The FTSE 100 index made decent gains in 2021. And yesterday, even managed to close above 7,500 for the first time since the pandemic started. But what is true for the index in general, is not true for all listed companies. Take delivery app Just Eat Takeaway.com (LSE: JET). The stock has taken a real beating in the past year. Its share price was down by almost 55% in a year at the last close!

Update pleases investors

So, it caught my attention when it rose 3.6% yesterday. This followed its positive trading update. For the full year 2021, its gross transaction value (GTV), which is the total value of orders placed on the platform, including tips and taxes, grew by 31% from the year before. It also said that losses will start reducing from next year. This is one step forward towards making profits, I reckon. But so far, the company is focused on growing market share. 

That investors view the trading update positively suggests to me that better times could be in store for the long-suffering stock. It did quite well in 2020 when lockdowns started. But as the vaccine programme started yielding results, its fortunes took a turn for the worse. And it has pretty much been falling ever since. Now however, I feel it could have fallen too far. 

Why I like the stock

I have long held the belief that this is a stock to buy for the long term. The reason is simple. As e-commerce grows even more over time, we are likely to order more from food delivery apps. The increase in popularity of all online commerce solutions has been evident during the pandemic. And at least some of this conversion to online spending might have be permanent, improving online companies’ prospects for the long term. 

It helps that the company is geographically spread out, allowing it to reach markets with high growth potential. Also, like its peer Deliveroo, the company has diversified into providing grocery deliveries, for instance, for ASDA in the UK and other supermarkets elsewhere. I also like that it has been able to manage potential labour issues well, something Deliveroo has struggled with. 

My assessment

There is, of course, the challenge that it might not be able to turn in profits quickly enough, which could test investors’ patience. Also, its revenue growth could slow down this year, now that we can eat out as often as we like. But I see this as an investment in a high-growth industry as opposed to an established one.

It is essential for it to invest to ensure a big enough market share right now, even at the cost of profits. If it reined-in investments just to boost profits, that could undermine its market position. The stock has been on my portfolio wishlist for a while, and now that it is at a low point, I think this is my opportunity to buy it. 

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. 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.

This was a long time in the making and it has frequently been delayed. Finally though, the FTSE 100 index managed to close above 7,500 yesterday. At its close of 7,552, it was up less than 1% from the day before, indicating now narrowly it had missed the mark in recent days. 

FTSE 100 index at 8,000?

I had forecast that it could touch this level before the end of 2021. And it did reach pretty close. But it took another few sessions to get to the actual number. Of course, the exact level says little for the value of my investments. But as someone who likes to consider the big picture, it does have some psychological significance. 

It is now closer to pre-pandemic highs than it has ever been. And we are only at the start of 2022. I think it is quite possible now that the index could end the year at significantly higher levels than those seen even during the pre-pandemic bull market. In fact, once it was clear to me that the index would touch 7,500 sooner rather than later, I also wrote about whether it could touch 8,000 in 2022. If I was optimistic then, I am even more so now. And to know the reason, we just need to just look at the strong stock market trends seen so far this year. 

Risks to a further rise

The pandemic continues to create some uncertainty, of course. But it is clear that it is more likely to recede this year than not. We have come a long way since it started, and even with the recent upturn in coronavirus cases during the festive season, the threat to life appears to be significantly reduced. 

The bigger challenge for the FTSE 100, as I see it, is likely to be inflation. We need to look no further than the increases in crude oil prices seen over the past year to get some understanding of why prices are rising. Fuel is a cost component for all businesses, and it has second-round effects of increasing the prices of other goods and services too. Other aspects like supply chain disturbances, and a lag in production to meet post-lockdown demand also fuelled inflation over the past few months. And it is now widely believed that it might not be as transitory as was earlier hoped. 

The most likely outcome

I am optimistic about the FTSE 100 index nevertheless. This is because companies have managed to find ways around rising costs over the past year quite well. Either they have passed on costs to willing customers, hedged themselves against rising cost pressures or just been on the right side of inflation, like oil stocks, which have gained all this time. Keeping this risk in mind, though, I am inclined to consider companies’ strategies to combat inflation when buying stocks in 2022 more deeply than before. These could help me make the most of my FTSE 100 investments in 2022.

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.

Kainos Group (LSE: KNOS) has struck me for a while as a top FTSE 250 share. It’s no hidden gem though. Its share rose by 50% in 2021. Although I think it’s a great company, the share price performance could slow this year, so I don’t expect it to shoot the lights out. A lot of the growth is already in the share price. Expectations and the valuation are very high. 

Taking a P/E of 45 and multiplying it by earnings per share of 41.5 gives me a target price of 1,867.5p, which is not much above the current share price at the time of writing. I’d expect a number of other FTSE 250 shares could outperform that.  

Worse yet, the prospect of continued high inflation means highly rated shares may come under fire from investors worried about the future value of cash flows, a common metric for assessing the attractiveness of investing in a share.

Even if Kainos continues to grow, which I suspect it will, a rotation to value and more reasonably priced investment opportunities, may hit the share price anyway.

I could be wrong though. Analyst expectations for the earnings could be too low and the shares could well go much higher than 1867.5p calculated, over the next 12 to 18 months. Kainos is profitable, dividend-paying and produces a high return on capital – all very positive attributes.

I just don’t think it’s the no-brainer share it was a few years back. 2022 could be much trickier and I anticipate a potential pull-back for the shares, so I’ll avoid adding them to my portfolio.

Another FTSE 250 share with potential

Continuing on a technology theme, DiscoverIE (LSE: DSCV) shares rose by 40% in 2021. I calculate a target price for DiscoverIE of 1,080p, using the same methodology as above. Again, that’s not much growth from today’s share price. That means much of the growth is either baked in, or analyst expectations for future growth need to be updated.

DiscoverIE designs, manufactures and supplies components for electronic applications. Its business model is solid and makes it profitable. The manufacturer also pays a dividend, which is a positive.

What’s lacking to make me buy though is a catalyst for further significant growth. I worry the shares may just be a little far ahead of themselves. When a company like DiscoverIE has a P/E ratio of 37, that worries me. All the more so with its history of inconsistent earnings growth.

There’s a chance both of these companies could exceed expectations and outperform. I’m aware both have done well historically, especially Kainos, and are good companies. I just don’t expect them to shoot the lights out like they have done in the past.

When it comes down to it, technology valuations in some cases are potentially stretched after a good run over the last two years. I’d much rather invest in undervalued shares like Legal & General and CMC Markets in 2022.

Andy Ross owns shares in Legal & General and CMC Markets. The Motley Fool UK has recommended Kainos. 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.

Shares in online fashion retailer Boohoo (LSE: BOO), which owns a number of popular brands, including PrettyLittleThing and Debenhams, have taken a huge hit over the last year. This time last year, Boohoo’s share price was near 370p. Today, however, it’s hovering around the 115p mark.

Has this share price weakness provided a buying opportunity for me? Let’s take a look.

Why has Boohoo’s share price fallen?

To understand whether Boohoo shares could be a good investment from here, we need to look at why the share price has fallen so far over the last 12 months. I see three main reasons.

The first is supply chain issues. These issues – which have plagued the whole retail sector over the last year – have impacted stock availability and international delivery capabilities.

The second is higher costs. Over the last 12 months, Boohoo, like a lot of companies, has been hit by higher input and freight costs.

Finally, there’s Omicron. This came along right at the time that demand for partywear would normally be skyrocketing.

All of these issues have impacted growth. This is illustrated by the fact that in December, Boohoo advised that revenue for the year ending 28 February 2022 would be 12% to 14%, versus previous guidance of 20% to 25%. They’ve also clearly impacted sentiment towards the stock.

Is the growth story over?

Having identified why the share price has fallen, the next step is to determine whether the company can recover. Are these issues short term in nature, or is the growth story here over?

Personally, I see this as a short term dilemma. To be clear, I do expect inflation and supply chain issues to linger in the first half of 2022. However, looking out to the second half of 2022 and to 2023, I’d expect these problems to moderate as the world slowly returns to normal.

It seems Boohoo’s board has a similar stance. “It is the view of the board that the factors currently negatively impacting the business are primarily related to the ongoing impact of the pandemic and are, therefore, transient in nature,” the company wrote in its December update. “The Group remains highly confident about its future growth prospects,” it added.

This suggests to me that the company should be able to recover from these issues and keep growing at a healthy rate in the long run.

Are Boohoo shares cheap?

As for the valuation, this seems very low, to my mind. Currently, analysts expect Boohoo to post earnings per share of 6.7p for the year ending 28 Feb 2023. At the current share price of 114p, that equates to a P/E ratio of just 17.

That valuation strikes me as attractive, given the power of Boohoo’s brands and the long-term growth potential. At that valuation, I think the stock is worth me buying.

Of course, there are risks to my investment case. One is new variants of Covid. Another is persistent supply chain and cost issues.

However, the contrarian in me sees an opportunity here right now. Given the low valuation, I’d be happy to buy more Boohoo shares for my portfolio today.

Edward Sheldon owns boohoo group. The Motley Fool UK has recommended 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.

Rising inflation could cause havoc in the economy. However, some UK shares are better placed than others to weather the effects of this economic phenomenon. Companies with large profit margins and pricing power can both raise prices to compensate for higher costs and have the flexibility to absorb rising costs in their profit margins. 

These are the businesses that I would buy for my portfolio to navigate the current inflationary environment. 

UK shares to buy today

The first company on my list is Diageo (LSE: DGE). With its portfolio of billion-dollar brands and 20%+ operating profit margins, it looks as if the corporation has the pricing power and margin headroom required to pull through the current inflationary environment. 

However, the one thing that does worry me is the group’s debt. It has a fair bit of borrowing, the cost of which could increase if central banks hike interest rates to deal with rising inflation. This could have an impact on profit margins and overall cash flow. 

Still, considering its competitive advantages, I think this is one of the best UK shares to buy as inflation surges. The firm is also looking to increase its footprint through acquisitions and organic growth over the next couple of years. 

Property income 

Secure Income Reit (LSE: SIR) was founded to generate long term, inflation protected income from real estate investments. This suggests it is one of the best companies on the market to own in an inflationary environment. The corporation invests in high-quality real estate assets, let to clients on long-term contracts, which have inflation uplifts built-in. 

Few other UK shares offer this kind of inflation protection on the market. Property is also an excellent asset to own when prices rise as inflation can lift the value of real estate as well. As such, it looks to me as if Secured Income is doubly protected from inflationary pressures. Its assets and cash flows may both increase in line with price growth. 

Once again, higher interest rates could become an issue for the group if they increase the cost of its debt. This may be the biggest challenge the company has to deal with in the years ahead. 

Precious metals

Fresnillo (LSE: FRES) is the world’s largest producer of silver from ore and Mexico’s second-largest gold miner. This suggests the company has a certain level of information protection because the value of precious metals tends to increase in line with inflation in the long run. 

Unlike owning precious metals directly, which can incur management costs, Fresnillo currently supports a dividend yield of 2.3%. If the price of gold and silver rises in line with inflation, the firm’s profits should follow suit. This should enable the business to increase its dividend investors. 

That said, inflation may put upward pressure on the company’s wage bill. Higher costs could compress profit margins, leading to some tough choices for the management. This is probably the biggest challenge the group will face in the years ahead. 

Rupert Hargreaves owns Diageo. The Motley Fool UK has recommended Diageo and Fresnillo. 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.

Owning shares in a REIT can be a great way for me to generate passive income from property. REITs make money by owning or operating real estate and renting it out to tenants. In exchange for tax exempt status, REITs are required to pay out at least 90% of their taxable income to their shareholders in the form of dividends. So as a shareholder in a REIT, I receive a dividend for my share of the rental income without having to do any of the work of finding tenants, maintaining properties, or dealing with contractors.

The REIT that I’ve been buying recently is Realty Income (NYSE: O). Unlike most REITs, the company pays its dividend monthly, rather than quarterly. This isn’t why I’ve been buying it, though. I’ve been buying it because I think it’s a good company with a strong track record and decent future prospects.

The company primarily owns retail properties and increased its portfolio from 1,197 properties in 2002 to 7,018 properties by the end of Q3 of 2021. It also maintained an occupancy rate of over 95% during each of these years. More recently, the company has increased its retail portfolio by merging with VEREIT and reduced its office exposure by spinning off Orion Office REIT. During the Q3 2021 earnings call, management reported occupancy rates of 98.8% and the collection of almost 100% of contractual rents. Guidance for adjusted funds from operations for 2022 came in at $3.84-3.97 (up from an expected $3.59 for 2021).

Realty Income has consistently maintained high figures for occupancy and rent collection, and I think it can continue to do so moving forward. An investment like this has three obvious sources of risk. One comes from rising interest rates pushing down property prices and the price of Realty Income’s shares. A second comes from opportunities for growth being limited as the company expands. A third comes from the growth of e-commerce leaving Realty Income with empty buildings or tenants unable to pay their rents.

Whilst these risks are real, I think that there are considerations that mitigate them. Since I view my investment as buying an income-generating asset that I don’t intend to sell, I’m not concerned about the price of shares going down. As long as the company maintains its high rates of occupancy and rent collection, I think things should work out fine. During the Q3 earnings call, the company reported sourcing over $24bn of acquisition opportunities, which I view as an indication that there are still meaningful opportunities to grow the business available. Lastly, Realty Income’s tenant base is overwhelmingly made up of businesses that have some protection from the threat of e-commerce, such as convenience stores, pharmacies, and fast-food restaurants, which I think means that the risk of the company’s tenants defaulting or leaving is limited.

Realty Income is a favourite amongst investors looking for reliable passive income. I think this status is well deserved, and that’s why I’ve been adding it to my portfolio. Sometimes, the best ideas are hiding in plain sight and it’s best not to overcomplicate things.

Stephen Wright owns shares of Realty Income. 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.

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ITM Power (LSE: ITM) shares are a popular investment at the moment. Last week, ITM was one of the most traded stocks on Hargreaves Lansdown’s platform.

Should I buy ITM shares for my own portfolio? Let’s take a look at the investment case.

ITM Power shares: the bull case

I can see why UK investors are bullish on ITM Power right now. For starters, the company – which specialises in hydrogen energy solutions – operates in a high-growth industry.

According to Energy Monitor, demand for green hydrogen and its derivatives is expected to grow “ten-fold” between now and 2050. This industry growth should provide powerful tailwinds for ITM Power.

Secondly, revenues are projected to explode in the years ahead. For the year ended 30 April 2021, ITM posted revenue of £4.3m. For the year ending 30 April 2022 however, analysts expect revenue to come in at £22.8m. That would represent a 430% increase – a very impressive level of growth.

Third, ITM has already signed deals with a number of major players in the energy industry, including Shell, Snam, Linde, and Anglo American. These deals suggest that the company has some top-notch technology.

Finally, the company is getting some positive coverage from brokers. In November, Jefferies initiated coverage of the stock with a price target of 800p. That’s roughly 125% above the current share price. Jefferies also named ITM as a top pick for 2022.

Risks to the share price

However, I have a few concerns in relation to the renewable energy stock. One is the fact that the company is not expected to be profitable for a number of years. This adds a considerable level of risk to the investment case. We’ve seen recently that unprofitable companies tend to be hit hard when there’s a market sell-off.

Another risk is the company could miss analysts’ forecasts. As I mentioned earlier, analysts expect revenue of £22.8m for this financial year. Yet revenue in the first half of the year was only £4.1m. So the group needs to have a huge H2.

It’s worth noting that when I covered ITM last March, analysts were expecting revenue of £6.2m for that financial year. The fact that the top line came in at £4.1m – over 30% below forecasts – is a bit concerning, in my view.

Then there’s the valuation. ITM Power doesn’t have a price-to-earnings ratio because it doesn’t have any earnings. But it does have a price-to-sales ratio and that’s a whopping 96 at the current share price of 356p. That seems very high, to my mind. At that valuation, there’s no margin of safety at all. If future growth is disappointing, I’d expect the stock to fall significantly.

Should I buy ITM Power shares?

Weighing everything up, I don’t see ITM Power as a buy for my portfolio at the current share price. To my mind, the valuation is too high.

All things considered, I think there are much better stocks to buy today.

Edward Sheldon owns Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.