Warren Buffett is without a doubt one of the best investors alive today. He is so well known that even people who aren’t interested in investing know his name. But how does he know which companies he should invest in and how is he right so much of the time? Luckily for us, he has imparted much of that wisdom into books, interview, and letters, all of which we can study today.

Circle of competence

A circle of competence is the subjects and industries in which an investor has a keen interest or understanding. We can’t all be experts in everything, but if I have an interest in a topic, I’m more likely to have an advantage when choosing which companies to invest in. Conversely, if I don’t have at least a reasonable understanding of a given sector, how will I know which businesses are likely to succeed?

Warren Buffett has been criticised in recent years for not investing in the tech boom. But he has always stated that he doesn’t understand how tech companies work or, more importantly, how they make money. He instead focuses on business that produce products, like Coca-Cola or on banking, like with Bank of America. I for my part don’t understand anything about banking but have been very interested in renewable energy for years, so that’s where I focus my attention.

Another famous investor, Peter Lynch, echoed this sentiment in an interview he gave to CNN. “I know restaurant managers who invest in IBM, but I always ask why they don’t invest in restaurants. They know how the business works. They know if a restaurant is profitable and what sorts of challenges they face”.

Fundamentals

Another important part of Warren Buffett’s strategy is to focus on the fundamentals of a business. How does it make money? How much money does it make? Does it have a lot of cash on-hand or is it in a lot of debt?

All of this information is readily available to investors with a quick online search. Reading financial statements can be a little overwhelming at first (and sometimes quite dry) but the details of the business are there for anyone to see.

Buffett has always advised to stay away from companies with a lot of debt, and to aim towards ones with good cash flow.

If a company has a lot of debt, paying it down will cut into its profits. But if it has good cash flow and money in the bank, it can weather unexpected storms (like pandemics).

Warren Buffett is a patient man

Finally, Buffett is always happy to wait. This can be waiting years and years for an investment to become profitable. Or it can be waiting to even make an investment.

The man once compared investing to baseball, with one key difference. “In investing, there’s no-one telling you to swing.” Buffett is the first to admit he’s missed out on some good investments. But, when we’re using our hard-earned cash, it’s always better to be cautious; to wait for the perfect moment and the perfect company before making an investment.

There is no way to be absolutely sure of any investment, but understanding the business and knowing the sector can give investors a serious advantage. Patience can help us to wait for the perfect moment.

If it’s good enough for Buffett, it’s good enough for me.

James Reynolds 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.

Over a one-year period, Lloyds Banking Group (LSE:LLOY) shares have risen by 34% as I write. This seems impressive, although most of this move came in the first quarter of 2021. Over the last six months, Lloyds shares are only up 1.5%, meandering in the 45p-50p range. For 2022, here are the three main things that I think will dictate where the share price goes from here.

Sensitivity to rate changes

The first point is interest rates. The sensitivity of Lloyds shares to interest rate decisions was made very clear in late 2021. In November, the market was expecting the Bank of England to raise rates. The committee didn’t, causing the share price to tumble almost 5% on the day. Last month, the central bank did raise rates. This saw Lloyds shares jump, along with other banking stocks such as Barclays and Standard Chartered.

The reason for the sensitivity is due to the benefit that the bank gets from higher rates. It allows Lloyds to increase the margin that it makes on borrowing versus lending money. For example, it might charge me 2.5% to get a loan, but only pay me 0.1% on my cash deposits. This 2.4% is the net interest margin. If interest rates increase to 1%, they might pay me 0.5% for cash but charge me 3.5% on a loan. Ultimately, the margin is higher when rates increase.

Therefore, if interest rates do increase this year, I’d expect to see Lloyds shares move higher.

Lingering impact of the pandemic

The second key factor, in my opinion, is Covid-19. It affects all stocks, but some more than others. For Lloyds, it has a sizeable impact. This is because Lloyds has a large retail client base. Therefore, it feels the effects that the average person on the street is feeling. This relates to spending, mortgages, loans and credit cards. 

If Covid-19 continues to cause uncertainty, it would be negative for the bank. Lower spending, higher loan defaults and other issues such as these all reduce the opportunity to make revenue, which filters down to lower profits.

FinTech alternatives

The last factor is how the bank deals with new rivals. The FinTech space is growing rapidly, even being aided by the Government. It’s already eating into the share of banking products from established players. This can be seen with the ease of opening an account digitally, plus the availability of loans, mortgages, cross-border payments and much more. 

Lloyds doesn’t have to lose out here. It can look to buy some smaller competitors, and integrate their software. It can also build partnerships with FinTech firms, strengthening both businesses without either losing ground.

Ultimately, the ball is in the court of the traditional banks to decide what to do here. If Lloyds does embrace FinTech peers, then I think its shares can move higher.

These three factors are all very different. Some of them the bank can control, others are external issues that can’t really be controlled by anyone. As an investor, I’m going to hold fire on buying Lloyds shares right now until I get some clarity on how the year will pan out.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Barclays, Lloyds Banking Group, and Standard Chartered. 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.

Renewable energy is the future of our economy and early investors have the opportunity to opt in now. It’s a risky endeavour, but I think the UK’s own AFC Energy (LSE: AFC) has what it takes.

Renewable energy challenges

Renewable energy is well-known but has been a relatively under-utilised technology. There are several challenges that need to be overcome if we are to reach a sustainable net-zero target.

The two biggest are intermittency and energy loss over distance. Wind and solar energy sources are abundant and clean but intermittent. We can’t rely on them to generate all the electricity we need around the clock. Electricity also loses energy the further it has to travel, which is why we can’t power homes in London with solar panels in the Sahara.

What I think we need is a fuel source which is energy-dense, transportable, and produced by renewable means. I believe that that fuel is hydrogen and that AFC has a part to play it its adoption.

ACF Energy

AFC Energy is a Surry-based company that manufactures the fuel cells needed to make hydrogen fuel function.

What AFC has to its advantage is a patent on a new ‘alkaline fuel cell’, which is able to use lower purity hydrogen fuel. Producing hydrogen fuel is currently expensive and difficult, especially at the levels of purity required to run a fuel cell. AFC also manufactures modular hydrogen generators able to power buildings as well as vehicles.

Share price

2021 has been an interesting year for the company. It increased revenues over previous years, expanded its orders, and developed new products. The share price sits today at 49.30p, which isn’t unreasonable considering the size of the company and is up about 166% from this time last year.

But, overall, the share value has declined 40% since the start of 2021, which initially confused me. AFC is debt-free at this time and revenues are projected to grow a further 100% next year. On top of that the share price shot up 350% in November of 2020!

I eventually learned that, at the end of October 2020, AFC announced it had delivered its alkaline technology to its research partners, leading me to believe that investors grew overexcited at the news. 2021 was just a correction year.

Doubts

I do have some concerns about AFC. Revenues may be up but earnings are falling. The company is expanding its operations and reinvesting in itself, but it isn’t projected to turn a profit for another few years. It is a high-risk investment based on whether hydrogen is adopted en-masse.

Or not.

We have seen some movement in this direction. JCB recently placed a £1bn order for hydrogen from Australia, and AFC has just signed a £4m order with ABB, a Swiss electrical company, for a high-power electric vehicle charging application.

The use cases for hydrogen fuel increase every day, from industrial machinery and high energy manufacturing to something as simple as electrifying the developing world. Any one of these markets has the potential to grow exponentially over the coming years. AFC’s alkaline fuel cells have the potential to bring down costs for anyone using them. It has a serious advantage over the competition, which makes it worth adding to my portfolio.

James Reynolds 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.

Last year was one of records for the Tesla (NASDAQ: TSLA) share price and the electric vehicle (EV) company itself. Not only did the stock surge to an all-time high and break the $1trn market value level, but the corporation also smashed its production records. 

According to the firm’s latest figures, the group delivered 308,600 vehicles in the fourth quarter, far higher than forecasts, which were calling for 263,026 vehicles. Deliveries were up about 70% year-on-year in the fourth quarter. On an annual basis, deliveries rose 87% to 936,172 in 2021.

The EV maker defied all expectations last year. Despite the global chip shortage and supply chain disruption, the company’s output jumped nearly 100%. The question is, can the firm continue this run in 2022? 

Tesla share price outlook

Tesla is a fascinating business. Unlike many other companies, the firm does not have to work at generating demand for its products. The group’s EV’s are some of the best-known and most sought-after on the market. What’s more, the brand has become synonymous with EVs in general. 

As such, the group faces ever-growing demand for its output, and it is struggling to meet demand. This is a great problem to have. Tesla now has to match that demand. 

So the biggest challenge will be ramping up output. The next will be ramping up output profitably. There is no reason to suggest the group cannot meet both of these objectives. 

Indeed, it has been quite successful at both increasing output and moving to a profitable position over the past 12 months. As new production facilities open over the next year or so, it should be able to ramp up output. 

If the company can continue on this course, I think the Tesla share price could break more records in 2022. It could continue to push to new highs along with rising profits and output. 

Challenges ahead

However, this is far from guaranteed. The firm could face challenges, including supply chain disruptions, labour disputes, and competition. While Tesla’s brand has helped it pull in the customers up until this point, its peers are ramping up their EV offerings. I think it is likely that, sooner or later, they will start to edge in on the group’s turf. 

Another factor to consider is the company’s valuation. Compared to its traditional peers, the stock looks incredibly expensive. Some analysts may argue that the group’s valuation is justified. After all, it has completely transformed the EV industry. Nevertheless, a high valuation leaves a lot of room for a correction if the enterprise starts to stumble. 

Considering all of the above, I am cautiously optimistic about the outlook for the Tesla share price in 2022. That is why I would buy it for my portfolio. I think the stock can continue to break records if it does not disappoint investors. 

Rupert Hargreaves 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.

The FTSE 100 is rising strongly as fears surrounding the Covid-19 crisis erode. It’s too early to say that a sustained recovery in investor sentiment is in the works. But I still believe now is a great time to go shopping as many UK shares still offer brilliant value.

These two FTSE 100 dividend stocks look brilliantly cheap today. Should I buy them for my stocks portfolio this new year?

A cheap but risky FTSE 100 stock

Dividend yields at Land Securities (LSE: LAND) can be described as pretty bulky at current levels. For the years to March 2022 and 2023, these sit at 4.5% and 4.9% respectively. Shareholder rewards are tipped to steadily recover along with profits as shoppers and office workers return en masse following earlier Covid-19 lockdowns.

But these big dividend yields aren’t enough to tempt me. As a long-term investor, I’m worried about what the stunning rise of homeworking and e-commerce will mean for UK property shares like this.

Data from the Valuation Office Agency showed the amount of office space in England slip 2% in the year to March 2021. That’s 18m sq ft that was no longer needed, or the equivalent of 35 Gherkin buildings in the City of London.

The trend is expected to have continued since last spring and will remain as businesses try to cut costs, worker expectations change following the pandemic, and technological improvements allow firms to remain connected with their employees and customers without the need to be in the office.

As I say, Land Securities shares look cheap. The the business trades on a forward price-to-earnings growth (PEG) ratio of 0.5. Still, it’s my opinion that this low valuation reflects the steady decline of commercial property and physical retail. I’d much rather buy other cheap FTSE 100 shares right now.

9% dividend yields!

Rio Tinto (LSE: RIO) is one of these low-cost blue-chips I’d rather buy. The mining giant trades on a price-to-earnings (P/E) ratio of 7.8 times for 2022, well short the bargain-benchmark of 10 times and below. But it’s in the dividend arena where the business really looks too cheap to miss. Its yield for this year sits at a titanic 9%.

I’m not going to pretend that this FTSE 100 share also doesn’t come without risk. The threat of sinking commodities demand from China is very real as the country’s property sector teeters. Any failure of heavily-indebted real estate firm Evergrande could send an economic shockwave across the nation.

However, this is a risk I’d be prepared to stomach. And that’s not just because of the exceptional value Rio Tinto offers up right now. I think the long-term demand outlook for its commodities appears highly promising.

I believe interest in its copper, aluminium and lithium will grow as electric vehicle production shifts through the gears. Infrastructure upgrades in developed regions and strong economic growth in emerging nations should supercharge demand for its iron ore too.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Landsec. 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.

On 30 December 2020, the Royal Mail (LSE:RMG) share price closed at 340p. Using the closing price from 2021 of 506p, this means that the shares rallied an impressive 48.7% last year. This gain ranked it among the top 10 performers in the entire FTSE 100 index for the year. Digging deeper, it’s clear that there were a few key reasons for the move higher in the shares.

A positive spillover from 2020

The first reason for the gain in the Royal Mail share price came from positive results for the year ending March 2021. This encompassed the impact of the pandemic with various lockdowns in this timeframe. Royal Mail was one of the few companies that actually performed well during 2020. 

Its success was driven by much higher demand for parcels. The fact that almost all of us were at home meant we needed to order more online. Added to this was the part that the company played in helping to deliver PPE kit and test kits. Even though traditional letters demand fell during this period, the spike in parcel volumes saw profits rocket higher. 

In the full-year report, adjusted operating profit came in at £702m, up from £325m the year before. Although the Royal Mail share price was already moving higher in H2 2020 as investors understood what was going on, the annual report wasn’t released until May 2021. Therefore, some of the boost to the shares was cemented when the full information came out.

Optimistic outlook helped the price

The share price did move lower during the middle of 2021. Investors were concerned that the spike in parcels growth was just a temporary blip. In the summer, a trading update showed that for calendar Q2, parcel volumes were down 13% versus the same period in the previous year. 

However, the gains built up over H1 weren’t completely lost by any means. The company said that it was “starting to see evidence that the domestic parcel market is re-basing to a higher level than pre-pandemic, as consumers continue to shop online“.

This was backed up in late 2021 by the H1 results. Royal Mail domestic parcel volumes were up 33% versus the same period two years ago. This fact highlights that the company is able to sustainably grow long-term volumes and demand, even if at a lower level than the bumper 2020 figures. This positive outlook is another reason why the Royal Mail share price rallied towards the end of the year.

A note of caution

Although the Royal Mail share price did well last year, it wasn’t all plain sailing. The company continued to feel the pressure from competition, something that will remain an issue for 2022. It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

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.

Penny stocks may offer excellent returns for my portfolio. As long as I thoroughly research the underlying businesses, I’m happy to buy and hold them for the long term.

With this in mind, I’ve been screening for penny stocks that have high earnings growth forecasts. Here are two I’m considering buying in my portfolio.

The first high growth penny stock

Accrol (LSE: ACRL) is the first penny stock I’ve been researching. It’s a manufacturer of soft tissue paper that is used in various products such as toilet roll and kitchen paper. It came up on my stock screen as the earnings per share (EPS) forecast for next year is an impressive 44%.

There’s been a turnaround situation at Accrol since the current CEO joined in 2017. The company reduced headcount and the number of products it offered, and also streamlined its supply chain. The gross margin has been rising since 2019 when it was 14.7%. It reached 27.7% in its fiscal year 2021 (the 12 months to 31 April 2021). This, to me, shows that the turnaround is working. The share price has responded too, and has risen from around 7p in 2018, to a 35p at time of writing.

However, in a trading update for the full fiscal year 2022, Accrol said it’s been impacted by rising costs for its raw materials. The company has also seen additional distribution costs related to a shortage of HGV drivers, and this has reduced its achievable revenue growth for this fiscal year. These are key risks to consider before buying Accrol shares as I don’t see the end of the current global supply chain issues just yet.

I’m not sure there’s a strong economic moat in the business either. This might weaken profits in the future if competitors are able to undercut prices of Accrol’s products. So on balance, I’m going to sit this one out for now.

A stock to buy

The next penny stock is EKF Diagnostics (LSE: EKF), a medical diagnostics company. It manufactures point-of-care testing equipment for common infectious diseases, and products for use in a laboratory. The company has also been manufacturing and distributing Covid test kits during the pandemic.

I came across EKF Diagnostic on my screen as its EPS is forecast to grow by almost 55%. Indeed, in the company’s half-year report, net profit grew by a huge 122%. The outlook statement was even better, because management said the core business is trading well. They said that the full-year results will be “comfortably ahead of already materially upgraded management expectations”.

This says to me that EPS growth may even be larger than the current forecast of 55%. Therefore, there could be significant upside in the share price from here.

I have to keep in mind that EKF Diagnostics has benefitted from the increased need for testing due to Covid. This revenue stream should decline when the virus is under control. Nevertheless, the board said the business is capable of double-digit profit growth over the next three to four years. This is beyond any Covid-related revenue.

Gross and operating margins have been increasing in recent years, too. This is a sign of pricing power in the business, in my view. I’m strongly considering this penny stock for my portfolio.

Dan Appleby 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.

As a value investor, I don’t usually go digging for value in the penny stock jar. I guess this is for the same reason you wouldn’t go looking for diamonds at the local pound store!

Once in a while, though, I come across something that looks truly valuable in an unexpected place. I get that sense about these two rather obscure penny stocks.

I don’t necessarily think both of these are value stocks per see. However, they have great prospects (and great earnings histories) considering they are penny stocks. Oh, and unlike in the UK — where penny stocks are literally worth pennies because they trade at £1 or less — in the US, according to SEC rules, penny stocks are those that trade at $5 or less.

Penny stock for the price of a pint

First up is the Brazilian beverage giant, Ambev S.A (NYSE: ABEV), which is in turn owned by Anheuser-Busch InBev, the largest beer company in the world. This penny stock is currently trading at $2.80 — or the price of five and a half pints of Skol, Ambev’s most popular brand and the second most valuable beer brand in Latin America!

This stock benefits from a host of factors in its favour. Ambev has access to a huge market and sells a plethora of brands that are widely recognised across Latin America and the world. The sheer size of its consumer base gives it pricing power unlike most companies. Its recent price hike in light of inflationary pressures proves this. Both net income and free cash flows have been growing steadily over the past 10 years, too.

My major concern is that inflation is currently over 10% in Brazil, which is Ambev’s largest market. Inflation fears have further exacerbated the weakening of the Real, which means the future is quite unpredictable. However, this penny stock is trading at 15 times earnings. I, therefore, think it is undervalued relative to the quality of the business and earnings it has. 

Big time steel

Gerdau S.A. (NYSE: GGB) is the largest manufacturer of long steel in Latin America. It is also, however, Brazilian. This means that it suffers from all the macroeconomic risks that I outlined above for Ambev. Additionally, it is somewhat exposed to the volatility of iron ore prices. That being said, dividend investors will no doubt love the fact that the yield on this penny stock is currently a juicy 11.01%! Its current price-to-earnings ratio of 3.61 and a price-to-book ratio of 1.20 indicate that this stock is trading below its true value.

Gerdau posted a Q3 for the ages, with net earnings growing by an incredible 604% to 5.59 billion reais ($991.06 million). Steel production also grew 7% in the same quarter, which was bolstered by a 2% growth in sales. As a value investor, I like that free cash flows have doubled over the past five years. If Gerdau can continue to grow at a good rate, I think that the bullish case for this stock is as solid as steel. I’m looking to buy both of these stocks for my portfolio this year!

Stephen Bhasera 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.

Penny stocks are companies whose shares are valued under £1. Sometimes this low price is warranted, but at other times the stock has huge growth potential. I think I’ve found a company that has this potential! It was able to grow an amazing 20% last year and I think there’s a good chance it could again in 2022.

How do I find good penny stocks?

It can be a real challenge to separate the wheat from the chaff. The market is very good at sorting out what a company is worth at any given time. What investors first need to do is learn about and understand a business: what does it do and how does it make money?

After that we must work out if there is a wider market for that company’s product or service. Does it have room to grow and will it have staying power? Conversely, does the business need to change to survive?

One penny stock example would be Zephyr Energy, a mining and petrochemical company based in London but operating in Utah. Today it trades on the LSE for 6.64p, down 12% from last month. Mining is a crowded and volatile business. There’s lots of competition and companies can have long periods of growth followed by even longer contractions.

Zephyr Energy may be profitable and it may do well in the near-term, but the unavoidable reality of petroleum products is that we need to use less of them, not more. The company could pivot to focusing more on mineral mining but when a company is under pressure to leave its products in the ground, I personally don’t see a lot of room for growth.

An absolute gem

By comparison, I think Idox Group (LSE: IDOX) is a real gem of a penny stock. This UK-based tech company builds software used by public sector services to collect and organise important data.

Idox currently trades for 69p, up from 50p this time last year, and it combines a lot of what I look for in a great investment.

It is a tech company, meaning that it can keep the cost of business low. Small staff, minimum work sites, little to no transport or manufacturing costs for finished products. It also operates an ongoing service for its customers, making it a vital part of their digital infrastructure. I’m sure that anyone in the modern workplace is aware of the importance of digital tools, and how entrenched those tools become once staff are trained to use them. One only needs to look at Idox’s own revenue between 2020 and 2021 to see that more than half (£17.1m) came from repeat customers!

Idox has very recently rolled out a new platform for a local council in Scotland, designed to help collate data on planning permissions and construction within the region. If this software is adopted en-masse across the UK then I think the share price could repeat last year’s uptrend.

Potential risks

All investments come with risks and Idox is no exception. One big concern of mine is how small its profit margins are. This may be down to it being a relatively new company, still allocating capital to growth.

But Idox is expanding, both overseas and domestically. If it can hold onto its current contracts and continue rolling out in new territories, then I could easily see the share price rising again in 2022.

James Reynolds 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.

Just over a year ago, I made my top UK share pick for 2021. Of the companies that I could have added to my portfolio at that time, I was attracted by one that had already enjoyed a stellar 2020. Despite that, it increased in value by more than a quarter over the course of last year.

Even after that share-price rise, I continue to be attracted by the company!

2021 performance of my top UK share pick

The company in question is digital ad group S4 Capital (LSE: SFOR).

In 2021, the S4 Capital share price rose 27%. The company does not pay any dividends. So, if I had invested £1,000 in S4 at the start of the year, my stake would have begun 2022 valued at approximately £1,270.

In fact, I could have done better than that. If I had bought at the start of 2021 and sold when the S4 Capital share price reached its high of £8.78 in September, I could have bagged a 76% return in a matter of months. In reality, though, I would have been unlikely to call the share price with that precision. I don’t try to focus on market timings. Instead, I try to find great companies I can buy and hold for the long term (Foolish investing, rather than foolish investing!)

I didn’t sell my S4 stake because, no matter what the share price was doing, my long-term investment thesis about the company remained intact. I continued to be bullish on the digital ad group’s outlook. That didn’t change just because its share price had given up some gains. Instead, I saw the pullback as a buying opportunity and added more S4 Capital shares to my portfolio.

What about 2022?

After its fall in recent months, the S4 Capital share price is well below its former highs. On top of that, bears could continue to push it down. It has tumbled 7% in today’s trading, at the time of writing.

That reflects worries among investors that the company may have got ahead of itself previously. With a large roster of tech clients, concerns about overvaluation in the tech space seem to be dragging S4 down in their wake. If tech clients tighten their belts – for example, because they find it harder to raise new capital – that could hurt revenues and profits at S4.

That’s not the only risk. S4’s rapid growth means it now has over 7,000 staff. Last year, it said it would likely need to raise spending because of its increasing size. That could hurt profitability.

Despite that, the S4 bull case I saw for 2021 still holds for 2022 in my view. Digital advertising spend has long-term growth tailwinds. S4 is well positioned to benefit from them. It has a growing global footprint, recognised expertise and a war chest to fund more acquisitions. The company expects to double revenues and profits organically in its current three-year plan. On top of that, it has been active in buying firms to boost growth quicker. I added to my S4 position in 2021 and would consider buying more shares at the current price!

Christopher Ruane owns shares in S4 Capital. 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.