In recent years, UK shares have missed out on some of the sorts of gains seen in other leading markets. But many British companies have international footprints that can expose them to global economic trends, whether positive or negative.

One UK-based multinational I think could benefit from such trends is health and hygiene specialist Reckitt (LSE: RKT). Below are three reasons I would consider buying Reckitt for my ISA in 2022 – and one risk I see.

Booming demand for hygiene products

Reckitt is well-positioned to benefit from one of the lasting behavioural shifts I think the pandemic brought about. It owns key hygiene brands such as Dettol and Lysol. I think higher demand for these is here to stay. That could be good news for Reckitt’s revenues. Given the premium nature of the Reckitt brand portfolio, it could also be very good news for its profits.

For the first nine months of its current financial year, the company reported that like-for-like hygiene sales were 12.7% higher than in the prior year. Reported revenues were up 5.9%, reflecting changes in the business structure. Given that the prior year already saw strong demand, I regard that as a very encouraging result.

Moving on from infant formula challenges

A key investor concern about Reckitt over the past few years has been the financial impact of its ill-starred 2017 acquisition of an infant formula business from Mead Johnson. That cost the company $16.6bn. It was definitely not money well spent.

But after massive financial writedowns and the sale of most of the business, I think Reckitt is now moving on from the impact of the deal. The financial damage is receding into history. Management can now focus on the growth opportunities in the rest of Reckitt’s business rather than the difficulties it faced in the infant formula division. I see that as a positive factor for the Reckitt share price in 2022 and beyond.

New market opportunities

With its global footprint, Reckitt can benefit from huge demand growth and increasing disposable income in developing markets such as China and Indonesia. It has been experimenting with growing its online commerce business. In its most recent quarter, such online revenues were 86% higher than they had been two years before.

I am not fully persuaded by the strategy of mass consumer goods manufacturers selling directly to end users. I fear it might damage their existing relationships with retailers, hurting sales. But I do think the online commerce growth is good news in that it shows how Reckitt is trying to grab new market growth opportunities. That ambition could drive sales and profits both in developing markets and established ones.

One risk with these UK shares

Although I am bullish on Reckitt, one risk I see is inflation. Mounting ingredient prices could push up the company’s costs and hurt profits. In October, Reckitt said that such inflation “continues to be challenging” and was running at around 10%.

But the company reckons it can manage such inflation without hurting its profit margins. I agree that may be possible, as its premium brand portfolio gives Reckitt pricing power. That will hopefully enable the company to pass such inflation on to consumers in the form of higher prices. So despite the risk, I would consider adding Reckitt to my ISA in 2022.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt plc. 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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We learned just last week that, before Christmas, Unilever (LSE: ULVR) had tabled three separate bids for the consumer products arm of GlaxoSmithKline (LSE: GSK). The final takeover bid of £50bn was rejected by GSK on the basis that it “fundamentally undervalued” the business.

By Wednesday, Unilever had ruled out increasing its bid, arguing that it would not overpay for a business. Shareholders and the market were increasingly uneasy over the deal, seen in the plummeting share price. Together, these sealed the fate of what would have been one of the biggest takeovers in UK corporate history.

The question is, does Unilever’s recent share price weakness provide a good entry point for a long-term investor like me?

Unilever’s shareholders revolt

Unilever, the owner of iconic brands such as Dove, Magnum, Ben & Jerry’s and Domestos, has been struggling for growth in recent years. Indeed, its share price is lower now than it was during the pandemic lows of March 2020. Little wonder that shareholder patience is beginning to run out. One prominent shareholder, Terry Smith, the outspoken fund manager of the £25bn Fundsmith equity fund, recently took a swipe. In his annual letter to shareholders, he accused management of losing “the plot”. He said it was more interested in displaying its “sustainability credentials” rather than “focusing on the fundamentals of the business”.

I believe one of the primary reasons Unilever bid for the consumer branch of GSK was to secure its own future. After all, it only recently fended off a takeover from US rival Kraft Heinz.

What I am trying to work out is whether the last few years of stagnant growth has been a mere blip or points to a deeper problem for Unilever. When Warren Buffett bought shares in struggling Coca-Cola in the 1980s, he did so believing its dominant brand and expert marketing would win through. In some respects, Unilever is in a similar position. It does, after all, own 14 of the top 50 brands by market penetration.

Alarm bells

However, when a company gives the impression that the only way it can grow is by acquiring another business, that sets off alarm bells for me. History books are littered with examples of large mergers and takeovers that failed to increase shareholder wealth. The hefty fall in Unilever’s share price following the takeover bid tells me that many shareholders doubted the deal would have been a good one.

Some analysts believed that GSK was holding out for £60bn. But the fact is that last year, GSK’s consumer business only generated revenues of £10bn. With a net-debt position of £18bn, a mostly-cash deal for GSK would have significantly swelled the debt on Unilever’s balance sheet and hastened the sale of slower-growing businesses. It is not clear at the moment how Unilever intends to grow its presence in the consumer healthcare space.

Unilever now needs to start winning back the trust of its shareholders and demonstrate that it can transform its fortunes. But just like turning a super tanker, transforming a giant takes time. For the moment, Unilever remains on my watchlist.

Andrew Mackie 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.

A lot of investors spend time worrying about the prospects of a stock market crash. But I do not think a crash is bad news for everyone involved. It might offer me the chance to pick up what I think are high-quality shares for an attractive price, for example.

The theory of defensive stocks

One class of shares that sometimes (although not always) bucks the trend in a crash is what are known as defensive stocks. These are shares that have resilient customer demand. They may therefore be seen as being something of a safe haven in times of market crisis.

For example, no matter what happens, people still need to eat – so Tesco will keep making sales. People will still wash their hair, which should help sales at Unilever. Households will still need to use water, which could support sales at Pennon. Or so the theory goes.

Defensive stocks in a stock market crash

Defensive stocks can indeed do well in a crash, but I think it can be difficult to know how defensive a share really is. For example, during lockdown, people left their homes less often than before. It turned out that, although people still washed their hair, many did so less frequently when they were not going outside their homes regularly.

People still needing to eat indeed helped sustain sales at Tesco. But that did not protect the shop chain from the additional costs imposed by a pandemic, such as installing protective screens. Between 2019-20 and 2020-21, Tesco revenues only fell by 0.4%. But its operating profit slipped 21.3%. 

Even utilities are not always as defensive as they may seem. A worse financial environment can lead to more customers not paying their water bills, for example.

If many investors move into defensive stocks as a perceived safe haven, that can push their price up during a crash. But I also think it is important to consider how defensive a share really is. I would not buy shares for my portfolio purely because they were defensive. I look for high-quality companies that can hopefully generate substantial free cash flows in the long term.

Look at the cause for a crash

Often there is a specific trigger for a stock market crash, even if sentiment has already been weakening for a while. For example, it could be a sudden sense that a particular group of companies is overvalued, as we saw in the dotcom crash. Or it might be a sudden dramatic event like we saw in 2020 with the onset of the pandemic.

Understanding the key immediate cause of a crash is helpful in my view. It may help me understand which stocks might actually benefit from the crash. Take the 2020 implosion as an example. If a pandemic arrives and people are worried about virus transmission, companies focussed on hygiene could well benefit. By July 2020, Dettol owner Reckitt saw its shares trade 25% higher than at the start of the year. That was despite a fall during the March crash.

If the underlying cause for a stock market crash can improve the long-term outlook for a company, it could support its share price in the crash – and beyond. That is the sort of company I might consider adding to my portfolio.

Christopher Ruane owns shares in Unilever. The Motley Fool UK has recommended Pennon Group, Reckitt plc, Tesco, 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.

In 2021, the Croda International (LSE:CRDA) share price rose an incredible 53%. It was consistently ranked in the top five FTSE 100 performers list before dropping off to seventh place in December. What were the major factors behind the British chemical manufacturer’s success last year?

Steady long-term growth

2021 was not a flash in the pan for Croda. The company, which was first listed in 1964, has been gaining market momentum for a while now. Five-year returns stand at a whopping 148%, and Croda consistently ranked in the top 10 FTSE 100 performers over this period.

The company carried forward strong momentum from 2020. The decision to acquire the drug delivery systems researcher Avanti Polar Lipids played a crucial role in the development and manufacture of the Pfizer and BioNTech Covid-19 vaccine. This US$225m purchase injected life into Croda’s life sciences and healthcare divisions. And this has shaped how the company is transitioning today.

The revenue from the healthcare division boosted sales by 39% in the first half (H1) of 2021 (ended 30 June). The report showed a pre-tax profit of £229.5m driven by £934m in sales during the six-month period. The life sciences (LS) division grew 60% after the US$100m Covid lipid systems sales.

Although revenue from Covid vaccine sales is expected to wane, the board is already focusing on broader mRNA vaccine applications, which are expected to grow exponentially in the coming years.

Shareholders also received a boost after the chemical manufacturer raised the interim dividend by 10% to 43.5p. The company has steadily increased its shareholder returns for nearly 30 years, which has raised its reputation among investors.

Restructuring phase

The business has slowly been restructuring to move away from the industrial chemical sector. This is not an unexpected move, given that the LS and consumer care sectors brought in 90% of Croda’s total revenue in 2020.

In December, Croda struck a deal to sell its performance technologies and industrial chemicals operations to American commodities group Cargill for a whopping $1bn (£778m).

In a recent press release, chief executive Steve Foots said, “Today’s announcement completes our transition into a pure-play consumer and life sciences company. We will focus our capital and resources on delivering sustainable solutions and scaling our consumer, health and crop care technologies, leading to consistent sales growth and an even stronger profit margin“.

But many analysts feel the deal is undervalued. And I agree with the assessment, given Croda’s global reach in the industrial chemical sector. Investors are backing out and taking profits after this move. This has caused the Croda share price to fall nearly 19% from 10,120p on 31 December to 8,228p earlier today. Even after the recent downtrend, the company is trading at a price-to-earnings ratio of 45.5 times, making it overvalued.

Croda is entering a crucial phase of restructuring. But it does not take away from the stellar year the company had in 2021. The company has made many strategic investments in the last 24 months in the personal care space. And I think the 53% jump in share price in 2021 is a result of years of positive financial performance. I am looking forward to the full-year results, which should give me a lot of clarity on the chemical giant‘s future plans. 

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. 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.

Some UK shares on the FTSE stand out to me as no-brainer buys for my holdings. I have identified two picks I would add to my portfolio right now with as little as £100 to invest.

UK share #1

Evraz (LSE:EVR) is one of the largest steel producers in the world. Since reopening, the demand for steel has outstripped supply.

As I write, Evraz shares are trading for 559p. At this time last year, shares were trading for 519p, which is a 7% return over a 12-month period. This UK share is best known for its monster dividend yield. Evraz shares currently yield over 15%! Sometimes, a rapidly falling share price can push up a dividend yield, however, this is not the case for Evraz.

Evraz’s recently released Q3 trading update showed a slow down in production on most fronts compared to Q2 but this is not a worry for me. Global supply chain issues as well as the fact supply cannot meet demand right now, which is generally good news for Evraz and its share price, account for this dip. Half-year results released in August were excellent, however.

The skyrocketing demand for steel has helped boost Evraz. If supply and demand converge, this could affect Evraz’s performance. Evraz doesn’t control the price of the commodities it mines and produces. This is controlled by the market and other geopolitical factors. Any volatility could affect performance.

Overall, Evraz is a no-brainer UK share for me that I would add to my holdings right now for three reasons. It is a powerhouse in its market, with a diversified range of operations, not just steel. It consistently pays a handsome dividend to make me a passive income. Finally, it has a consistent record of performance too.

Pick #2

My next pick is BP (LSE:BP). It is among the seven largest oil and gas companies in the world. Having a prominent oil and gas UK share in my portfolio is a no brainer as global economies run on energy stocks such as these.

As I write, shares in BP are trading for 387p per share, whereas at this time last year, they were trading for 293p. A 32% return over 12 months is excellent.

As the world economy reopened, demand for oil and gas, especially the former, has increased exponentially. The price of oil is currently at seven-year highs. This can only be beneficial for BP. The shares are on an upward trajectory right now and look cheap to me with a current price-to-earnings ratio of just 16.

BP has an above average dividend yield of over 4% and has a decent track record of performance. More importantly, BP is investing in the future and keeping up with the changing world. It is expanding its green energy production.

The pandemic is a major risk to BP and its shares in my opinion. Energy prices fluctuated, mainly downwards with few positive upward spikes, when restrictions were in force. If this were to occur again, financials, performance, and shares could be negatively affected.

I would buy BP shares for my holdings at current levels. The new green energy initiative, current oil prices, and healthy fundamentals including a solid balance sheet make it an attractive UK share for my portfolio.

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.

Over the last 10 years, equity markets have been riding the crest of a wave — the longest bull market in history. The short-lived recession, induced by the Covid-19 crash, turned out to be a mere blip on this upward trajectory. Central banks came to the rescue by injecting the largest fiscal and monetary stimulus ever seen in the economy. But as the consequences of this loose monetary policy become apparent, we could be on the cusp of a spectacular stock market crash.

Although a black swan event could happen any time, a number of danger signals are already clearly visible. These are my top two.

Not a day goes by without inflation being talked about in the press. In the US, the latest figures for December put inflation at 7%, the largest yearly rise since 1982. Although the UK figure is not as high (currently at 5.4%) it has been on a similar upward trajectory for some time. The number one contributor to this rise has been soaring oil and gas prices.

A number of economists argue inflation will unwind as supply chains find their feet and economies re-open following Covid. I am not too sure. Indeed, if we are finally seeing the back of the pandemic, supply chain pressures will likely continue for some time.

Further, infrastructure spending in the commodities sector has been in decline for some time. One of the key factors that can attributed to this is the ESG trend. Activist investors and governments have stepped in to prevent oil companies from exploring for new reserves. Although well-intentioned, the reality is that the world needs fossil fuels and will do so for some time as we transition to a green economy. If one looks back in history, whenever oil prices have surged, a recession has never been far away.

By any measure, the US stock market looks overvalued. For me, the primary driver of the asset bubble in the tech sector, and most notably in software companies, has been ultra-easy financial conditions.

The US Federal Reserve has been way behind the curve when it comes to dealing with the threat of inflation. Only recently have they begun to signal their intention to accelerate the tapering of their purchases of financial assets. A number of interest rate rises are now expected. I think we all know what is likely to happen to tech companies, some of which have reached insane valuations, if rates do start rising from here.

The top five companies by market cap in the US – Apple, Alphabet, Tesla, Microsoft, Amazon – are undoubtedly great companies that generate huge profits. But at what point do their valuations become unsustainable? In early 2000, at the peak of the tech bubble, if I had invested in the five largest companies of the day – Microsoft, General Electric, Cisco, Intel, and Exxon Mobil – all of which we can agree are great companies – it would have turned out to be a very bad investment with negative real-returns over the next 10 years.

Today, virtually every tech ETF/fund on the planet is invested in these mega-cap stocks. We have a lot of investors on one side of the boat. The huge imbalances in the economy, that Covid has laid bare, means most could be jumping ship very soon.

Andrew Mackie has no position in any of the shares mentioned

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. 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 Alphabet (A shares), Amazon, Apple, Microsoft, and 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 £500 to invest in a penny stock for my holdings, I would add Science in Sport (LSE:SIS) shares to my portfolio at current levels. Here’s why.

Sports nutrition specialist

Science in Sport is one of the world’s leading performance and nutrition brands dedicated to enhancing sports performance. Its products are derived through scientific formulations and cutting edge technology to provide optimal performance solutions and nutritional needs. SIS partners with over 150 football teams throughout the world, as well as the English Institute of Sport, USA Triathlon team, the German Cycling Federation, and others.

Penny stocks are those that trade for less than £1. As I write, Science in Sport shares are trading for 71p per share. At this time last year, the shares were trading for 44p, which is a 61% return in a 12-month period. The shares have surpassed 2020 pre-market crash levels.

Why I like SIS

The healthcare and gym market has been booming since the pandemic started. The pandemic shone a new light on the importance of healthcare and remaining fit and healthy. In addition to this, many gyms closed for long periods, so many resorted to home workouts. When gyms reopened, many saw lots of new members. SIS is primed to benefit from this through its product range of consumer performance and nutrition goods. SIS also has a direct selling arm so does not have distributors or agreements with gyms meaning it can keep more of the revenue.

SIS’s performance recently and historically has been promising too, although I realize that doesn’t future performance. Looking back, I can see that revenue increased year on year for four years until 2020. Gross profit also increased in the same period. This shows me SIS has been growing well and performing well consistently. SIS yesterday released a pre-close update for 2021 results. For the period ended 31 December, it said it expects to report revenue and EBITDA growth compared to 2020 levels. SIS’s net cash balance looks healthy but has declined compared to 2020 due to investment in new brands and online platforms and infrastructure. This seems to have helped as online sales grew as per the recent report.

Risks and verdict

The sports performance and nutrition market is extremely lucrative and competitive. My concern here is although Science in Sport is a burgeoning brand with some excellent relationships and real long-term promise, there are other better known firms in the market. In addition, bigger consumer goods firms could join the market with established business models, a built-in customer base, as well as millions to spend on research and development and products too.

Overall, I would happily add Science in Sport shares to my portfolio with £500 to invest right now. I am eager to see full-year results in their entirety soon and believe growth across all areas could catapult shares upwards even further. As penny stocks go, SIS represents a bargain in my eyes with an established brand, business model, and record to back it up.

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.

One of my favourite passive income ideas in investing in dividend shares. But even as somebody already buying such shares, I think there are habits I can develop to help me boost my earnings. Here are five of them.

1. Increase how much I invest for passive income

The simplest way to double or even triple the passive income I generate from dividend shares is simply to double or triple the amount I invest.

That may sound very simplistic – and it is. I think it is easy to overcomplicate the process of generating passive income. Investing more money would not only increase my passive income streams because I would own more shares. It could also cut the costs I paid to buy, hold, or sell shares, as I may benefit from some economies of scale.

This could be hard for me to do if I was already using a lot of my spare money investing. But I notice that a lot of people seem to invest only a small amount each month, with some vague plan of increasing the amount as they get closer to retirement. But doubling my monthly investment 30 years before retirement will have much more impact on my future passive income streams than doing it just a few years before I retire.

2. Look for dividend growth prospects not just yield

A lot of investors zoom in on dividend yield when building a passive income portfolio. I understand why they do that, but I think it is only one of the pieces of information that I need to use in that situation. If I want to increase my passive income streams, I also need to consider the prospects for future dividend growth.

Consider GlaxoSmithKline as an example. Its yield is 4.9%, which I find attractive. But I note that its dividend this year is on track to be 80p. Last year it was 80p. It was 80p in 2019 — and 2018 — and 2017. You get the picture.

By contrast, a company with a slightly lower yield but that will hopefully grow its dividend each year might improve my future passive income streams compared to investing in a business where the payout is flat. GSK’s might even go down, incidentally, as it has warned that after a proposed breakup the total dividend may not match the current 80p per GSK share.

3. Look at free cash flow 

Dividends are never guaranteed. Neither is dividend growth. But a company that has excess free cash flows that grow in size each year has the financial flexibility to grow its dividend. By contrast, if a company has shrinking free cash flows, its financial room for manoeuvre will decrease. Once the dividend exceeds the free cash generated, the company will either need to cut the dividend or else raise funds to keep paying it, for example by selling off assets. That can help prop up a dividend for a few years. But it may reduce the ability of the business to generate free cash flow in future.

That is why many investors were not surprised when Imperial Brands slashed its dividend in 2020. It had delivered years of double-digit dividend increases. But acquisition debt meant interest payments ate into cash flow. So the dividend cut was widely expected.

Earnings are important, but not in isolation. I use a price-to-earnings ratio as one of a number of valuation metrics. But dividends rely on free cash flow, not the accounting measure of earnings. I think focussing on companies whose dividends are covered by free cash flow can help me earn more passive income in future by hopefully dodging some painful dividend cuts.

4. Pay attention to special dividends

Sometimes companies are doing particularly well or have an unexpected cash infusion, for example from the sale of a business unit. They may see that as a one-off event. So they may not want to use it to boost the dividend, only to have to cut it back the following year. Instead, they can pay it out as what is called a ‘special dividend’.

The unpredictable nature of special dividends means that some information sources exclude them when calculating a company’s dividend yield. But they can be substantial. Paying close attention to them could help me identify passive income ideas with higher yields than I realised, that I otherwise might have ignored.

Take the miner Rio Tinto for example. It declares the dividends on its London-listed shares in dollars. Last year, of a total $5.57 in dividends, $0.93 was in special dividends. Two years before, the special dividend of $2.43 was around 44% of the total dividend payout of $5.50. If I was looking at information that excluded the special dividend when calculating the Rio Tinto yield, I would not have realised fully how attractive its passive income potential was for me.

5. Sell shares after a big price rise

In general, if I buy shares in a high-quality company I am happy to hold them for years. I do not pay too much attention to the twists and turns of the share price. But that is because when investing, I am often focussed at least partly on long-term share price growth prospects, not just on income.

If my focus was purely on increasing my passive income, though, I might be more active trading my shares once their price increased a lot. As an example, imagine I had invested £1,000 in ExxonMobil last February when it was yielding around 7.8%. Since then, Exxon shares have increased approximately 63% in price. If I simply kept the shares I would expect roughly £80 in dividends in the coming year, after a modest increase last year. But if I sold the shares, I would receive roughly £1,630 due to the share price rise. If I invested that in shares yielding today what the Exxon shares did when I bought them in this example (7.8%), my dividend income in the coming year should be around £127.

Christopher Ruane owns shares in ExxonMobil and Imperial Brands. The Motley Fool UK has recommended GlaxoSmithKline and Imperial Brands. 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.