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Netflix (NASDAQ: NFLX) stock has crashed 40% in 2022, so far. Today, I’m asking whether this is a golden opportunity for me to finally begin building a position in the dominant streaming service.

What’s gone wrong?

Before going on, it’s worth recapping why investor sentiment has reversed so dramatically. Much of this year’s sell-off is the result of concerns over Netflix’s slowing subscriber growth. A few days ago, the company revealed it was targeting just 2.5 million new accounts in the current quarter. That’s 4.4 million less than analysts were expecting.

But is this just a blip? I can think of a few reasons why now might be a great time to load up.

Reasons to buy Netflix stock

First, this is a business that has shown it can produce quality content. Series like Squid Game, The Crown and Bridgerton have been warmly received by critics and viewers. The company’s rapidly growing film catalogue is also doing well. Last week’s share price capitulation was as if investors believed the US giant was suddenly incapable of maintaining this form. 

I also think a Netflix subscription has become so ingrained in many people’s lives (and that TV consumption has changed so much in recent years) that a lot of us wouldn’t even consider cancelling, even in inflationary times. The value for money compared to even a single cinema trip is truly astounding.

It’s also worth noting that Netflix is not alone in seeing a drop in subscriber growth. Back in November 2021, shares in Disney tumbled as it also reported that fewer people than before were signing up to its own streaming service. Isn’t all this inevitable as the pandemic enters its end-game and lockdowns become distant memories?

Worse to come?

For balance, let’s look at some arguments against buying now. It’s important to not get anchored to a price. Netflix stock doesn’t have a right to get back to its $700 record high, as much as holders might want it to. It could easily fall further as investors rotate into value stocks held back by Covid-19. And they might be right to do so. These may offer potentially better returns, at least in the short term. 

Another argument is one that can apply to any company in the entertainment business, namely the popularity of whatever it produces is never guaranteed. Simply put, Netflix can throw money at a project and have no idea whether it will make a decent return on its investment. I’d need to be comfortable with this if I invested here.

Last, there’s the competition. While Netflix is the clear market leader, Amazon, Apple and the aforementioned Disney aren’t about to throw in the towel. As such, I certainly don’t think there’s anything wrong with taking a risk-off approach and buying a tech-focused fund that holds some or all four stocks.

Expectations lowered

On balance however, I’m very tempted to snap up some Netflix stock for my own portfolio. Now that previously-lofty expectations have been thoroughly reset, the company may even now surprise on the upside in its next update.

Even if this doesn’t happen, the long-term outlook — which now includes an expansion into video gaming — still looks stellar to me. And for someone with a totally different time horizon to your average fund manager, that counts for a lot.

Paul Summers has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. 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.

After the recent stock market wobble, I have been looking to snap up some cheap UK shares with growth potential. I think the companies below have tremendous potential over the next few years. As such, I would buy all three for my portfolio today with an investment of £300. 

UK shares for growth 

4imprint (LSE: FOUR) is a direct marketer of promotional products. These are the promotional products companies give to their clients, such as branded pens, water bottles and T-shirts. 

This market might not seem all that exciting, but it is big business. 4imprint has multiplied over the past five years, capitalising on its position in the market and re-investing for growth. Sales nearly doubled between 2016 and 2020, although they fell 50% when the pandemic hit. 

Going forward, sales could remain under pressure if events and marketing activity does not return to pre-pandemic levels. This is probably the most considerable risk to the group’s growth right now. 

Despite this potential headwind, City analysts think the company’s earnings could rebound to pre-pandemic levels by 2023. From there, the group will be able to build on its position to expand its footprint further, suggesting its outlook will only improve over the next few years. 

Near collapse

If 4imprint struggled during the pandemic, On The Beach (LSE: OTB) had a near-death experience. The company has been haemorrhaging money for the past two years, relying on investors to keep the lights on. 

With the international travel market beginning to reopen, it looks as if the outlook for the business is starting to improve. City analysts believe the business will return to profit in its current financial year and build on this growth in fiscal 2023. 

Of course, there is no guarantee this growth will materialise. Challenges the corporation will face include additional coronavirus-induced restrictions and the rising cost of living. Higher prices could also lead to a delay in spending. 

Still, even considering these headwinds, I think the company’s outlook will improve significantly over the next two years. That is why I would add it to my portfolio of UK shares with growth potential. 

Charging ahead

As the two firms above struggling with the pandemic, Bloomsbury Publishing (LSE: BMY) knocked it out of the park. Profits have increased by around 50% since 2020 as the demand for books has surged. 

The company is planning to build on this growth in the years ahead. It is using its pandemic windfall to fund new growth initiatives, such as its online learning platform. It is also continually hunting for new authors to add to its catalogue of books. 

This is a bit of a hit and miss process. The enterprise’s most successful association has been the Harry Potter franchise, but there is no guarantee it will find another blockbuster. A string of poor decisions could leave the company struggling with declining sales and profits. 

Even considering this challenge, I am excited by the group’s prospects. It has a cash-rich balance sheet with no debt and supports a dividend yield of 2.8%. Considering these qualities, I think this is one of the best UK shares to own now. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended 4imprint Group, Bloomsbury Publishing, and 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.

I own a selection of penny stocks in my portfolio. While these companies can be riskier investments than larger businesses, they can also generate outsized returns. As such, I think the potential rewards outweigh the risks of investing. 

That said, these investments can turn sour very quickly, so I have to keep a close eye on their operations. With that in mind, here are three penny stocks I would buy today for their growth potential. 

Cheap penny stocks 

The first company on my list is the hospitality operator Marston’s (LSE: MARS). After the challenges of the pandemic, it looks as if the business is bouncing back.

According to its latest trading update, sales during the 16 weeks to 22 January were down just 3.6% compared to 2019 levels. However, before the Omicron variant emerged, like-for-like sales in the eight weeks to 27 November were 1.3% above 2019 levels. 

The company is having to deal with some challenges that could hold back this growth recovery. Inflationary pressures could increase costs for the group and customers, hurting sales. 

These numbers appear to show that without restrictions, Marston’s has the potential to return to pre-pandemic levels of sales and profits.

Still, despite this potential, the stock is selling around 30% around pre-pandemic levels. I think this presents an opportunity for long-term investors. That is why I would buy the shares for my portfolio of penny stocks today. 

Building the recovery 

Specialist building products supplier SIG (LSE: SIG) has struggled to earn a profit since 2015. The group has lost more than £400m since 2016. 

Thanks to the booming European construction market, analysts believe this will change over the next two years. The City has pencilled in a group net profit of around £10m for the 2021 financial year and £18m for 2022. 

Yet it looks as if the market doubts the company’s potential. And I will admit I think there is a strong chance it will miss the projections. After five years of disappointment, the company needs to pull out all of the stops to convince the market it is back in business. Inflationary pressures and the supply chain crisis will not help matters. 

Despite these challenges, I would acquire this business for my portfolio of penny stocks as a speculative recovery play. If it can return to the black over the next two years, investors could return to the shares and drive a re-rating of the stock. 

Rising interest rates

Metro Bank (LSE: MTRO) only recently entered the realm of penny stocks. The company was once one of the most sought after businesses on the London market. But after a string of scandals and disasters, the shares have plunged. 

Nevertheless, I believe the outlook for the banking sector as a whole is improving as interest rates start to rise. Higher interest rates will enable lenders to charge borrowers more, boosting their profit margins. 

Metro’s main challenge now is to reduce costs far enough for rising rates to have a material impact on group profit. If costs begin rising faster than interest income, the lender could struggle to return to growth. 

Despite this headwind, I think the combination of the economic recovery and rising interest rates provides a very favourable environment to support the business’s comeback in the next few years. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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.

When it comes to FTSE 100 dividends, I am not complaining right now. In 2021 they bounced back and a few stocks even had double-digit dividend yields. In 2022, if forecasts are to be believed, these yields could only get better. At the very top of the dividend yield table sits the Russian miner and steel producer Evraz (LSE: EVR), with a yield of almost 16%. 

I invested in the stock a while ago, and have reaped both capital gains and passive income from it. But when Goldman Sachs reiterated its ‘sell’ rating on the stock recently, it did set off an alarm bell in my mind. And only because of where the stock is at right now. Let me back up a bit to explain myself properly. 

What happened to the Evraz stock price?

The investment bank said the same thing back in September as well. But it did not mean very much to me at the time. Sure, the stock had slumped. But so had the rest of the stock market. Also, while the prospects for commodity stocks had just started looking more moderate, as forecasts for industrial metal prices were cut, the stock still looked cheap in terms of market valuations to me. Clearly, other investors felt the same way. Because its share price picked up from October onwards. And it stayed relatively elevated until the end of 2021. In the meantime, its dividends continued to be good too. 

But January has been a tough month for the stock, even though the FTSE 100 index reached the highest levels since early 2020 last week. It is down by 18% in the past month alone. So, as Goldman reiterated its sell stance on it, it was a red flag for me. 

Why is the FTSE 100 stock slumping?

One big issue for me is the geopolitics in its home country. Russia’s tensions with Ukraine may just have implications for the stock. Though how much by, remains to be seen considering that it has assets across the world. Rising inflation is already having an impact on stock markets too, which could impact all stocks, including Evraz.

Also, the International Monetary Fund (IMF) just reduced its global growth forecast for 2022 by 0.5 percentage points to 4.4%, which is also a decline from the 5.9% growth estimate for 2021. In particular, forecasts have been reduced for China, which is the biggest market for industrial metals in the world. This could have further implications for miners. 

Would I sell it?

So, I feel I should brace myself for some hit to my capital gains from the stock. Indeed, I can see that already. However, the dividend yields are still pretty damn good. And analyst estimates so far suggest they are expected to remain elevated in 2022. Of course, these estimates could change with evolving circumstances. But for now, I think the stock is good for me to hold for the dividends alone. I would not buy more of it though, until I have more clarity on its future, which should happen when it releases its results next month. But I would certainly not sell it today.  

Manika Premsingh owns Evraz. 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.

Motor retailers like penny stock Lookers (LSE: LOOK) face massive uncertainty due to disruption to auto production. This is affecting stock availability and news surrounding the issue remains pretty chilly.

A US government survey shows that semiconductor supplies dropped to an average of five days’ worth in late 2021. This is down considerably from the average of 40 days recorded in 2019.

With the Covid-19 crisis continuing, this threatens to be a prolonged problem for motor manufacturers too. Just three weeks into the new year, Toyota warned it would miss its 2022 production target and announced production stoppages in February.

Lookers said in early January that “it is right to remain cautious” given ongoing supply chain problems in the auto industry. But despite this threat, I think Lookers shares warrant serious attention  at current prices. At 74.2p per share, this UK retail stock trades on a P/E ratio of just 6.5 times for 2022. Lookers also sports a meaty 4.4% dividend yield today, comfortably beating the 3.5% average for British stocks.

Not only does this valuation reflect the threat of those aforementioned car production problems, I believe it doesn’t factor in soaring demand for electric vehicles and the opportunities this creates for Lookers.

People are bringing forward their decision to purchase cars that produce lower emissions as their concerns over the environment grow. Data from the Society of Motor Manufacturers and Traders, for example, shows sale of battery-powered vehicles in Britain rocket 76.3% year-on-year in 2021.

Another cheap penny stock I’d buy today!

Photo-Me International (LSE: PHTM) is another penny stock I believe offers terrific value. The business — a giant in the field of self-service — trades on a P/E ratio of 9.3 times for this financial year (to October 2022). It currently trades at just 75.4p per share.

I believe the business could be a great buy for individuals who love robust dividend growth like me. Photo-Me didn’t pay a dividend in fiscal 2020 as the pandemic struck, and it’s unclear if one will be forked out for the financial year that’s just passed.

However, City brokers think a payout of 1p per share is set for this 12-month period, and that this will balloon to 2.1p in financial 2023. This leaves the company boasting handy yields of 1.3% and 2.8% for this year and next year respectively.

Photo-Me operates photo booths, laundry machines, digital printing stations and other self-service instruments. The business generates enormous amounts of cash — thanks in large part to its small labour costs — which explains why dividends are tipped to rise sharply.

The penny stock was recently subject to a takeover bid from its chief executive. The offer was required under UK trading rules however, following recent share purchases and a deal is unlikely. I consider Photo-Me to be a great buy despite the threat that pandemic restrictions in some territories pose to near-term profits. I’d buy it along with Lookers right now.

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.

Stock markets have been rather volatile in January. Both the S&P 500 and the FTSE 250 are showing losses of over 6% so far. It’s slightly better over one year though, particularly for the S&P 500, which is up almost 15%. But volatile markets bring me to Warren Buffett, perhaps the most famous investor around. When stock markets are falling, like they have lately, I always refer back to one of his investing insights: “Be fearful when others are greedy, and greedy when others are fearful.”

I think this is certainly appropriate today. There could be some excellent bargains to snap up as fear grips stock markets. Here’s how Buffett himself has followed his own advice, and how I am too.

Setting the scene: Berkshire Hathaway

Berkshire Hathaway is Warren Buffett’s investment company. As the CEO, he aims to buy quality businesses and then hold them for a long time. In fact, Buffett once said: “Our favourite holding period is forever.” Berkshire has held some companies for decades, such as Coca-Cola. There have been many stock market crashes over the years, and still Buffett didn’t sell his Coca-Cola shares.

The last time investors were truly fearful, at the Covid-related market low in March 2020, Buffett was looking for cheap shares. He bought Bank of America back then, and since, the stock has almost doubled. That’s a superb return, just because Buffett was being greedy and buying the shares when others were fearful of them.

How I’m being greedy

So, the first thing I’m going to do is look for stocks in the FTSE 250 that may have declined too far. I could look at the price-to-earnings (P/E) ratios of the stocks to see if they’re now lower than historical averages. As long as the companies are trading well, then there’s a good chance my capital can grow when the share prices recover.

I also invest to generate passive income. To do this, I buy stocks that pay a dividend. If stock prices have declined but the company still pays its dividend, then the dividend yield will have risen. Therefore, I’d look to buy stocks today with higher yields as the stock market has fallen.

In either case, it’s important I also understand the company before I buy any of the shares. There could be a very good reason why the share price has declined, so I always read the most recent financial results before I invest. If nothing fundamental has changed with the company, then I may be greedy and snap up some cheap shares when the price falls.

A final Warren Buffett quote

Investing is not without risk. I could certainly lose more than I make as stock prices can be volatile. But if I take a long-term view, then stock markets do generally rise over time. This brings me to another of Warren Buffett’s insights: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”

So, I’m looking to be greedy as markets fall, but also take a long-term view as I invest in quality UK companies that may now be cheaper.

Dan Appleby has no position in any of the shares mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. 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 am looking to generate a passive income for life with stocks and shares. I can use many different assets to generate a passive income but, all things considered, I believe equities offer the best choice. 

Passive income strategy

There are a couple of reasons for this. It is easier for me to diversify my portfolio with equities. I can invest in companies worldwide and I do not have to worry about managing the underlying businesses. 

Other income strategies, such as buy-to-let property, involve far more work. It is also much harder to build a diversified portfolio of properties than to build a diversified portfolio of equities. 

That does not mean it is easy to build a portfolio of equities to generate income. Dividend income from stocks is never guaranteed. A firm can cut a payout at a moment’s notice. 

So I am using a very cautious approach for selecting income stocks. Rather than focusing on yield alone, I am looking for the market’s best growth stocks, as well as income champions. 

Indeed, I believe that businesses with growth potential will be better income investments in the long run. As these companies expand their earnings, they should be able to increase their dividends to investors. Therefore, my dividend income from these shareholdings should develop over the long run. 

Growth and income stocks

Two examples of the sorts of companies I would like to include in my passive income portfolio include distribution and marketing group DCC and generic pharmaceutical producer Hikma. 

These businesses hardly offer the best deals on the market at the moment. They yield 2.7% and 2% respectively. Still, they are dividend growth champions. For example, Hikma’s per-share dividend has grown at a compound annual rate of 10% over the past six years.

The company invests heavily in developing new treatments and tackling new markets. This has translated into net profit growth. And the corporation has increased its dividend to shareholders as a result. 

DCC has copied a similar model, using acquisitions to complement organic growth. Its dividend has grown at a compound annual rate of 12% since 2016. 

Despite their track records, there is no guarantee either one of these companies will maintain their growth focus as we advance. Any number of challenges from rising prices to competition could hold back growth. Still, considering their potential, I would be happy to add both to my passive income portfolio. 

As well as these corporations, I would also look to add businesses with large stable markets and strong balance sheets to my income portfolio. Direct Line is a great example. The stock currently supports a dividend yield of around 8%.

In fact, I already own this company in my portfolio and would be happy to buy more as it continues to expand its presence in the UK insurance market. 

Rupert Hargreaves owns Direct Line Insurance. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.