If there’s one investor I worship above all others, it would be the legendary Warren Buffett. The ‘Oracle of Omaha’ has built a fortune exceeding $113bn through long-term value investing. What’s more, as one of the world’s most generous philanthropists, he’s given away more than $45bn to good causes. And Buffett’s words of wit and wisdom have benefited many millions of investors worldwide — including me.

However, in recent years, doubters have started taking pot-shots at the 91-year-old guru. The stellar performance of Berkshire Hathaway (NYSE: BRK.A), his conglomerate, has eased off over the past decade. In the last five years, Berkshire stock has gained 91.3%, versus 92.9% for the S&P 500 index (all returns in this article exclude dividends). But over the past 12 months, Berkshire stock has leapt 35.7% — more than double the S&P 500’s 17.4% gain. So, for the past year at least, backing Warren Buffett was once again a wise move.

‘The Queen of the bull market’

Since 2019, one major contender has stepped up — a challenger to seize the throne and take the crown from the world’s greatest investor. She’s Cathie Wood, manager of the wildly popular ARK Innovation ETF (NYSEMKT: ARKK). Wood, a 66-year-old devout Christian from Los Angeles, named her fund group Ark Invest after the Biblical Ark of the Covenant. And in 2020, her ARKK exchange-traded fund’s performance was nothing short of heavenly, easily thrashing Warren Buffett’s returns.

Cathie Wood has managed the ARKK ETF since it was launched on 30 October 2014. This New York-listed ETF invests in ‘disruptive innovation’ in fields such as DNA sequencing and genomics, automation and robotics, green energy, artificial intelligence, and fintech (financial technology). Thus, Wood’s fund is heavily weighted towards highly rated tech stocks — with the largest holding being electric carmaker Tesla.

From its launch in late 2014 to peaking in February 2021, ARKK delivered a colossal return of 683.6%. In other words, $1,000 invested in this ETF at launch would have been worth over $7,836 at the peak price of $159.70 on 16 February 2021. But such market-thrashing returns rarely persist and quite often become a flash in the pan. On Friday, ARKK closed at $68.91, having collapsed by more than half (-56.9%) from its all-time high. So far in 2022 — just a month into the year — ARKK has crashed by more than a quarter (-27.2%). And over 12 months, the stock has collapsed by 51.7%, making it one of the worst-performing US ETFs over one year. So much for Cathie Wood stealing Warren Buffett’s crown.

Warren Buffett trounces Cathie Wood over one year

Though I admire and respect Cathie Wood, her reputation relies on just three outstanding years: 2017, 2019 and 2020. Here’s how ARKK has performed since end-2014.

As shown, ARRK had three dull years, three exceptional years, and an awful 2021. Thus, its five-year gain has declined to 207.9% — still an excellent return. However, with the stock now deep into bear territory, anyone backing Cathie Wood since late June 2020 will have lost money (on paper or in reality). Meanwhile, investors backing Warren Buffett have been handsomely rewarded. Over one year, $1,000 invested in Berkshire stock would be worth more than $1,357 today, versus $483 in ARKK.

In short, ARKK’s collapsing stock over the past year has cost Cathie Wood’s fans billions of dollars. Meanwhile, Berkshire Hathaway’s market value has soared to nearly $700bn. This has added almost $30bn to Warren Buffett’s personal wealth. That’s why he’s still my hero!

Cliffdarcy 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.

With a business model that commenced over 20 years ago, in partnership with the research departments of some of the UK’s leading universities, IP Group (LSE: IPO) has developed into a key player in the creation of new high-value businesses, focused on the life sciences, clean technology and IT sectors.

However, despite an impressive track record – IP Group has played an integral part in the establishment of over 300 companies, with nearly £1bn of its own money directly invested – why is it that the share price of this FTSE 250 company has suffered so much over the past six months?

From a high of over 155p in September 2021, its shares have now fallen to less than 93p at the time of writing, valuing the company at approximately £984m. Notably, this is very close to the cash cost of its investments over the past 20 years, and substantially below its last reported net asset value (NAV) of 135p per share. 

A recent financial update (posted on 13^th January 2022) painted an upbeat picture, with an anticipated FY21 NAV of over 165p, full year’s profits in excess of £425m and a cash buffer of £256m.

At 20 years old, the company is well past the stage of being a new kid on the block, and a look at its regular RNS announcements shows a solid track record of achievement. These include a number of lucrative exits in 2021, as well as the impressive IPO of Oxford Nanopore (“ON”), one of the first companies identified by IP Group for investment back in 2005.

The big question is, therefore, why the slide?

Well, clearly this is something the company’s board don’t understand either. Since the middle of last year, they have dedicated a war chest of some £35m to a continued share buyback scheme. The management clearly believe that there is substantially more value to IP Group than the market is recognising.

Possibly the perception is that IP Group is too heavily reliant on its investment in ON, and it is true that even after a 30% slide in the share price of ON during January, IP Group’s holding in the company is still worth over £250m (or around 25% of the current market cap of IP).

The reality does appear to be different, though. A well-diversified portfolio of over 30 companies has the potential to continue the company’s established track record of development, growth and exits.

Perhaps it is also the lumpy and less-than-transparent nature of these revenue streams that causes investors to shy away. This is maybe the reason that IP Group has started to pay a dividend over the last year to win back confidence. Expect this dividend to grow if full-year profits meet current expectations.

One should not forget as well that IP Group’s activities now include a solid bank of complementary revenue streams, including the separately managed private Venture Capital Fund and the well-respected EIS manager, Parkwalk Advisers (acquired in 2017), with over £400m under management.

I keenly look forward to the release of its final results in March, but in the meantime — since I’m prepared to assume a little risk — there appears to be substantial upside to this misunderstood sleeping giant, and I’m strongly considering buying more of the shares for my own portfolio.

Fergus Mackintosh owns shares in IP Group. 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.

International staffing company Sthree (LSE: STEM) released its full-year results report today and the small-cap stock is more than 10% higher as I write. Should I grab some of the shares now for my own portfolio?

Barnstorming results

And to answer my own question, buying the stock now looks like a good idea for me. After all, as we might expect today’s figures are good. For the 12 months to 30 November, revenue at constant currency rates increased by 14% compared to the year before. And of that, fee income rose by 19%.

That turnover caused earnings per share to shoot up by 143%. And the company managed to increase its net cash position by 15% to £57.5m. The outcome clearly pleased the directors and they rewarded shareholders with a 120% lift in the total dividend for the year.

I reckon much of the good performance comes down to the success of the company’s strategy. Sthree describes itself as “the only global pureplay specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics (STEM)”.

Interim chief executive Timo Lehne said in today’s commentary, the “record-breaking” results demonstrate the company has a “robust” strategy focusing on STEM and flexible working. He said the market rebounded in 2021 after the challenges caused by Covid-19, and demand for STEM rose.

Sthree capitalises on demand for STEM skills by placing engineers, developers, scientists and other professional people into industry where they’re needed.  And Lehne reckons there’s been “particular” client demand for the company’s employed contractor model. And Sthree leads that market segment in many countries. The category accounted for around 32% of overall net fees.

A robust outlook

Looking ahead, Lehne sees strong momentum in the business driven by robust demand for the talent the company provides. And he expects “double-digit” growth in 2022. Meanwhile, the valuation looks undemanding, despite the buoyancy of the stock today.

With the share price near 465p, the earnings multiple based on today’s results works out at just below 15 and the dividend yield is around 2.4%. However, if the business achieves the growth in earnings it hopes in 2022, the forward-looking valuation numbers could reduce. But such positive expectations becoming  a reality is never certain and it’s possible for operational challenges to arise that could derail the forecasts.

And another factor I’m wary about is the high degree of cyclicality in the firm’s business model. If demand cycles down, it’s likely that so will profits, dividends and the share price.

Nevertheless, I’m bullish about the prospects for world economies and the labour market for all timeframes right now. And the strength of Sthree’s balance sheet also encourages me. So I’m tempted to buy some of the shares now to hold with a timeframe of at least five years in mind.

Kevin Godbold 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 reason growth shares have that name is because investors hope that such companies will be able to grow quickly. If that happens it could be reflected in a share price that also increases at a handy clip. But one well-known UK growth share has lost over 80% of its value in the past year alone.

Could this be a buying opportunity for my portfolio?

Strong revenue growth

The stock in question is THG (LSE: THG), previously known as The Hut Group. The THG share price has collapsed since its flotation in September 2020.

When the company initially came to the stock market, investor enthusiasm seemed high. THG runs over 180 retail websites in areas such as beauty and nutrition. It also offers online sales and fulfilment services to other businesses through its Ingenuity division. But things soon turned sour, with growing concerns in the financial community about the long-term prospects for Ingenuity.

This month the company reported that revenue for the past year grew by 35%. The Ingenuity business grew even more strongly, posting a 41.4% increase in revenue to £194m. Such growth rates look impressive to me. So, why has the THG share fallen so far?

Disappointment and uncertainty

Although the revenue growth was strong, its most recent trading update contained news that disappointed investors too. The company said that its adjusted earnings before interest, tax, depreciation and amortisation would come in lower than the market expected. It pinned that shortfall on movements in exchange rates.

The company forecast revenue growth this year of 22%-25% but warned that high commodity prices are a concern. There is a risk they could hurt the profit margins of some of the company’s direct product sales.

As well as that news, investors are struggling to figure out how profitable the company’s business model might end up being. In its first half, THG recorded an operating loss after adjusted items of £17m. On top of that, the company rents quite a few properties from its founder. That sort of arrangement is not common among large listed companies. I see it as a potential distraction for the founder from the core task of running the company.

I will pass on this UK growth share

I am in two minds about the future prospects for the THG share price. The company’s fast rates of revenue growth look attractive to me. I think there is quite a lot that it seems to be doing well, from gaining customer traction online to improving sales in Ingenuity. In the long term, that could be good news for both revenues and profits. If the company proves its business model, today’s market capitalisation of £1.6bn could come to seem cheap.

On the other hand, I continue to feel that the business is overly complicated. Its unconventional approach to corporate governance issues and the lack of detail on Ingenuity’s profitability do not inspire confidence in me as a potential shareholder. THG might still do very well. But I continue to find it difficult to establish clear expectations for the company’s financial performance in the coming years. For that reason, I will not be buying it for my portfolio.

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.

Key points

• Passive income can be achieved through dividend investing
• High yields aren’t always sustainable
• I’m building a diversified portfolio of UK-based companies

Passive income is money earned while we aren’t working. Building a consistent stream isn’t easy and takes years of dedication. But it’s not impossible. I could start a business, or rent out property. But neither of those options will start generating passive income right away and they also involve some extra work. The best way I know how to achieve my aim is with dividend investing.

Dividend investing

Dividends are payments made to shareholders from a company’s profits. These payments can be issued once, twice, or even four times a year, and they’re generally indicative of a company’s profitability. Dividend investing is a method by which investors construct a portfolio of dependable firms that provide a consistent dividend that can then be reinvested. This technique is quite popular in the UK, and we’ve witnessed record-high dividend yields in recent years. Some have even gone as high as 13% or 15% of a share’s value!

Yields and sustainability

These high rates, however, are typically unsustainable in the long run. For example, in 2019, mining firm Evraz paid 53p per share, representing a staggering 13.39% of the share price. But the company only paid 42p in 2017 and nothing in 2015 or 2016.

The average payout of big listed corporations in the UK is roughly 4%. This year BAE Systems and Unilever are scheduled to allocate 4.05% and 3.97%, respectively. But it’s important to understand that no firm is required to raise, retain, or even pay a dividend. The importance of consistency can’t be overstated.

Portfolio size

I figure I’ll need a total pool of £125,000 to meet my monthly objective of £400 in passive income. 4% of £125,000 is £5,000. That’s £416.60 if I split it over 12 months.

While I don’t have that kind of cash on hand, if I set aside £350 every month, I’ll be able to attain that magical figure in roughly 30 years.

Granted, 30 years is a long time, but if I start investing that money immediately, compound interest will help me get there sooner. Now all I have to do is pick a few businesses in which to invest.

My preferred companies

While the goal is to seek out secure organisations I can trust, I believe it’s worthwhile to take a few chances in order to accelerate my pot’s growth. I’ve already written about Imperial Brands. Since 2002, the tobacco firm has issued a substantial dividend to its stockholders at least twice a year. Today’s yield is a fantastic 8%.

I’m not overly concerned if it decides to reduce its dividend payout because my plan’s benchmark is 4% over 30 years. Anything over that is a bonus.  However, I believe it’s critical that I don’t rely only on this technique and instead diversify my portfolio with smaller-yield firms.

Lloyds Bank pays a dividend of roughly 2.37%, lower than my target return, but banks are generally stable businesses. Finally, I’d go with Unilever as it’s a huge, prosperous firm that now pays almost 4%.

None of this is guaranteed though. Investing always entails risk. The essential thing for me to do in that case is to diversify my portfolio so that I can weather any storms and build towards my passive income dream.

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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Believing that a company’s value might explode this year sounds a bit ambitious given the funk markets are currently in. But as 2021 showed, it’s also achievable if I pick the right FTSE stocks and encounter a healthy dollop of luck.

Today, I’m focusing on one share that I think has the potential to perform better than most in 2022. It might not, of course, but I do think it’s possible.

A FTSE stock that’s ready to fly

Online travel operator On the Beach (LSE: OTB) probably wasn’t the stock some would expect me to talk about in these terms and I understand why. The Manchester-based business has endured a tough couple of years thanks to the pandemic. I won’t include any figures on trading here. Let’s just say they haven’t been great. 

Having said this, there are a few reasons why I think the shares could finally be ready to fly.

First, we appear to be entering the final stages of Covid-19. As confidence returns (and restrictions become a distant memory both at home and abroad), more of us will feel confident enough to start booking holidays. Goodness knows, the demand is there. Yes, that will take some time to filter through to OTB’s numbers, but analysts are already expecting earnings per share growth of 126% in FY23 (beginning this October). Growth that strong could light a fire under the share price.

Second, On the Beach’s asset-light business plan means it can be far more nimble than larger industry rivals. If it needs to prioritise marketing particular destinations to gain the full benefit of the post-pandemic recovery, it can do so quickly. To me, that gives it an advantage over its travel stock peers.

Third, On the Beach’s finances are arguably in a better state than other companies in the sector. In its annual report, it said it “enters the new financial year well-funded to successfully and sustainably grow market share“.

Clearly, the probability of On the Beach soaring in price depends greatly on it releasing better-than-expected updates. However, a sizeable gain is not unrealistic for a business of its size. As I write, OTB shares are worth less than half the value they hit in April 2018. The market cap at Friday’s close was £475m. While the past is no reliable guide to the future, it shows that in a travel-friendly world, the share price can be much higher.

Nothing’s guaranteed

But I’ve already mentioned that luck plays a role. Any stock that’s attractive on paper can perform disastrously events conspire against it. Another Covid-19 variant, industrial action, terrorism in a popular destination — all of these can dent holiday bookings. And that would keep OTB’s share price grounded.

Plus there’s the possibility the general market malaise we’ve seen in January may continue for longer than anyone expects. This will prove a drag on most share prices. This is why spreading my cash between quality growth stocks and funds is an essential part of my investing strategy.

Optimistic holder

Yet I do think there’s a real chance of On the Beach finally rewarding this patient, battle-scarred investor in 2022. Exploding in value in under a year is a challenge, but I think the odds might be turning in this FTSE stock’s favour.

It remains my favourite Covid-19 recovery play. 

Paul Summers owns shares in On the Beach. The Motley Fool UK has recommended On The Beach. 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.

2021 proved to be a good year for the FTSE 100. London’s flagship index rallied by 14.3%, recovering the losses incurred since the Covid-19 pandemic caused global stock markets to crash in February 2020. However, the International Monetary Fund recently trimmed its growth forecast for the British economy, and fears of another stock market crash are rising.

Nonetheless, I continue to explore opportunities to add to my long-term portfolio. Let’s take a closer look at two shares on my watchlist.

A dividend stalwart

Unilever (LSE:ULVR), the consumer goods giant, has struggled somewhat of late. The stock posted a negative return for 2021, trailing the Footsie by a considerable margin. Last week the company announced restructuring plans to cut 1,500 management jobs globally. Could this mark a turning point for the dividend player’s fortunes?

The risks of investing in Unilever have been highlighted by Fundsmith’s Terry Smith, often dubbed ‘Britain’s Warren Buffett’. He admonished the group for “losing the plot” in its misguided focus on sustainability over profits. These remarks are pertinent in the current macroeconomic environment, with UK inflation running at a 30-year high of 5.4% pointing to heightened pressure on profit margins. In addition, Unilever recently suffered a brief but concerning 10% crash in its share price following an unsuccessful £50bn bid for GlaxoSmithKline’s consumer products division.

This defensive stock is one of the largest constituent members of the FTSE 100. Unilever boasts an enviable range of brands, from Dove soap to Marmite, and has responded to criticism with a new focus on five distinct product groups. Love it or hate it, if this strategy proves successful, Unilever has the resilience to weather potential storms ahead.

One advantage I see in the falling share price is the rising dividend yield, which currently stands just shy of 4%. This is higher than the historical five-year average of 3.15%. I am carefully monitoring Unilever, as this could be a golden opportunity to snap up shares with the dividend yield at an attractive level.

An Anglo-Swedish household name

AstraZeneca (LSE:AZN) has enjoyed enormous publicity over the past couple of years due to the development and distribution of its effective Covid-19 vaccine, AZD1222, which the company has recently started to take profits from.

This pharmaceutical heavyweight goes from strength to strength, outpacing the FTSE 100’s gains over the past year and currently trading at a whopping price-to-earnings (P/E) ratio of 93.94. The sky-high valuation could be a concern for investors, but AstraZeneca’s promising pipeline of medicines suggests strong future earnings growth.

Although the rapid spread of the milder Omicron variant has dented some forecasts for its Covid-19 vaccine sales, there is far more to AstraZeneca’s business. For instance, the company has launched more than a dozen Phase II and III clinical trials evaluating Immuno-Oncology and gene-targeted therapies in the early stages of lung cancer – the leading cause of cancer death worldwide.

AstraZeneca currently looks pricey but the stock is positioned to perform well in the long run. I regard any future dips in its share price as good buying opportunities for me.

Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline 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.