The metaverse appears to have taken investors by storm and is being called the next tech revolution by the likes of ARK Investment’s Cathie Woods, who sees it as a “multi trillion-dollar opportunity”. To profit from this tech revolution, here are the three metaverse stocks I’m buying now.

The metaverse

The metaverse is a virtual reality world in which interactions and experiences take place as they would in the real world. I believe the infiniteness of the metaverse, allowing companies from every sector to adapt and participate in this digital space, makes it a great investing opportunity. That’s why I am adding the following three hot stocks to my portfolio right now: Meta Platforms (NASDAQ:FB), Nvidia (NASDAQ:NVDA) and Autodesk (NASDAQ:ADSK).

Meta Platforms

In a signal to show its commitment to the development of the metaverse, Meta Platforms changed its name back in October from Facebook, and is now leading this trend in investing.

The appeal of this stock is the head start Meta Platforms has over its competitors and its ability to leverage its highly successful and all-encompassing social media platforms to engage users in these new virtual reality worlds.

Hopefully the company’s rebrand and shifted focus will help distance it from the flurry of recent negative press it received following damning testimonies from whistle-blower Francis Haugen. Further similar bad press could spook investors in the short term and result in sharp price drops, something that I will have to keep in mind.

Nvidia

The second stock I’m acquiring is Nvidia, the well-established manufacturer of graphic processing units (GPUs) used in the gaming industry. I think this stock will be vital to the growth of the metaverse as it provides the necessary processing power that the metaverse will need to run successfully.

However, Nvidia’s success hasn’t gone unnoticed and the stock has gained strong momentum over the past year, up 83% YTD. This is in addition to its extremely high P/E ratio of a whopping 84, far higher than its peers. Even though I think the company has room for further growth as the metaverse booms, this high valuation is something I will be watching closely.  

Autodesk

The final metaverse-orientated stock that I’ll be adding to my portfolio is cloud software company, Autodesk.

Unlike Meta Platforms and Nvidia, which have clearly positioned themselves in the metaverse, Autodesk is yet to be so vocal on its developments. Therefore, for some investors it could be worth waiting to hear about the company’s expansion plans before investing.

However, with expertise in 3D design and software — which will be instrumental to building a virtual reality world — I think it’s a no-brainer for me to buy the stock now. The company is also well backed by the analysts who have given the company an average price target of $340, representing a 32% increase from its latest share price of $257.

Takeaway

Although equity markets in 2022 have gotten off to a shaky start with tech stock suffering, I believe that the metaverse is a trend that’s here to stay for the long term and these stocks will form a key part of my portfolio going forward.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Yasmin Rufo has no position in any of the shares mentioned. The Motley Fool UK has recommended Autodesk. 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

• Stocks and shares are a great way to earn a passive income
• An investment of just £5 a day could help build a portfolio
• These investments produce a market-beating level of dividend income

I think it is possible to earn a passive income with an investment of just £5 a day. This is about as much as many people might spend on lunch when working in the office. In some parts of London, it is also as much as some people might spend on a single coffee. 

An investment of £5 a day works out as £35 a week, or just over £151 a month. For the year, I would be able to save around £1,820. 

I could generate a passive income from this lump sum almost immediately. A couple of stocks in the FTSE 100 support dividends yields of 8%-10%. As such, if I were to invest all of this money in a stock yielding 10%, I could earn a passive income of £182 a year. 

However, I will use a different strategy to grow my wealth before I switch to income generation. 

Passive income strategy

I plan to invest in growth stocks for at least the first 10 years of saving. I think this will help me expand the size of my portfolio and could enable me to generate a higher return when I switch from growth to income. 

To do this, I will invest in a portfolio of tracker funds. I believe I can achieve an annual return of around 9% using this approach. At this rate of return, I calculate I will be able to build a nest egg worth £30k after a decade. 

If I switch from growth to income investing at this point, assuming I can find stocks yielding 8%, I may be able to receive a passive income of £2.4k a month. 

If I keep saving, I can boost my nest egg even more. After 20 years of saving £151 a month, assuming an annual rate of return of 9%, my figures suggest I would have a portfolio worth £100,000. 

By switching from growth to income when I hit this level, I estimate I could achieve an annual passive income of around £8,000. 

Risks and challenges

Of course, there are a lot of assumptions in this calculation. There is no guarantee I will achieve an annualised return of 9% on my money. Nor is there any guarantee I will be able to find income stocks offering a yield of 8%, or more. 

Still, I think these numbers clearly illustrate how my strategy can achieve results over the next couple of decades. 

Some of the companies I would be happy to buy for my portfolio as income investments include British American Tobacco and Phoenix Group. Shares in these corporations currently offer dividend yields of 8% and 7% respectively.

As passive income investments, I believe they provide the perfect mix of income and the potential for modest capital growth as they grow and develop over the next few decades. 

Rupert Hargreaves owns British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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 was a good year for Lloyds Bank (LSE: LLOY) shares. The share price rose by 37% during the year. And the party continues for the FTSE 100 stock in 2022 as well. The Lloyds Bank share price rose above 50p in early January, and it has stayed above these levels since. I think the best is yet to come for the stock, though. 

High inflation leads to rising interest rates

My biggest reason right now for believing so is inflation. Inflation is already quite high, and is poised to rise even higher in the next few months. This has many implications for the macro-economy and relatedly for banking stocks, both good and bad. But the most obvious impact for now is a positive.

I am talking about interest rates. Just last month, the Bank of England decided to hike policy interest rates just as inflation came in above 5%. While they are still near all-time lows, interest rates are widely expected to rise steadily through the year. It is no coincidence that soon after the UK’s central bank increased interest rates that FTSE 100 banking stocks rallied. Interest rates are the price any commercial bank charges for its key products, which are loans. If prices are likely to rise, banks’ profits could rise too as long as demand stays strong. 

Lloyds Bank share price could benefit from growth

I have to factor in the possibility that it would not, of course. Home loan demand in particular could slow down this year. Fiscal support to the housing sector provided during the pandemic is all but over. And if interest rates rise too, there is less incentive for home buyers to take on loans. In fact, high inflation could slow growth so much in the economy that banks actually slump as a result. 

On the other hand, I think it might just be premature to believe that overall credit growth will slow down. There is little proof that there would be any dramatic decline in mortgage demand. House prices, for instance, continue to be strong despite the fact that the real estate market is likely to cool off this year. The recovery is also in process, which could bode well for loan demand too. 

Better dividends likely

I am also optimistic about Lloyds Bank’s dividends in 2022. According to analysts’ estimates from multiple sources, dividends are expected to rise for the bank this year. At the current share price, in my estimation, this would bring its dividend yield up to at least 4.5%, up from the present 2.3%. This in itself would make it more attractive, in my view. I think one of the reasons that the stock is still trading below pre-pandemic levels is its relatively low dividends. 

In sum, it appears to me that there is more good news in store for the Lloyds Bank stock in 2022 than there is bad. While I am watching out for the risks as they develop, I do believe that this is a good time for me to buy the stock. 

Manika Premsingh 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.

Key points 

• Many investors turn to buy-to-let properties to generate a passive income
• I believe this is a mistake due to the costs and risks involved
• Stocks and shares may produce better returns with less work

Some investors believe buy-to-let property is an excellent way to generate a passive income. While it is true that many have made a lot of money using this approach, it is not something I plan to follow.

In my opinion, there are three reasons why investing in rental properties is not as attractive for me personally as owning stocks and shares. 

Buy-to-let property drawbacks

First of all, there is the amount of investment required. With the average UK property price now standing over £260,000, I would either need a large lump sum or a large mortgage to buy a rental home. By comparison, I only need a few pounds to invest in equities. 

Then there is the cost of owning a buy-to-let property. Mortgage and stamp duty rates are higher for rental investors than homeowners, and there will be an annual running cost. That is without considering the cost of finding tenants in the first place. I might have to pay a fund management fee or investment platform fee with stocks and shares, but these are relatively small and predictable in comparison. 

And finally, there is the time required. Buy-to-let property is not a passive investment, contrary to widespread belief. Owning a rental property is a business. Like any business, it requires time and effort to make it work.

On the other hand, when I buy shares in a corporation, I am also investing in the time and effort of the company’s managers. They look after the business on behalf of all shareholders. There is no need for me to lift a finger. 

Despite the drawbacks of buy-to-let, this asset class does have some benefits. Property prices have outperformed inflation in the long run. There is also a fairly steady demand for rental homes, suggesting investors will always be able to achieve an income stream.

For investors with the right skills, buy-to-let could be the right choice. 

Growth opportunities

But rather than buying property, I prefer to invest in stocks and shares. I am buying shares in companies with global diversification and portfolios of leading brands. These are two other factors I would not be able to achieve with rental property.

Without millions of pounds, it would be impossible for me to build a well-diversified portfolio. It would also be impossible for me to create an international property portfolio. 

One of the companies that I already own in place of rental property is Diageo. This enterprise owns a portfolio of globally-recognised alcohol brands and is managed by a team of experienced individuals. 

The one downside of buying individual stocks and shares compared to buy-to-let property is that I have no control over how the companies operate. In this respect, rental property does provide the better option, but it also comes with more work. 

If I wanted to diversify into property, I would buy shares in a property manager such a Grainger, one of the UK’s largest professional landlords. This would provide diversification without exposing me to some of the risks above. 

Rupert Hargreaves owns Diageo. The Motley Fool UK has recommended Diageo. 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 Tesco (LSE: TSCO) share price has had quite the past year. The company’s share price ran up through the year, even reaching multi-year highs, after adjusting for the sharp fall in share price early in the year that happened for technical reasons. By comparison, 2022 so far has not been particularly good for the stock. Its share price is actually below where it started the year as I write.

Inflation’s impact

To be fair, the year has only seen a few trading sessions so far, so it is too early to start mapping out trends. At the same time, I cannot help but think that it might be an early sign. One big risk that has been on my mind the past few days is inflation. The latest numbers are pretty high. And for the past two months now, the UK’s headline inflation has stayed above 5%. As per forecasts, it is unlikely to subside anytime soon. 

In light of this, I think Tesco could be one of the FTSE 100 stocks more vulnerable to the trend. While the grocer is a go-to stop for basic daily requirements for households across the UK, it also meets non-discretionary requirements that could be cut down on if prices rise too much and spending power declines. Just to keep the bills in check, there could be small cuts that might not really make a big difference to the overall standard of living. If this happens for all households across the economy, chances are that it could impact the company’s financials. 

So, to answer the question asked in the title, I do believe that inflation could create uncertainty for the Tesco stock price. And not just because of rising prices, but also because of cost pressures that it has itself acknowledged in its recent update. Despite this, the company is quite optimistic, however, about its prospects. 

What could go right for the Tesco share price

Certainly, a lot of things are going right for it. It has performed well this year and has even upgraded its profit expectations. That in itself is a potential case for a share price rise. Higher profits would bring its market valuations, measured by its price-to-earnings (P/E) ratio, lower if it were to remain at the same price as now. In any case, its P/E is only around 19 times right now, which is just a bit higher than the 18 times ratio for the FTSE 100 as a whole. Now, if it were to fall below the average, it would look cheaper than the average stock to me.  

What I’d do

But that is only if I also see it only as risky as the average stock. If, because of inflation, I believe that it is higher risk, perhaps I would still not buy it. On balance though, I still do believe that the Tesco share price has more upside than not. Interest rates are rising and fiscal stimulus is being withdrawn, which could cool down inflation in some months. I maintain that I’d buy it now. 

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Could these low-cost UK shares be too good to miss? Here’s why I’m thinking of buying these top penny stocks for my own portfolio today.

Staffing star

Investing in UK-focussed cyclical shares is undoubtedly — at least on a general level — a risky endeavour as British GDP slows. There are however pockets of top stocks I think could still thrive this year. Staffline Group (LSE: STAF) is one of these that I’m considering buying: it’s a penny stock which provides recruitment and training services for companies.

There’s a raft of data showing that 2022 will be a big year for job migration. The number of people seeking to further their careers following the Covid-19 shock, or who are seeking a better work/life balance, is tipped to continue soaring. A fresh survey this week shows that more than half of Britons are considering quitting their job this year. It seems like vacancy fillers such as Staffline could be extremely busy.

A strong recent trading update from industry rival Hays has bolstered my confidence in Staffline for 2022. It said that its net fees were up 33% in the final three months of last year, with fees for permanent hiring leaping 69% year-on-year thanks to strong business confidence.

Bear in mind, though, that Staffline isn’t completely immune to broader economic conditions. Individuals could choose to stay put and firms could put off hiring if the economy worsens significantly and confidence sinks.

Ready to fly

Raven Property Group (LSE: RAV) is a UK share that commands a meaty premium today. For 2022 the company — which specialises in letting out warehousing and logistics properties in Russia — trades on a forward P/E ratio of 32 times.

This sort of sky high valuation reflects investor expectations of strong earnings growth. But it also leaves Raven Property’s share price in jeopardy of a sharp fall if these profits hopes start to look a tad shaky. For example, a shortage of suitable assets for Raven Property to acquire could see the business struggle to make progress on its growth strategy. The property company has previously made reference to “strong competition” in Moscow, for instance.

This doesn’t mean I couldn’t be tempted to buy Raven Property for my portfolio, though. Indeed, the pace at which Russia’s e-commerce market is growing still makes it an attractive buy despite that premium.

Researchers at Statista think the country’s online shopping sector will be worth $69.8bn by 2025, up more than $28bn from what the body thinks it will be valued at this year. In this climate Raven Property can expect demand for its properties to heat up.

One final thing: at current prices Raven Property offers up a meaty 5.1% dividend yield. This beats the broader 3.5% average for UK shares by a large margin and reinforces its appeal to me. I think it could be a great penny stock for me to buy and hold for the long haul.

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.

Writing last autumn about booming merger and acquisition (M&A) activity in the UK, I noted that City M&A specialists were forecasting there could be mega-deals to come.
 
And, in my last column of the year, highlighting seven FTSE 100 stocks to consider for 2022, I wrote of pharma giant GlaxoSmithKline: “I’ve long felt a break-up of GSK would unlock value for shareholders.”
 
These themes have come into sharp focus after a report in last weekend’s Sunday Times under the headline: ‘Unilever pursues £50bn bid for Glaxo’s consumer empire after rejection’.

What the companies said

In a weekend press release, Unilever confirmed it had made an approach, but added “there can be no certainty that any agreement will be reached.”
 
GSK said it rejected the proposal, because it “fundamentally undervalued the Consumer Healthcare business and its future prospects.”

CEOs under pressure

Unilever’s CEO, Alan Jope, and his counterpart at GSK, Emma Walmsley, have both been under pressure for a while from some vocal critics on their shareholder registers.
 
Jope has presided over a 5% decline in Unilever’s share price since he began the job in January 2019. During Walmsley’s tenure, which began in April 2017, GSK’s shares are down 2%. Both stocks have underperformed against their peer groups.

 
High-profile fund manager Terry Smith recently wrote: “Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”

Meanwhile, activist investors over at GSK had wanted a formal sale process for the consumer health division, as opposed to the demerger the company is planning for later this year. They’ve also questioned whether Walmsley, who has a background in consumer goods, is the best candidate to lead a pure-play pharmaceuticals business.

A deal could still happen

Given Unilever’s lacklustre performance, and desire to accelerate a repositioning of its portfolio into higher growth categories, it’s easy to understand why Jope finds the idea of getting his hands on GSK’s consumer health division attractive.
 
Equally, with the £50bn offer being at only a modest premium to the valuation analysts have put on the business, it’s easy to see why GSK might feel the planned demerger is a better option.
 
Having said that, GSK (and minority partner Pfizer) can have no fundamental objection to a sale. After all, they’re both looking to exit the business anyway, via the demerger. And with Unilever clearly still interested in acquiring it, a deal at a higher price could yet go ahead.

A typical market reaction

The market reaction on Monday was to send GSK’s shares up 4% (to a level not seen since before the pandemic) and Unilever’s down 7% (to a multi-year low).
 
Positive sentiment towards a potential seller of a business and negative sentiment towards a potential acquirer is quite typical. In the case of the seller, the market sees prospects of that unlocking of value for the shareholders I mentioned. In the case of the buyer, it sees the risk and uncertainty that comes with an acquisition.

Taking a view

Despite the uplift in GSK’s share price, and a strong performance on a one-year view, I remain quite bullish on the stock. I think there’s still value to be unlocked here, whether by a sale or demerger.
 
And, after the slide in Unilever’s share price, and a weak performance on a one-year view, I see long-term value in the stock — even with the integration risk should the acquisition go ahead.
 
Terry Smith told his fund holders that “a company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot.” But, nevertheless: “We continue to hold the shares because we think that its strong brands and distribution will triumph in the end.”
 
I don’t know if the latest turn of events will lead Smith to have a change of heart, but it’s undeniable that GSK’s consumer health brands would further enhance the strength of Unilever’s portfolio.

Foolish takeaway

I hark back to my column on booming UK M&A for a Foolish takeaway from Unilever’s approach to GSK. Trade buyers (and private equity houses) view a number of UK companies and their assets as more valuable than they’re being priced at in the market.
 
As such, I think this could be a great time for Foolish investors to buy in to some top UK businesses. This to reap the rewards of long-term ownership, but with an added bonus of a heightened possibility of a takeover at a premium price.

Graham has no position in any of the shares mentioned in this article. The Motley Fool UK has recommended GlaxoSmithKline and Unilever.

So far this year, stock markets around the world have differed in performance. The tech heavy NASDAQ is down almost 10% since the start of the year. In the UK, the FTSE 100 has fared better and is in the green by 1.5%. But a common question going around is whether the global markets could be due for a stock market crash. Although it’s impossible to predict this kind of event, here are some of the warning signs that I look out for.

Overvalued stocks

One metric that usually helps to forecast a stock market crash is when the index is overvalued. How can I pin down what the value is? One tool I can use is the price-to-earnings ratio. As a general rule of thumb, the higher the number, the higher the chance that a stock is overvalued. When I consider the FTSE 100, the index has an average price-to-earnings (P/E) ratio.

As of the end of 2021, the FTSE 100 P/E ratio was 14.86. When I compare this to the numbers over the past few years, this isn’t that high. At this time last year, it stood at 17.55, and two years ago, it was 16.30. So this isn’t a warning alarm that should be sounding concerns at the moment.

A note of caution here is that this considers the full index. If I just consider individual stocks, then the specific P/E ratio should be used instead. In this way, I can find some great companies with low P/E ratios, such as Royal Mail Group with a ratio of just 8.

Fear and greed concerning a market crash

Another warning sign I use is the fear and greed index. This is a number, from 0-100, that is published each day. The low represents fear, and 100 would be ultimate market greed. It’s put together using different tools, including market volatility, momentum, and relative strength. Although it’s geared towards the US stock markets, I apply it equally to the UK. After all, history shows that a stock market crash usually involves most developed countries around the world.

At the moment, the index is at 52. Therefore, this doesn’t seem to highlight to me a market crash is imminent. In fact, it confirms to me that if anything, investors are fairly well balanced in their actions right now. If I’m still concerned, I can consider buying a defensive stock, such as utility provider SSE.

Interest rate projections

A third pointer I use is the forecasted interest rates. Typically, when interest rates are being cut, the equity market starts to perform better. This is because cutting interest rates should help to stimulate economic growth. Consumers have a greater incentive to spend rather than save.

The inverse is also true. As we stand, some major banks are calling for three rate hikes from the Bank of England this year. This is likely to be matched in the US. So in terms of a warning bell for a stock market crash, this point does concern me.

I don’t think it’s the end of the world, as central banks clearly will be cautious in raising rates due to Covid-19. What I can do in this regard is look to buy stocks that benefit from higher interest rates, such as banking stock NatWest Group.

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.

Hydrogen energy is an alternative to carbon fuels going up in smoke. But for shareholders in hydrogen energy group ITM Power (LSE: ITM), what has gone up in smoke over the last year is half the value of their holdings. The ITM Power share has tumbled 53% in 12 months, at the time of writing this article yesterday.

Could that be a buying opportunity for my portfolio? I do not think so. Here is why.

The ITM business model

ITM has spent years developing its own technology. It has built a factory to churn out the product at commercial scale, not just the sorts of prototypes built in labs to test the concept. Indeed it has already agreed to a site for a second factory in the UK and is now also talking about the prospect of building a factory overseas.

The idea is that the company ramps up sales, making use of its expanding manufacturing footprint. As it grows relationships with customers such as Shell and attracts new ones, revenues should grow. That will help it better cover its fixed costs and hopefully move from loss to profit.

Startup dangers

That is a pretty standard approach for a company in an emerging industry. One thing about ITM that sets it apart from less well-funded startups is its ability to burn through cash. Last year, for example, net cash burn before fundraising was £32.7m. For now, liquidity is not a problem. The company has simply kept raising funds. In October, for example, it raised another £250m by selling shares.

What happens when a company does that is the newly issued shares dilute existing ones. More shares in circulation lead to each one representing a smaller fraction of the company. Given its history of burning through cash and ambitious expansion plans, I think further shareholder dilution remains a risk for ITM shareholders.

Bull case for ITM

ITM’s technology is attracting serious customers. There have been some positive news announcements lately, including a contract signed to deliver 12MW of electrolysis equipment this year.

As the company scales, its production costs should achieve economies of scale. Globally many customers are looking for alternatives to carbon fuels. Hydrogen energy is one option and ITM could take some of the hydrogen market. If that happens, and it can convert sales into profits, shareholders could see an improving share price.

Where next for the ITM Power share price?

I remain sceptical that that will happen, though. I do expect a sharply improving sales outlook, based on the company’s forecast. But revenue in the six months to October was only £4.1m. With a market capitalisation close to £2bn even after the share price fall, those revenues look miniscule to me. Meanwhile, in the same period the company reported a gross loss of £2.4m and burned through another £12m.

If the economics of hydrogen energy do turn out to be attractive I expect strong competition. That could push down profit margins across the industry. If the economics fail to improve, however, I do not foresee a long-term profitable business model at scale for ITM. Despite the fall in the ITM Power share price, 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.