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Key points

• Both ASOS and boohoo shares are undervalued
• Earnings are impressive for each stock
• Recent news is thought-provoking

The AIM 100 index is often a good place to seek out long-term growth stocks. Two such potential shares are ASOS (LSE: ASC) and boohoo (LSE: BOO), both of which are online fashion retailers. With these companies enjoying stunning underlying growth over the past five years, I want to know which of the two I should be adding to my portfolio to hold for the long term. Let’s take a closer look.

Excellent earnings

For the year ended 28 February 2021, boohoo reported earnings-per-share (EPS) of 8.89. During the same period in 2017, this figure stood at only 2.23. This means that over five years, this stock’s EPS has increased 399%. This is quite clearly stunning growth. With a current price-to-earnings (P/E) ratio of 37.9, boohoo’s fair share price value is about 336.9p. This stock, therefore, is trading on the market at a discount of 68.5% compared to its fair value.

Similarly, ASOS has an impressive earnings record. For the year ending 31 August 2021, the company’s EPS was 128.9. This has grown from 77.2 five years previously. The increase over this period equates to 67%. While this is not as high as the rise in boohoo’s earnings, it is still admirable. ASOS has a slightly smaller P/E ratio, standing at 30.1. It is therefore possible to calculate that this stock’s fair value is 3,879.89p, meaning that it is currently undervalued by about 40%.

I really like the strong and consistent earnings figures for both these stocks. While it does not necessarily mean that future earnings data will be as good, it is nonetheless an encouraging sign. The fact that the share price is undervalued further intrigues me.

Recent news

Although both stocks are currently ‘cheap’, there have been some recent updates that are thought-provoking. Only this week, Jupiter Fund Management announced it was slashing its stake in boohoo from 9.99% to just 4.7%. This news, together with Liberium’s recent price target revision from 320p to 200p, gives me food for thought. It should be mentioned, however, that Liberium maintained its ‘buy’ guidance on the stock. Also, the recent trading update for the three months up to 30 November 2021 contained lower profit expectations. Nonetheless, group net sales were up 10% from the same period one year before.

Indeed, for the four months up to 31 December 2021, ASOS’s sales were up 2% for the same period in 2020. In spite of this, Credit Suisse slashed its target price in October 2021 on account of profit worries. In a recent move, the company has opted to leave the AIM 100 index and join the Main List.

There is very little between these two growth stocks. Both have an excellent track record of providing earnings for shareholders and are trading at a discount. While some of the recent news is slightly negative, I will be buying both shares as part of a portfolio geared up for long-term growth.  

Andrew Woods does not own shares in any of the companies mentioned. The Motley Fool UK has recommended ASOS and boohoo 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.

I’ve long held an ambition to make a million pounds from my holdings by investing in shares. I have identified two UK shares that could help me reach my goal.

UK share #1

Argo Blockchain’s (LSE:ARB) primary business is Bitcoin mining. I believe as Bitcoin’s value increases, so does the value of Argo Blockchain’s stock. The recent cryptocurrency craze leads me to believe that as one of the premier coins, Bitcoin could be worth hundreds of thousands of dollars per coin in the coming years.

One of the key factors behind my confidence in the Bitcoin price increasing, and in turn pushing up the Argo share price, is the Bitcoin block halving. Block halving is when the reward for mining Bitcoin is halved. This halving induces inflation and the number of coins in circulation usually decreases. This pushes demand for, and prices of, the coins up. The next halving is due in 2024.

Argo is investing heavily to ensure it can be a lucrative business. It recently decided to expand its mining plans with new machines. This will result in more revenue as more Bitcoin is being mined.

As I write, Argo shares are trading for 84p. At this time last year, the shares were trading for 71p, which is a 18% return. The shares did shoot up to nearly 300p back in February last year. Right now, the shares look cheap with a price-to-earnings ratio of just seven. Results have been positive recently, and analysts reckon revenues are set to grow in the next two years. Of course, forecasts change as events develop.

Argo has come under fire from investors recently. It issued new shares to help expansion plans, diluting existing UK shares. Furthermore, it was criticised by shareholders for overpaying for land in Texas where it will build its new Bitcoin mining facility. In addition to this, many firms are vying for cryptocurrency domination as the world gets to grips with this new phenomenon. Bitcoin is also volatile. All these factors could negatively affect the stock.

Pick #2

Tech exhibition firm Informa (LSEINF) looks to me like a promising UK share for the long term. This is closely linked to the continued reopening of the world economy. The shares are trading for 569p as I write, up 5% from this time last year. More tellingly, they are still some way off their pre-pandemic levels. This is why they look an attractive option for me as I believe they will surpass pre-pandemic levels in the long term.

Informa is benefiting from short-term demand after the pandemic currently. I am more excited by longer-term plans to drive up revenues and by extension, its value too. In July, it announced in 2022 that the US and China would be its core target markets. These two are the biggest exhibition markets in the world. The Middle East was another target which is becoming a lucrative exhibition market and tech hub.

Informa has a healthy balance sheet with plenty of cash to support expansion and growth plans. It has also decided to raise revenue forecasts for 2022. Fresh pandemic restrictions and competition could affect Informa’s progress in the short to medium term at least.

Jabran Khan 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.

A lot of people do not have savings. It is easy to sit around and worry that, without savings, one will never achieve a sense of financial security. I think that by applying some lessons from investor Warren Buffett, I could build my own financial security even starting without savings. Here is how.

Focus on long-term wealth creation

Future financial security could come from me building a portfolio of shares in high-quality companies. But to do that, I need to invest money. Even without savings, this is completely possible. But I will need to develop financial discipline. I would start regularly putting aside money I could use to build my share portfolio.

I would need to do this within my means. I am unable to invest money I cannot spare. But at the same time, if I am serious about building financial security, I may want to make some sacrifices in my everyday spending to help me improve the chance of hitting my goal. The more money I can accumulate, the more likely I will feel that I can achieve financial security in future.

Warren Buffett on buying shares

But putting aside money regularly is only the first step. It helps me overcome the problem of having no savings. But on its own it will not necessarily give me the level of financial security I would like.

Warren Buffett has spent his life getting rich, largely by buying shares in high-quality companies. He does not invest in mysterious companies someone told him had amazing prospects. He is not interested in buying shares in companies with new business models he does not understand.

Instead, Buffett invests in companies whose business models he understands, like Coca-Cola and American Express. He focusses on whether they have a competitive advantage that they can use to support future profitability. For example, Coke has a unique product formula and Amex has millions of customers who value its prestigious brand. Finally, he considers the share price. Buffett is not exactly a bargain hunter. But he recognises that overpaying will reduce his long-term return from shares even if the companies are strong ones.

How I would use the Buffett technique

By starting to put aside money regularly, I could apply Buffett’s approach on a smaller scale. Like Buffett, I would not rush to buy shares. Instead, I would spend time researching to identify companies with long-term growth prospects I found attractive.

Then, I would consider their share prices. Like Buffett, I might not buy them for years. But when I thought I could buy shares in these great companies at a good price, I would add some to my portfolio. Just like Buffett, I would aim to reduce my risk by diversifying across a variety of companies and business areas.

Then I would let time work its magic. Instead of jumping in and out of shares like a trader, I would hold my shares for as long as I continued to like the company’s future prospects. Hopefully, that would help me build more financial security as the years went on.

Christopher Ruane has no position in any of the shares mentioned. American Express 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’ve long been fascinated by the FTSE 100‘s Associated British Foods (LSE: ABF). And that’s mainly because the most-profitable division within the enterprise is the Primark clothing retail chain.

For example, in 2019 before the pandemic, around 64% of the firm’s operating profit came from the Primark division. The grocery division delivered 27% of the total that year and the rest came from the sugar, agriculture, and ingredients divisions.

The company has a majority shareholder

The company’s consumer food brands include Twinings, Allinsons, Jordans, Kingsmill, Patak’s, Ryvita, and Silver Spoon. And I’m keen to invest in fast-moving consumer goods businesses. That’s because they tend to have defensive qualities and the potential to trade well through economic downturns. So, the grocery and retail (Primark) divisions balance each other to some extent because retail can be a more cyclical activity.

However, I’m not the only investor to appreciate the attractions of Associated British Foods. Although the company has a FTSE 100 listing, it’s actually majority-owned by Wittington Investments Ltd, which holds around 55% of the shares. And Wittington itself is majority-owned by an English charitable trust called The Garfield Weston Foundation. The trust has just over 79% of Wittington’s shares.

And as the majority owner, Wittington has the power to influence ABF’s management. For example, a simple majority shareholding of more than 50% gives Wittington the power to pass or reject special resolutions at a company general meeting.

Majority ownership isn’t always a bad thing, but it could lead to a situation where the ABF management must act against the minority shareholders’ interests. So, the situation is one to be aware of when considering the stock.

An upbeat trading announcement

Meanwhile, today’s trading update is upbeat. In the 16 weeks to 8 January 2022, constant currency revenue rose by 19% year on year. And the star performance came from Primark with sales 36% ahead of last year thanks to recovery from the pandemic and the reopening of the store estate.

Yet despite the challenges of the coronavirus, ABF pushed ahead with its expansion strategy for Primark. And over the two years since the start of the pandemic, the company opened 25 stores increasing overall selling space by 7%. However, there’s still distance to travel before a full trading recovery is in place. Like-for-like Primark sales remain around 11% below the equivalent period two years ago. But the Omicron variant caused a decline in footfall. Although there has been an improvement “in recent weeks”.

And there’s more good news regarding supply chains. The pressure the company saw in the Autumn of 2021 “has alleviated”. But the directors said the business is still experiencing some delays and the company expects longer shipping times to continue.

Meanwhile, sales in the grocery division rose by 2% year on year. And all the other divisions posted improved sales figures as well.

The outlook is positive. And City analysts expect earnings to advance strongly in the current trading year to September 2022 with a robust single-digit percentage improvement the year after that.

Estimates can, of course, be revised. But based on those assumptions, at a share price near 2,071p, the forward-looking earnings multiple is just below 14. That valuation looks fair to me, and I’m tempted to buy the stock now to hold for the long haul as the recovery and growth story continues to unfold.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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 not been a pretty few months for US growth stocks. This is due to the rising rates of inflation, and the interest rate hikes that are expected to follow. As such, it’s likely to become more expensive to issue debt, a factor which may stunt growth. Fintech company SoFi Technologies (NASDAQ: SOFI) has not been immune to this sell-off and has fallen 40% since its highs in November. But according to Wall Street, the upside potential of this stock is immense. Here’s why.

The bank charter

Yesterday, SoFi announced that it had obtained a bank charter, and this saw the shares rise around 15% on the day. There are a few reasons why the bank charter should prove so beneficial for SoFi. Indeed, until this moment, SoFi has relied on partnerships with banks to hold customer deposits and issue loans. Nonetheless, with the bank charter, it means that there is no need for these intermediaries, and SoFi will be able to boost profits from its lending business. It will also allow the fintech to add more financial products and services, in a bid to attract more users.

This move has been welcomed by Wall Street. In fact, analysts believe that the bank charter will lower the company’s cost of capital and boost earnings. This led to Rosenblatt upping its price target for the growth stock from $28 to $30. At SoFi’s current price, this implies more than 100% upside. In its bullish case, Morgan Stanley strategists Betsy Graseck and Jeffrey Adelson have also placed a $28 price target on the stock, also implying 100% upside. Therefore, it’s clear that Wall Street are very optimistic about the outlook for this growth stock.

My views

As an owner of SoFi stock, I’m also very optimistic. Indeed, growth at the company has been extremely strong, and in the Q3 trading update, it announced that it had nearly 3m members. This is a 96% year-on-year increase. FY2021 revenues are also expected to reach over $1bn, which is a 60% year-on-year increase. The bank charter will hopefully propel this growth further.

There are some risks though. For example, while the bank charter creates several opportunities, it will also come with more regulatory oversight. This may see the company’s crypto activity pull back, which could have a damaging impact on revenues and growth. Further, the fintech sector is very competitive, and SoFi remains small compared to PayPal and Block. Finally, the current rates of inflation are having very damaging effects on all growth stocks, this may continue to depress investor sentiment towards SoFi.

Can this growth stock soar?

I’m inclined to agree with Wall Street, and I feel that SoFi has significant amounts of upside potential. While it does remain expensive, with a price-to-sales ratio of around 10, I feel that its excellent growth justifies this valuation. I can also see a route to profitability, especially with the addition of the bank charter. Therefore, I may continue to add more SoFi shares to my portfolio.

Stuart Blair owns shares in PayPal Holdings and SoFi Technologies. The Motley Fool UK has recommended Block, Inc. and PayPal Holdings. 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.

Holding UK dividend shares allows me to earn passive income from the hard work of blue chip companies. If I had a spare £500 to invest today with the aim of getting some dividend income, I’d consider splitting it equally across two well-known FTSE 100 shares.

Vodafone

The first is telecoms operator Vodafone (LSE: VOD). The company has a strong brand that helps it attract and retain customers across many markets. While the UK is important to Vodafone, it is only one of many countries in which the company operates. Last year, for example, the UK accounted for only 13% of revenues. The company counted 178m customers on its books, most of them overseas. That sort of scale allows it to invest in large networks that can bring substantial revenues and profits.

Revenues in 2021 came in at €43.1bn. Profit was €536m, which I feel is pretty meagre given the size of the revenues. Nonetheless, basic earnings per share came in at 38c. That allowed for a dividend per share of 9c. Based on the current Vodafone share price, that means the London-listed shares offer a yield of around 6.3%. In other words, if I put £250 into Vodafone shares today, I would be hoping for future dividends of about £15.60 per year.

But dividends are not guaranteed and one risk I see in telecoms generally is the high capital expenditure required to install and maintain networks. Vodafone has funded some of that with debt, which at the end of September stood at €44.3bn. Servicing that debt could hurt future profits. But I also hope the capital expenditure can support high-quality modern services that can attract customers and help the company charge premium prices. That could help Vodafone improve its profit margins.

British American Tobacco

Another FTSE 100 stalwart I would buy for my portfolio today is British American Tobacco (LSE: BATS). Its yield of 7% means that if I invest £250 in the company now I would hope to receive annual dividends of about £17.40.

The company has increased its dividend each year for over two decades. But dividends are never guaranteed. They require a company to earn money to pay them. I do think declining cigarette smoking rates in many markets could hurt both revenues and profits at BATS in future.

On the other hand, it has been trying to compensate for this by aggressively expanding its non-cigarette product lines, such as vaping. In the first nine months of last year, the company added 3.6m new customers for its non-cigarette products. Meanwhile, it reported that global cigarette volumes for the year were expected to be broadly flat. Declines in some markets were offset by growth in markets such as Indonesia. That could help to support payouts.

I would buy these two UK dividend shares today

I already own BATS. I would happily buy more BATS and add Vodafone to my portfolio. A £500 investment split evenly across the pair would hopefully earn me around £33 a year in passive income in future.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Vodafone. 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.

So far, 2022 has seen a positive start for the FTSE 100, with the index gaining 2.4% since 2021. As I write, the Footsie is within 4.4% of its all-time intra-day high of 7,903.50 points on 22 May 2018. Were it to gain another 350 points, it would reach a new record. However, over five years, the index has gained less than 5% (excluding dividends). Thus, I still view the FTSE 100 as undervalued in historical and global terms. Hence, here are three high-yielding Footsie shares that I don’t own, but would buy today for their income streams.

FTSE 100 stock #1: British American Tobacco

My first high-yielding FTSE 100 stock is hardly one for ethical, social, and governance (ESG) investors. British American Tobacco (LSE: BATS) is a world-leading supplier of cigarettes and tobacco — addictive and harmful products. Yet about a fifth of adults worldwide smoke, providing BAT with massive cash flows, profits, and earnings. Currently, BAT shares trade at 3,101.09p, valuing the group at £71.2bn — a FTSE 100 powerhouse. Today, this stock trades on 11.5 times earnings and offers an earnings yield of 8.7%. BAT’s dividend yield of almost 7% a year is one of the highest in the Footsie. In 2022, BAT is forecast to pay total cash dividends to shareholders of over £5.2bn. That’s the third-highest pay-out in the UK. As a smoker myself, I’d buy BAT stock today. However, the group faces two future headwinds: declining smoking rates and higher interest rates on its £40.5bn of net debt.

Dividend share #2: M&G

My second dividend stock is investment manager M&G (LSE: MNG). M&G was part of Prudential until its flotation in October 2019. Prudential’s origins date back to 1848, while M&G launched the UK’s first mutual fund in 1931. As I write, the M&G share price hovers around 218.3p, valuing the company at nearly £2.7bn. Despite global stock markets soaring in 2021, M&G shares have gained only 13.1% over the past 12 months. This is barely ahead of the FTSE 100’s 12.3% rise. M&G’s earnings took a hit in 2021, sending its price-to-earnings ratio soaring to 93.2. However, M&G is one of the highest-yielding stocks on the London Stock Exchange. Its cash yield of 8.4% a year is more than double the FTSE 100’s 4%. It’s this bumper pay-out that attracts me to M&G. However, the group does faces ongoing fee erosion, plus tough competition from giant US rivals in the years ahead.

High-yielding stock #3: Rio Tinto

My third and final FTSE 100 dividend dynamo is miner Rio Tinto (LSE: RIO). Rio Tinto (‘red river’ in Spanish) is a mining Goliath, digging up iron ore, aluminium, copper, and lithium across the globe. Its 60 mining projects across 35 countries generate enormous cash flows, profits, and earnings for this Anglo-Australian business. At its current share price of 5,581p, Rio Tinto is valued at £90.9bn, making it one of the FTSE 100’s largest firms. At present, Rio shares trade on a lowly price-to-earnings ratio of 6.6 and a hefty earnings yield of 15.2%. Also, its dividend yield is a thumping 8.8% a year — around 2.2 times the wider Footsie’s yield. As an income-seeking value investor, I find these fundamentals almost mouth-watering. However, long experience has taught me that mining stocks can be very volatile — and miners often slash their dividends when metals prices slump! Nevertheless, I’d still buy Rio today.

Cliffdarcy has no position in any of the shares mentioned. 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.

There is no denying that inflation is becoming a bigger problem by the day. Just yesterday, the UK’s latest inflation print showed a 5.4% increase in prices on a year-on-year basis in December 2021. To put this in context, the Bank of England’s target rate is 2%. This means that inflation is 3.3 percentage points above than the central bank’s comfort level. This of course could have negative implications for my stock market investments, as price rises could dampen consumer spending. But where there are problems, there are solutions. Like this FTSE 250 penny stock, which could be a good hedge to inflation for my portfolio.

Centamin’s had a poor 2021

Gold miner Centamin (LSE: CEY) has had a difficult past year. It briefly climbed fast during the start of the pandemic in 2020, but has fallen a lot since. It pretty much fell throughout 2021, to reach penny stock levels in August. It has largely stayed at these levels. 

It does not help that the company’s performance was also underwhelming. In the first half of 2021, the latest numbers available, both its revenues and post-tax profits declined despite an increase in the average realised gold price. More recently, its gold production update shows that while it is in line with expectations, it has declined from last year, as have revenues. 

The penny stock could pick up now

I think now, however, the stock could pick up. In 2022, its production is expected to exceed that in the past year. Recently, gold prices have also started rising, which could bode well for its financials. Increasing gold prices is no coincidence, of course. Gold is a well-known traditional hedge against inflation. This is because rising prices erode the value of currency. And gold has historically been the alternative ‘safe-haven’ asset. 

However, there is a deeper reason as well. Runaway inflation has the potential to destabilise economies. Inflation has already risen a lot, and if it continues to do so, I reckon investors could panic, which is even more likely to make gold attractive. This is exactly what we saw when Centamin’s share price ran up during the first half of 2020. And considering that inflation is indeed expected to rise higher – some forecasters expect it to be over 6% by spring – I think it might just be a good idea for me to buy this FTSE 250 stock now. 

The FTSE 250 stock’s dividend yield looks good

I also like its dividend yield of 5.5%, which is much higher than that for the average FTSE 250 stock at 2%. For that matter, it looks better than the average FTSE 100 stock’s dividend yield of 3.4%. In fact, considering that its results could just be better this year, I think its dividends could stay elevated. As a long-term investor, I always like to hold some of my savings in gold-related instruments anyway. And there is nothing like it if they also earn me a solid passive income over time, which is also one of my investing goals. I intend to buy Centamin soon, while it is still a penny stock. 

Manika Premsingh 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.