceutical, automotive, even telecommunications. One example would be its tools for testing heat profiles of lithium-ion batteries to verify product safety.

Over the last 12 months, this UK share has delivered an impressive return of around 20%. Yet since the start of the new year, it’s down by about 10%. What happened?

The drop-off seems to have been triggered by CEO David Cicurel after he sold £3.2m worth of shares. Seeing a director offload a large chunk of ownership is not exactly an encouraging sight. After all, it does suggest the valuation may be too rich. And with tensions already running high thanks to the volatile markets, I’m not surprised to see the stock take a hit.

But I think investors may have overreacted. There are plenty of reasons why a director might sell part of their position. And Mr Cicurel still owns over 10% of the company. If he is willing to hold on to such a stake in the business, that signals to me he believes the group can continue to deliver impressive performance. That’s why I think shares of this UK business could be some of the best to buy now for my portfolio.

An oversold UK share?

Staying on the theme of oversold stocks, Frontier Developments (LSE:FDEV) could be another in this category. Unlike Judges Scientific, its 12-month performance has been fairly abysmal, with shares of the UK game development studio collapsing by nearly 60%. Even since 2022 started, the downward trajectory has continued.

This rapid sell-off was triggered last year after management announced it was cutting guidance due to underperforming sales of its recently released Jurassic World: Evolution 2. Generally, when a growth company announces slowing growth, it’s not a good sign, leading to investors making their displeasure known. And Frontier was no exception. But are these UK shares now on discount?

As frustrating as slowing growth is to see, this may only be a temporary issue. The lower post-launch sales volumes for the group’s new game were isolated only to the PC platform. And with the new Jurassic World movie being released later this year, sales are expected to pick up very soon.

Meanwhile, with other titles in the pipeline scheduled for release over the next three years, the top line could soon be expanding at an accelerated pace. That’s why I’m considering adding more of these shares to my portfolio.

Zaven Boyrazian owns Frontier Developments. The Motley Fool UK has recommended Frontier Developments and Judges Scientific. 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.

Ceres Power (LSE: CWR) shares have been on a wild ride over the past couple of weeks. Shares in the hydrogen fuel cell start-up have slumped 37% since the beginning of the year. Over the past 12 months, the stock is down 56%. 

As I have noted before, I think the hydrogen industry has enormous potential, and with this being the case, I have been watching progress at Ceres carefully. I have also been watching the company’s share price closely. As the stock has come under pressure, it has become more appealing from an investment perspective. 

The outlook for Ceres Power shares 

I am trying to determine if I should buy the stock as a speculative investment or long-term growth play. The other option is to avoid the stock entirely. 

I can certainly see a case for avoiding the enterprise. Ceres Power is an early-stage hydrogen technology business. It is not profitable, and it could be years before the company moves into the black.

At the same time, funding will continue to be an issue.

After a significant fundraising late last year, the corporation does have plenty of cash resources. Its cash balance stands at around £250m.

This could be enough to fund the enterprise to self-sufficiency, but nothing is guaranteed in the world of business. If the company gets involved in a price war with its competitors, these cash resources may quickly evaporate. 

Still, despite these risks, I can also see plenty of potential for the business.

In its latest trading update, the company noted that revenue over the 12 months to the end of December is expected to be 44% higher than the previous year. At the same time, management has made significant progress in agreeing on new deals with partners to manufacture its hydrogen fuel cell technology. 

Licensing model 

Unlike other corporations in the sector, Ceres licences its energy technology to individual manufacturers. This removes some of the costs and construction risks of developing new manufacturing facilities. It can also produce larger profit margins.

Some of the company’s major partners are looking to roll out its solid oxide fuel cell technology over the next year. South Korean partner Doosan is launching its version of the product in 2022. It has also announced an £89m investment in new production facilities, which will come online in 2024. 

With partners set to ramp up production in 2022, it looks to me as if Ceres is on the edge of a transformative year. Not only will the production increase hopefully drive revenue growth at the firm, but it could also act as a marketing tool. Potential partners may be more inclined to work with the business when they see its technology in action. 

Considering this potential for growth over the next 12 months, I would be happy to buy the shares as a speculative investment for my portfolio in the years ahead. With a strong balance sheet and growth in the pipeline, I think the outlook for Ceres Power shares is bright. 

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.

Back in January I explained why I’d been buying penny stock Air Partner. On Thursday last week, this aviation services group received a takeover offer. Assuming the bid is accepted by shareholders, this will give me a 50% profit on this holding in just two months.

Of course, takeover offers are unpredictable. I would never buy a stock purely because I thought it might attract a buyer. Even so, I think there are a number of other attractive penny shares on the London market at the moment. Today I want to look at one company I’m considering as a possible replacement for Air Partner in my portfolio.

A turning point?

Small-cap Creightons (LSE: CRL) makes toiletries and fragrances under its own brands and for customers such as supermarkets. It did well in the pandemic by securing a big government contract to supply hand sanitiser. This helped to boost after-tax profit by 34% to £4.3m last year.

However, this isn’t some fly-by-night company that’s appeared out of nowhere. Creightons has been listed on the London market since 1986. Over the last 10 years, the shares have risen by more than 3,600%, making it a true penny stock success story.

Creighton shares have risen by 28% over the last 12 months, but the stock is now well down from the 134p high seen in September last year. In my view, this retreat represents a reality check — it could take a little time for profits to resume growing after last year’s surge.

I think this could be a buying opportunity, as the stock’s valuation now looks quite affordable to me.

Setback or opportunity?

When a share price goes into reverse it’s always worth showing some caution. Some companies never recapture their lost form.

In this case, one potential cause for concern is that there were some director share sales in October and November last year, when Creightons’ share price was still over £1. I think this suggests that company insiders thought the share price might be at a short-term high.

However, executive chairman William McIlroy still has a 23% stake in Creightons, worth nearly £13m. Managing Director Bernard Johnson owns 8%. I’m confident both men will be motivated to continue the development of this business — and perhaps find a trade buyer before they decide to retire.

Why I’d buy this penny stock now

Creightons share price slide has left the stock trading on around 15 times earnings for the last 12 months. This business doesn’t have any broker coverage. This means there aren’t any broker earnings forecasts for the current year, which ends on 31 March.

However, my reading of the recent half-year results suggests that a fairly stable performance is likely during the remainder of the current financial year. If I’m right, then the stock looks reasonably valued to me for a business that’s historically been quite profitable.

I’d be quite comfortable adding a slice of Creightons to my portfolio today, as a long-term holding.

Roland Head owns Air Partner plc. 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.

Rolls-Royce (LSE: RR) shares fell by 10% in January. The drop meant that the jet engine maker’s share price has lagged the FTSE 100 by 9% so far in 2022.

It’s not a very encouraging start to the year, but one month is a short period in the stock market. Looking further ahead, I feel positive about the outlook for a possible investment in Rolls-Royce. 

January: what went wrong?

January started under a heavy dose of caution due to the rapid spread of the Omicron variant. Additional travel restrictions were in place in some countries, with long-haul air travel especially hard hit.

Stock markets have started to sell off too. The US S&P 500 index fell by around 6% in January. I think some of that negative sentiment has started to spill over to the UK market.

One further risk is inflation. When prices rise more quickly, economic theory suggests that investors will reduce the price they’re prepared to pay for long-term assets. This is because they need higher returns to protect the value of their capital.

There’s some good news too

It’s not all bad news. January has seen reassuring trading updates from budget airlines easyJet and Wizz Air. Both companies say that any relaxation in travel restrictions triggers an immediate increase in bookings.

Covid testing requirements for entering the UK are being lifted in time for the half-term holiday on 11 February. According to easyJet, bookings have already started to rise. Of course, increased flying by these short-haul flyers won’t help Rolls-Royce much. The group’s large jet engines are mostly used on long haul routes.

However, I expect long-haul routes — especially to the USA — to be next in line for a recovery. This should provide a boost for Rolls, which generates much of its revenue from pay-as-you-fly billing for engine maintenance.

Rolls-Royce shares: I think the worst is over

I’m not suggesting that everything will now be easy for Rolls-Royce. There’s still uncertainty over how long it will take for global air traffic to recover. The company also still has a sizeable pile of pandemic debt that it needs to start repaying. Until leverage has been reduced, Rolls won’t be able to restart dividend payments.

On a short-term view, Rolls-Royce shares could still have further to fall. But I think the long-term outlook is much brighter. Chief executive Warren East has now done most of the heavy lifting required to stabilise the business, securing £1bn of cost savings.

Disposals are also on track and should raise £2bn, as hoped. Rolls has won a major new contract to provide new engines for US military B-52 aircraft and says demand is recovering elsewhere in its business.

Broker forecasts suggest that Rolls-Royce will have returned to profitability in 2021 and will see earnings double in 2022. Further gains are predicted for 2023.

Right now, the stock still looks expensive to me, on 24 times 2022 forecast earnings. But if Rolls’ recovery continues as I expect, I think the shares could look good value at 115p in a couple of years’ time.

As things are today, I’d be happy to add a few Rolls-Royce shares to my retirement portfolio.

Roland Head 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.

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While the FTSE 100 is up this year, there has been plenty of carnage under the surface. As a result of the recent stock market volatility, plenty of Footsie stocks are down 10%, or more, year to date.

But big share price falls like this can create opportunities for investors with a long-term view. With that in mind, here are two beaten-up FTSE 100 stocks I’d buy today.

Long-term growth potential

One stock that strikes me as a buy right now is Britain’s biggest sportswear retailer JD Sports Fashion (LSE: JD). Only a few months ago, its share price was above 230p. Today however, the stock is trading below 190p.

While JD is dealing with the supply chain issues that are rife across the retail industry, I’m confident the long-term growth story here is intact. In my view, the retailer, which sells products from Nike, Adidas, and Puma, is well-placed to benefit from the continuing casualisation of fashion – which is a huge trend globally. It also looks poised to benefit from the increasing focus on health and wellness. It’s worth noting that for the year ended 31 January, analysts expect revenue growth of 37%.

One risk to consider here is that companies such as Nike and Adidas are ramping up their e-commerce operations and increasingly selling direct to consumers. This could potentially provide challenges for JD in the future.

I think this risk is priced into the stock however. Currently, JD Sports Fashion shares trade at just 16 times forecast earnings. That strikes me as a low valuation, given the growth the company is generating right now.

Down 15% in a month

Another beaten-up FTSE 100 I’d snap up today is cloud-based accounting solutions provider Sage (LSE:SGE). Its share price has taken quite a hit this year, falling from near 850p to around 720p. Given that I thought the stock was worth buying for my portfolio at the 850p level, I think it’s definitely worth buying near the 720p mark.

There are two main reasons I’m bullish on Sage. One is that I expect the company to benefit from the global economic recovery. The recovery should lead to higher spending from small- and mid-sized businesses – Sage’s target market. Another is that the company looks well-placed to benefit from the digital transformation trend. Sage’s cloud-based solutions can help businesses digitise their processes and become far more efficient.

After the recent share price fall here, Sage now trades on a P/E ratio of about 28. For a software-as-a-service (SaaS) company with a high proportion of recurring revenues, I think that’s a very attractive valuation. It’s worth noting that US rival Intuit has a much higher valuation. 

This FTSE 100 stock is not without risk, of course. It could underperform if technology stocks continue to be pummeled. Overall however, I think the long-term risk/reward proposition here is very attractive after the recent pullback.

Edward Sheldon owns shares in Sage Group and Intuit. The Motley Fool UK has recommended Nike and Sage 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.

Hydrocarbon prices worldwide are surging and, against this backdrop, the BP (LSE: BP) share price is starting to look incredibly appealing. 

Over the past couple of years, the company’s outlook has been highly dependent on oil prices. Even though the business is expanding its green energy division, this division is still relatively small compared to the oil and gas side of the operation.

As such, I think it will be several years before green energy takes over as the primary revenue generator for the enterprise. In the meantime, BP’s fortunes will remain tied to oil and gas prices. 

The good news is that as hydrocarbon prices return to multi-year highs, the company’s outlook is improving dramatically. I think this could present an interesting opportunity for long-term investors. Investors who are prepared to overlook the firm’s poor environmental credentials. 

The outlook for the BP share price 

Over the past couple of months, as the oil price has charged higher, City analysts have been rushing to review their forecasts for its earnings growth over the next couple of years.

Analysts now believe the enterprise will report a net profit of $14bn for its 2022 financial year. This puts the shares on a forward price-to-earnings (P/E) multiple of 6.9.

This looks incredibly cheap compared to the rest of the market, which is trading at a multiple of around 14 and BP’s own history. Indeed, over the past five years, the stock has traded an average P/E multiple of around 10.

That said, I need to take a couple of things into account when analysing the BP share price. For a start, the highly volatile oil price dictates the company’s fortunes. Today, oil prices are trading at a multi-year high, but this might not last. BP’s growth will not live up to expectations if prices fall next year. 

At the same time, as I mentioned above, BP’s environmental credentials leave much to be desired. As one of the world’s largest hydrocarbon producers, the firm is responsible for pumping vast amounts of CO2 into the atmosphere every year. This could become a massive liability for the business if it does not clean up its act. 

Growing potential 

Still, despite these risks, the firm has plenty of opportunities as well. It plans to invest billions over the next few years to build out its renewables business.

As this division grows, the firm’s dependence on oil and gas will decline. The company’s current windfall from high oil and gas prices will certainly help it achieve this aim. So in some respects, current exposure to the hydrocarbon industry could help it meet and beat its green aims. 

Considering this factor and the corporation’s current valuation, I think the BP share price does appear to be a bargain for 2022 and beyond.

Not only does the company look cheap compared to its profit potential, but it also has a long green runway for growth ahead. And on top of these factors, the stock offers a dividend yield of 4.2%.

Based on these factors, I would buy the stock today. 

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.

Warren Buffett is widely regarded as the greatest stock market investor of all time. That’s because, over the long term, his stock portfolio has beaten the market by an enormous margin.

Given his prowess, many investors want to know what stocks Buffett owns. With that in mind, here’s a look at his current stock portfolio.

These are the stocks Warren Buffett owns

Finding out what stocks Buffett owns is a relatively straightforward process as there are a number of websites that track the holdings of his investment company, Berkshire Hathaway. One of my favourite websites in this regard is CNBC’s Berkshire Hathaway Portfolio Tracker, which pulls together data from regulatory filings (such as 13F) to list Buffett’s stock holdings.

Looking at CNBC’s Buffett tracker, we can see he owns a wide range of stocks. In total, there are over 40 different companies in his portfolio. However, these stocks are not held in equal measures. His largest holding, Apple, represents around 46% of the overall portfolio at present. Meanwhile, his second largest holding, Bank of America, is currently about 14%.

In terms of individual holdings, here are some of the stocks he owns, broken down by sector:

• Technology: Apple, Amazon, Mastercard, Visa, Snowflake, Verisign

• Banking and financial services: Bank of America, American Express, US Bancorp, Bank of New York Mellon Corp, Moody’s

• Consumer staples: Coca-Cola, Kraft Heinz, Mondelez

• Healthcare: Bristol Myers Squibb, Abbvie, Davita

• Industrials: General Motors, BYD

• Telecommunications: Verizon, T-Mobile

• Energy: Chevron

Overall, it’s a diverse mix of stocks from a range of different sectors.

Buffett stocks I’d buy today

Would I buy any of these Buffett stocks today? Absolutely.

One stock I’d certainly be happy to snap up for my own portfolio today is Apple. It has experienced huge growth in recent years. However, I believe it’s still got plenty of growth to come. Payments and healthcare are two areas that have a lot of potential, to my mind. And on a P/E ratio of 28, the stock is not expensive, in my view.

Another Buffett stock I’d snap up today is Amazon, which is a powerhouse in both e-commerce and cloud computing. I expect Amazon to get much bigger in the years ahead as the world becomes yet more digital. And after a recent share price pullback, I see value on offer as the P/E ratio is now in the 50s.

Finally, I’d also buy payment companies Mastercard and Visa. In the years ahead, millions of transactions are set to shift from cash to card, providing huge tailwinds for these two businesses.

Of course, there’s no guarantee that these Buffett stocks will perform well going forward. While the man has an amazing long-term track record, he doesn’t get every stock pick right. However, I believe these stocks have a lot of growth potential in today’s tech-focused world.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Amazon, Apple, Mastercard, and Visa. The Motley Fool UK has recommended Amazon, Apple, and Mastercard. 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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