Was this article helpful?

YesNo

The Lloyds (LSE:LLOY) share price hasn’t exactly been a stellar performer over the past decade. But looking at just the last 12 months, the stock has climbed over 40%.

A lot of this gain can be attributed to the group’s recovery from the Covid crash in March 2020. Yet despite this growth, the stock is still trading under its pre-pandemic price of 63p. However, some economic tailwinds might be about to change all that. Could the Lloyds share price double in 2022? Let’s explore.

Hooray for… inflation?

The word inflation has been prominent in many headlines over the past couple of months. And it’s understandable why. In November 2021, the Consumer Prices Index (CPI), which acts as a good indicator of inflation, rose by 5.1%! That’s the highest price increase in nearly a decade – September 2011, to be precise.

As a quick and simplified reminder, inflation causes prices of materials and, in turn, products to go up. That’s horrible news for consumers since it inflates the cost of living, thus reducing the value of any savings. But this could actually be fantastic news for Lloyds and its share price. Let me explain why.

Like any bank, Lloyds makes a good chunk of its money by issuing loans to businesses and individuals. The most common type for the latter group would be a mortgage. The company then charges interest on these loans to generate a profit as well as mitigate potential default risks.

During times of high inflation, the Bank of England can increase interest rates. And suddenly everyone with a variable-rate mortgage starts paying higher monthly premiums. This reduces the total money in circulation, bringing inflation back down.

While paying higher interest, again, sucks for consumers and businesses alike, it’s music to the ears of banks like Lloyds. After all, if the firm can charge higher rates on its loans, Lloyds’ profit margins get that much wider, boosting its share price. But will it be enough to double it?

Taking a step back

With interest rates at record lows for nearly a decade, the banking sector hasn’t exactly been a stellar performer. That’s primarily why the Lloyds share price has struggled to deliver more than mediocre returns for investors during this period. The incoming interest rate boost to tackle inflation could be a catalyst to change that.

However, this may not last very long. There remains the possibility the inflation we’re currently experiencing is only temporary triggered by issued stimulus cheques and supply chain disruptions. The former has largely run out, and the latter will naturally be resolved as the pandemic slowly ends, although Brexit remains an issue.

If inflation subsides but the economy still falters, interest rate hikes may only be temporary. That could reverse the gains in the share price.

Can the Lloyds share price double?

Only time will tell whether the stock can deliver a 100% return for investors in 2022. Personally, I think inflation will provide a respectable boost, but it may not be enough. Having said that, Lloyds does have other growth levers to pull that could further increase profits and, in turn, the share price.

All things considered, I think the stock definitely has the potential to double, but it may take longer than a year to do so. As such, I’m not interested in adding it to my portfolio today since I believe there are better growth opportunities to be found elsewhere.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Was this article helpful?

YesNo

The Marks & Spencer (LSE: MKS) share price sits today at 240p. A far cry from its 2007 peak of 707p. But the latter half of 2021 saw some astonishing growth in the share price, leaving it 52% higher over the last six months and 82% over a year. It has made me wonder whether the retailer could do it again in 2022.

Business fundamentals and share price

I’ll ignore the immediate headlines about share prices and focus on the underlying business. What does the company earn and where does its revenue come from?

According to its annual report from September 2020 to October 2021, M&S brought in £9.2bn in revenue from its food and clothing & home operations, and £41.6m in profit before tax. This was down from £10.1bn in revenue last year and down further still from £10.3bn the year before that. Unfortunately, when I look at M&S’s own financial reports going back to 2014, it has been in a steady decline for the past six years. This downtrend can also be seen in the share price, which fell from 568p in 2015 to today’s much lower figure.

But all companies have good times and bad times. In fact, these years of decline can offer a great entry point to investors if the company is making changes to its model that bode well for the future.

Move online

And it certainly is making changes. The M&S investors page states the percentage of clothing sales made online. In 2021 that was 50.5%. I haven’t been able to find data on how much revenue clothing brings in alone, but lumped together with home products the two contributed £3.2bn in 2021. And 30% of sales for both were made online. That’s a company that was lagging behind its peers in its online sales just a few years ago.

M&S has been undergoing a multi-year effort to move more of its business into the online space, a move that comes with some benefits but a few potential downsides too. Online sales often have smaller profit margins than their in-store counterparts. This might seem counter intuitive, but I have to remember that online is the future of retail. The past 10 years have seen a gradual decline in retail profit margins as online shopping has taken over more of the market. But if Marks & Spencer can make up the difference in sales volume, this online pivot could really pay off. It certainly is large enough to do.

Moving online also allows M&S to reach new markets with lower initial costs. At the start of 2021 it announced the launch of 46 new websites around the world, including Argentina and Uzbekistan. Some of these ventures might fail, but a lot won’t, becoming new sources of revenue for years to come.

M&S branding and recognition 

The company has seen some tough years recently, but we are already starting to see some of these changes come into effect. In early November, Marks & Spencer’s share price jumped 20% in a single day after it announced a boom in clothing sales had pushed pre-tax profits to nearly £187m.

This amazing turn of events offset losses made over the rest of the year. If it can maintain even a fraction of that momentum, I think the share price could remain on the upswing through 2022.

That’s why I’ll be adding it 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.

The FTSE 100 has got 2022 off to a flyer and more gains could be in store as investor confidence soars. But I’m worried about some of the frantic buying of high-risk shares that could end up costing investors a fortune. I’m reminded of Warren Buffett’s famous line that investors should “be fearful when others are greedy, and greedy when others are fearful”.

Okay, many FTSE 100 stocks are trading at rock-bottom valuations right now. Plenty of blue-chip firms continue to offer gigantic dividend yields at current prices too. But it’s important for me to remember that a lot of these so-called bargains also offer up considerable risks.

Such Footsie stocks trade on P/E ratios below the bargain benchmark of 10 times. Their dividend yields for 2022 sit well above the FTSE 100 average of 3.4% too. Should I hungrily snap them up or avoid them like the plague?

#1:  Polymetal International

Gold digger Polymetal International offers one of the biggest yields on the FTSE 100 for 2022, at 9.4%. At the same time the company trades on a forward P/E ratio of just 7.2 times. It’s a reading I think bakes in the threat that gold prices (and therefore revenues) could recede sharply if central banks keep hiking rates.

I actually believe bullion prices could soar again for a number of reasons. Inflation could continue rising even if rates rise, keeping demand for safe-haven gold nice and healthy. Supply chain issues aren’t going away any time soon and energy prices are tipped to climb again too. The ongoing public health emergency and the fragile Chinese real estate market could keep investor interest in gold going as well.

#2: British American Tobacco

British American Tobacco also provides exceptional value on paper. A forward P/E ratio of 7.7 times comes alongside a bumper 8.5% dividend yield. Still, even at these prices I don’t fancy grabbing a slice of the tobacco titan. Its traditional cigarette business is declining as legislation surrounding the use, sale and marketing of such products tightens and people try to lead healthier lifestyles.

It’s possible that British American Tobacco’s huge investment in e-cigarettes may pay off over the long term. Its Vuse vapour product is the world’s leading brand in this area and is rapidly winning market share. However, I’m worried over the long-term future of this business as lawmakers steadily impose restrictions on these new technologies too.

#3: BHP Billiton

I’d much rather buy BHP Billiton shares along with Polymetal International today. This FTSE 100 share could suffer considerably in the near term if China’s property market tanks. But I’d buy the business on bright forecasts for commodities demand for the rest of the decade.

Massive investment in green technology like electric cars and renewable energy is tipped to kick off a new commodities ‘supercycle’ over the next decade. Huge global spending on infrastructure could turbocharge demand for BHP’s products. This could send profits at the mining share through the roof. Today it trades on a forward P/E ratio of 8.6 times. It boasts a monster 8.8% dividend yield as well.

Royston Wild 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.

Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.

Was this article helpful?

YesNo

UK share markets finished 2021 with a flourish as concerns over Omicron and the economic recovery receded. The FTSE 100 closed at its highest since the pandemic began in early 2020 and it’s continued to charge in New Year trading as well. At 7,480 points the Footsie was recently 1.3% higher in Tuesday business.

Despite these rises, however, there are still plenty of opportunities for value lovers like me to pick up a bargain or two. These two big-caps, for example, offer yields well above the Footsie forward average of 3.4%. One offers yields just below 9% and the other a yield that’s lower but still north of 5%. Should I buy them for my shares portfolio today?

Going up in smoke?

At 8.9%, Imperial Brands (LSE: IMB) offers one of the biggest dividend yields on the FTSE 100. The party doesn’t end here either as, at £16.84, the cigarette maker trades on a forward P/E ratio of just 6.5 times too.

This looks like stunning all-round value and fans of Imperial Brands will argue that the company merits a punt at these prices. Okay, its traditional tobacco business might be in decline. But the company has spent a fortune on next-generation categories like e-cigarettes and oral nicotine products in recent years.

It’s predicted that sales of these products could soar as people seek healthier ways to get their nicotine fix. Analysts at Statista think the e-cigarette market will expand at an annualised rate of 5.7% between 2022 and 2025. That said, it’s my opinion that such bright forecasts could fall flat if legislators slap bans on the sale, use and marketing of these revolutionary products in the years ahead. New laws came into effect on 1 January in Oregon and Illinois, for example. And more could be coming down the pipe across the globe.

Meanwhile the steady fall of Imperial Brands’ core cigarette business remains a big problem, exacerbated by an ongoing tightening of regulations here too. The tobacco firm offers plenty of value it also carries far too much risk for my liking.

A FTSE 100 stock I already own

Barratt Developments (LSE: BDEV) is a FTSE 100 share I already own. And at current prices of 760p I’m considering bulking up my holdings. The housebuilder boasts a P/E ratio of 9.9 times and a dividend yield of 5.2% for 2022. I’d certainly rather buy it over Imperial Brands.

A lot of investors are becoming lukewarm on the housebuilders as they expect the homes market to cool sharply this year following 2020 and 2021’s bumper period. Mortgage approvals dropped to around 67,000 in November, according to the Bank of England. This was the lowest figure since June 2020.

These are risks but I for one am not panicking. Reduced home sales reflect a return to pre-pandemic norms following the turbocharging of the market that Stamp Duty withdrawal helped to create. It’s my opinion that the market will still remain highly supportive for Barratt and its peers, with interest rates ultra low and government Help to Buy support remaining in place.

Barratt has a long track record of paying big dividends, a story I expect to continue for a long time yet.

Royston Wild owns Barratt Developments. The Motley Fool UK has recommended 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.

Transforming a £500 pile of cash into £5,000 by investing in shares is quite a challenge. But it’s still possible. One popular approach is to put my capital into an index exchange-traded fund (ETF). These financial products charge very low management fees and match the performance of the market, essentially putting a portfolio on autopilot.

However, here in the UK, the FTSE 100 index has delivered an average annual return of 8.3% (including dividends). Needless to say, that could take quite a while to reach the target of a 1,000% gain. So, is there a faster approach?

The power of small-cap stocks

Small-cap stocks are an interesting segment of the stock market. These firms are typically young, with limited resources, and are often small for a good reason – even more so when venturing into the world of penny stocks. So far, that’s doesn’t sound particularly promising. But for an investor like me willing to take on an increased level of risk, these companies can be some of the most lucrative investment opportunities.

Plenty of high-quality businesses fall under this category, either because they’ve only just started making waves or have been previously mismanaged. And thanks to their low market capitalisations, regulations prevent most financial institutions from investing in shares of these businesses. That means high-quality small-cap stocks can often be undervalued.

More importantly, is the growth capability. It’s far easier for a £50m enterprise to double its value than, say, a £50bn one. After all, the smaller business only needs to generate another £50m of value versus the £50bn required by the latter. Or, as famous investor Jim Slater put it, “elephants don’t gallop”. Investors who spotted the potential of dotDigital early on, know this all too well. Over the last nine years, shares of this small-cap company have risen an incredible 1,260%!

The risks of investing in shares of small-cap stocks

As exciting as the prospect of achieving a 1,000%+ return by investing in shares is, this comes with considerable risk. As I previously stated, these businesses tend to have limited access to external capital compared to a larger firm. If anything goes wrong, and a small-cap company suddenly needs to raise a lot of money, it could have a pretty tough time doing so.

What’s more, a lot of these businesses tend to have small product portfolios and can be dependent on an undersized collection of key customers. Should a product be rendered redundant by a competitor or a key customer decides to leave, these shares can quickly plummet.

Taking a leap of faith

When researching a small-cap stock to invest in, I spend more time focusing on what could go wrong rather than right. And in most cases, the risk is simply too high for my tastes. But every once in a while, a hidden gem emerges like Somero Enterprises.

The engineering group designs and develops automation technology for the construction industry. And with a market capitalisation of only £300m, I believe this company has the potential to generate a quadruple-digit return for my portfolio over the long term.

Zaven Boyrazian owns Somero Enterprises, Inc. and dotDigital Group. The Motley Fool UK has recommended Somero Enterprises, Inc. and dotDigital 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.

The Lloyds Banking Group (LSE: LLOY) share price rose by 31% in 2021, making it one of the top 20 performers in the FTSE 100. Here, I’ll explain what happened at Lloyds last year — and why the market is pricing the bank’s stock more highly than it was 12 months ago.

Winning the reopening trade

Almost all of 2021’s gains came during the first half of the year, when the bank’s stock rose by nearly 30%. Why did Lloyds perform so well during that six-month period? There were a couple of reasons.

First of all, the bank was seen as a likely winner in the UK reopening phase. As the vaccine rollout gathered pace and lockdowns receded, investors gained confidence in Lloyds’ ability to return to growth.

Lloyds’ 2020 results in February supported this view. The bank reported strong growth in mortgage lending and said its trading profits for 2020 had fallen by just 27%, despite the impact of the pandemic. Bad debt forecasts were left largely unchanged, giving investors hope that loan losses from the pandemic might be smaller than originally expected.

Departing chief executive António Horta-Osório was even able to declare a small final dividend for 2020. The bank’s guidance for 2021 also suggested that profits would hold up well and the dividend would return to growth.

Lloyds’ share price goes on a rollercoaster ride

The Lloyds Bank share price dipped ahead of the bank’s first-quarter results in April 2021. But the stock soon bounced back when it reported a Q1 profit of £1.4bn and upgraded its profit guidance for the year.

City analysts crunched the numbers and increased their dividend forecasts for 2021. Lloyds share price kept on rising and touched 50p in early June.

However, things then started to change. By late June, investors were starting to worry about rising inflation. There was also uncertainty about when the government would decide to lift the remaining Covid-19 restrictions.

Holding on despite uncertainty

By the end of July, Lloyds’ shares were down from their June peak, but the bank was still performing well. Half-year results showed rising profits and another cut to expected loan losses.

Interim boss William Chalmers was confident enough to raise the bank’s 2021 profit guidance for the second time in three months. City analysts tweaked their forecasts higher again while they waited for new chief executive Charlie Nunn to start work in August.

Then Nunn made headlines with plans to turn Lloyds into one of the UK’s biggest rental landlords. But we don’t know much about this yet. For now, the market expects Lloyds to use some of its growing pile of surplus cash to support larger dividend payouts.

The bank’s 2021 dividend is expected to rise by 271% to 2.11p per share, giving a forecast yield of 4.4%. In 2022, City analysts are forecasting a 13% increase to 2.4p per share, giving a 5% yield.

Lloyds’ 2021 annual results are due to be published on 24 February. Watch this space for further coverage.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

For most UK shares, it can take several years to double in price. But there are plenty of examples where businesses have achieved this feat within less than 12 months. Even in 2021, when the pandemic continued to wreak havoc, multiple stocks delivered over 100% returns.

Media conglomerate Future surged 112% over the last 12 months, while drug developer Indivior climbed an even higher 137%. At the same time, watches and jewellery retailer Watches of Switzerland Group dominated the FTSE 250 risers list, delivering a 138% jump in share price.

These businesses operate in vastly different industries, proving that winning stocks can come from anywhere. With that in mind, I’ve scoured the stock market and found two UK shares that I think could deliver similar triple-digit returns in 2022. Let’s take a look.

A rising star in the video games industry

Frontier Developments (LSE:FDEV) had a pretty tough time in 2021. Over the last 12 months, shares of the UK video game development studio have fallen by around 40%. Most of this downward trajectory occurred in November after a trading update. Management announced that orders for its recently released game, Jurassic World Evolution 2, were lower than initially anticipated for PC.

As a result, the company updated its full-year revenue guidance to lie between £100m-£130m versus earlier expectations of £140m. While this does raise some red flags about management’s confidence in its latest title. While risks remain and the firm is very dependent on the success of new launches, it’s possible that investors may overreacted.

The studio has a new Formula 1 title coming out later this year. And several smaller projects are also being released under the firm’s publishing arm, Frontier Foundry. When combined, I think these factors could drastically boost the group’s top line in 2022 if they’re well received. That’s why I’m considering adding more shares to my portfolio today.

Investing in e-commerce infrastructure with UK shares

E-commerce continues to gain popularity among consumers thanks to its convenience. However, the online transition for some retailers has proven to be quite arduous, primarily due to the logistical challenges created by the need to deliver products right to the customer’s door.

This is a problem that Clipper Logistics (LSE:CLG) is working to solve. Rather than simply being another parcel delivery company, the firm engages with its customers to design a custom-tailored fulfilment ecosystem. In other words, it helps retailers by handling the logistics side of online sales. That includes inventory tracking, warehousing, returns management, and, of course, delivery.

With the adoption of e-commerce unlikely to reverse, I think it’s fair to say that demand for Clipper’s services isn’t disappearing any time soon. But this demand hasn’t gone unnoticed by competitors. And with an expanding list of other logistics firms pushing their own solutions, Clipper has some fierce competition to face.

But with a long list of top-tier clients like Morrisons and Halfords, the company could be primed to deliver triple-digit growth, in my opinion. Consequently, shares of this UK business look like a great candidate for my portfolio this year.

Not that the triple-digit growth I hope for is guaranteed, of course. But I do see both of these companies as being well positioned for exceptional performances this year.

Zaven Boyrazian owns Frontier Developments. The Motley Fool UK has recommended Clipper Logistics and Frontier Developments. 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.