Was this article helpful?

YesNo

The Stocks and Shares ISA deadline is 5 April. Even though we haven’t hit January yet, it’s good to start thinking about it now. It does pay to think about how I can get a head start as far as the new financial year’s investing is concerned.

Managing cash flow for the ISA

Before I get to my points, it’s important to understand why I’m bothered about my ISA at all. The ISA is a product that allows me to invest £20,000 a year (running April to April). Any stocks bought and sold within the ISA are exempt from capital gains tax. I pay no tax on my dividends either. 

The first thing I need to do is plan out my cash flow for the next couple of months. I want to try and see how much spare cash I think I’ll have accumulated by the end of Q1. The reason for this is that I can then estimate how much money I can put in my Stocks and Shares ISA before the deadline.

I want to make it clear that I’m not one of those people that sees the £20,000 annual ISA limit as a must-reach target. It doesn’t matter if I’ve used £1,000 or £10,000 of my allocation so far. But the point is that after April, I can’t go back on the unused allocation from the previous year. So if I have spare cash due in coming months, I may as well add it to my ISA before the deadline. 

Putting the money to work 

The second point leads on from this. There’s no pressure to invest that money straight away in the ISA. But where I can get a head start on now is looking at what stocks would make my portfolio better. That way, I can snap up an opportunity when it presents itself. 

For example, I might note that I don’t have many dividend stocks at the moment. I could then make a list of a few of my favourites, and be on the lookout to buy shares if I see a short-term dip.

Planning now for potential scenarios

The third point I need to be aware of is potential volatility post-April. The market is an uncertain place right now, with Omicron, rising interest rates and a China slowdown all making the picture murky. These issues are unlikely to be fully resolved before the Stocks and Shares ISA deadline. 

So I can get ahead of this by looking to add defensive stocks to my portfolio before April. These include supermarkets, utility provides, insurance companies and others. Buying stocks like these should help to protect my existing ISA portfolio in case we see the above issues flare up soon.

I think the next few months are going to fly by. Therefore, planning some points for my Stocks and Shares ISA now should help me to be more organised come April.

Jon Smith and The Motley Fool 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.

What a difference a year can make! In 2020, the best-performing FTSE 100 stock was Ocado (LSE: OCDO), the e-grocer known for delivering its own and Marks & Spencer products. But in 2021, it has managed to make it to the list of worst-performing FTSE 100 stocks up to 20 December, a recent ranking by Interactive Investor showed.

What happened here?

The Ocado stock price is down by more than 26%, a decline smaller only than that of Flutter Entertainment and Melrose Industries. It is not hard to see why the stock is down. Last year, it was on fire as we went into lockdown for the first time. Only a handful of stocks gained as this occurred. These included those that found themselves positively impacted in an otherwise difficult time. Think of e-commerce companies, delivery services and paper and packaging providers. One of them, of course, was Ocado. The stock quickly surpassed its pre-market crash highs in 2020, to actually double in value from these levels by August last year. 

Cut to today, and the gains have all but disappeared. It is now trading at almost the same levels as it was pre-pandemic. When news of vaccine development came out, stock markets rallied, but it was bad news for Ocado stock. It fell soon after, and even though it did rise a bit on more bad news about coronavirus early in the year, it quickly resumed its slide. It has been pretty much downhill since. 

Why it was my FTSE 100 pick for 2021

I could see the risks to the stock in 2020. Yet it was my pick for 2021. There were two reasons for this. If Covid-19 had continued to have a hold over our lives this year, who was to say where the stock might have reached by now. Also, I still like it from a long-term perspective. 

Whether or not Covid-19 lasts much longer, one thing has become quite clear. We are now in a time when e-commerce is a more dominant choice of shopping in our lives than it has ever been. For a while I thought I was only a convert as far as large grocery orders go. But the festive season has made me realise that efficient and well-developed e-commerce solutions can be a big support for all kinds of purchases during such busy times. No wonder forecasts for it are robust. 

And Ocado is at the heart of this industry. Its performance has remained quite strong despite the easing in lockdowns. And now Marks & Spencer has also started displaying signs of good financial health, which is good news for it. I bought the stock a while ago, and going by its performance and the industry’s prospects, I think it is a good one for me to buy on the current dip and hold for the long term until the industry has well and truly matured. 

Manika Premsingh owns Ocado Group. The Motley Fool UK has recommended Ocado 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.

To my way of thinking, the Cineworld share price is one of two things right now. Either it’s currently cheap as chips, and therefore one of the biggest share bargains of all time, or it’s a dangerously, temptingly low share price with no upside and will leave investors crying into their popcorn.

If that sounds a tad extreme, that’s because I don’t think there is any comfortable middle ground here.

It seems to me that Cineworld’s future is a simple binary equation. The share price is cheap if the business can ride out Covid-19. However, if Cineworld cannot get through the pandemic and back to ‘normal’ life then any investment will be wasted. On balance, I think it’s worth taking some risk here. Let me explain why.

The Cineworld share price: not your normal kind of financial analysis

Financial ratios obviously have their place when assessing investment opportunities, but there are times when they can mislead. In the case of the Cineworld share price, I think they muddy the waters.

Looking at P/E ratios and the like is all well and good, but the way I see it what we fundamentally need to know about Cineworld is how much cash does the business have available and can it cover its debts in the short term?

On the back of this, what is happening in the wider world to encourage cinema-goers to venture out and see a movie? What is Cineworld revenue going to look like over the next 12 months?

Cash and debt: reasons to be cautious

It’s true that Cineworld has a massive amount of debt. There is no getting round this, and it’s a concern. A debt mountain of $4.6bn is eye-wateringly large, especially when there is an expectation interest rates will rise in 2022. It’s also true that the cash made available to Cineworld after crisis-led restructuring in late 2020 has helped the business navigate 2021 without further crisis, but this improved liquidity isn’t going to keep the wolf from the door forever, of course.

This brings us onto what is happening in the wider world. I am reasonably confident that if Cineworld shows increased revenue over the next year, then the markets will respond favourably. There is reason for optimism on this score.

Pandemic? What pandemic?

Whisper it, but cinema-going might well be a ‘thing’ again. The threat posed by the Omicron variant is arguably not as big as first feared and is increasingly downplayed by scientists. Indeed, cinemas have welcomed back patrons in ever-growing numbers lately.

Take the December 2021 release Spiderman: No Way Home movie, which became the third-fastest movie to gross a billion dollars. This followed the recent James Bond movie No Time To Die, which has pulled in around $775m. This is really positive for Cineworld and the movie industry in general.

I know I am disagreeing with some of my Fool colleagues here, but on balance Cineworld looks well worth a punt to me at a current share price of around 32p.

I’d appreciate it if you could do me a favour and watch your next movie down at your local Cineworld cinema!

Garry McGibbon owns shares in Cineworld. 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.

In another article today, I talked about a FTSE 100 stock that pleasantly surprised me with its performance in 2021. The stock was the multi-commodity miner and marketer Glencore. But where there are pleasant surprises, there are nasty ones too, as in the case of the healthcare stock Smith & Nephew (LSE: SN). This has been particularly hard-hit by the pandemic. Data from Interactive Investor show the stock was among the 10 worst FTSE 100 performers in 2021 as of last week. It is down by almost 20% this year!

Why Smith & Nephew has fallen in 2021

If I had not been following the stock for a while, I would have been even more disappointed than I am now. Typically, healthcare stocks do relatively well in a slowdown, because they are defensives. These are stocks whose demand changes relatively little whether we are in boom or bust phases of the business cycle. But last year’s slowdown was no ordinary one. It actually had us spending as little time outdoors as possible, and that included going to hospitals. 

As it happens, Smith & Nephew’s key revenue source is from the supply of parts required for knee and hip replacement surgeries. And these are more likely to be elective than not. So these were postponed last year and for much of this year too. As a result, the company is not particularly optimistic about its near-term prospects. 

Better days ahead?

Yet I think there could be significant upside to the stock in 2022. If the recovery picks up pace and Covid-19 recedes significantly from here, there is no reason why demand for the company’s major products would not rise. In fact, I suspect it could rise even more than it normally would because there will be pent-up demand for such surgeries. This in turn could lift its stock price, which is languishing way below its pre-pandemic levels. That its share price is down is a good sign too, in my opinion. This is because it shows plenty of potential upside. 

And I am not the only one who believes so. According to analysts’ forecasts compiled by the Financial Times, even the most pessimistic forecasters expect the stock to rise by 9% in the next 12 months. On average, the expectation is for a 23% increase, which is pretty good if you ask me. Of course all forecasts are subject to revision, if the environment surrounding the stock changes. And at this time more than at other times, there is a lot of uncertainty in the air. 

My assessment

It is entirely possible that Covid-19 drags on for yet another year. And even if it does not, the recovery could continue to be weak, pushing elective surgeries even further down the road. But that does not seem very likely. And for that reason, I continue to be bullish on this FTSE 100 stock. In fact, I think I will buy it soon. 

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

It’s been a difficult few months for the Darktrace (LSE: DARK) share price. Since September, the stock has fallen by a huge 58%, although it’s still up 25%+ on its April float price. It’s been a volatile period for the share since the IPO.

However, I view the prospects for Darktrace favourably. The company provides artificial intelligence-based cybersecurity software. This sector is going to be in high demand going forward, in my view. Not only this, but the company has an impressive list of customers, which suggests its products are high quality.

I’m not buying the shares just yet though, and here’s why.

The bull case

It’s useful to review the key bull points for Darktrace. The first being the sector that the company operates in. Demand for cybersecurity is only going to grow from here. The expanding metaverse, e-commerce and online banking will all require enhanced levels of security to protect against cybercriminals. Darktrace’s security services boast some impressive statistics too, such as being able to respond to ransomware in 10 seconds. 

As mentioned, Darktrace has an impressive customer list that extends to over 5,500 organisations. For example, the Enterprise Immune System product is used by Vodafone and KPMG, two large companies that trust the capabilities of Darktrace’s cybersecurity software.

City analysts are also expecting revenue to grow 38% next year, and by a further 32% in 2023. This is attractive growth and something I like to see as a potential investor.

Risks to consider

I was strongly considering buying Darktrace shares, writing in November that I was placing it high on my watchlist.

However, I do question the company’s recent announcement of a share buyback. This is a way for management to return excess cash to shareholders. It’s generally preferred over a cash dividend when the shares are undervalued.

The problem as I see it is that the company only recently issued new shares in April at a price of 250p, raising £165.1m. Now, the decision has been to buy back shares up to a value of £30m, but at a far higher share price today. As an example, the most recent transaction saw Darktrace reacquire 73,038 shares at a price of almost 418p. I question why management has decided to buy back Darktrace shares at the now higher price, and not invest the £30m into the company’s growth.

The company is also no longer a member of the prestigious FTSE 100 after the share price crash. This means that the market value is now under £3bn. I’d have to expect further volatility if I was to buy the shares.

Where will the Darktrace share price go from here?

Taking everything into account, I do think there’s upside in the Darktrace share price. It’s growing in an exciting sector, and has an impressive list of customers.

Nevertheless, I’m going to sit on the sidelines for a little while longer. I recognise that the recent share buyback of £30m is small relative to the company’s almost £3bn in market value. But I want to see further evidence of effective capital allocation decisions from management before I buy the shares.

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.

The Boohoo (LSE: BOO) share price has suffered a dramatic fall in the past month to the tune of around 30%. To understand why this has happened, we need to explore a number of factors relevant to the e-commerce company over a longer period of time. These include serious allegations relating to labour abuse within factories in the Leicester area. Like many other stocks, however, recent negative price action can be partially explained by the Covid-19 pandemic. Boohoo’s rapid take-off into the public market also means there are many redeeming factors to this stock that I must account for when making an investment decision on this particular stock.

Allegations of labour abuse among producers used by Boohoo first surfaced in summer 2020. As reported at the time, workers were being paid as little as £3 per hour. This news led to a 50% drop in the Boohoo share price and resulted in a systematic review of the supply chain and worker conditions. While these actions aimed to resolve the situation, allegations resurfaced in July 2021. On closer inspection, it is not necessarily clear whether Boohoo had knowledge that these suppliers were engaging in these actions and Boohoo, along with other companies like ASOS, called for greater legislation to deal with such violations in future. Nonetheless, this issue has cast a grey cloud over the Boohoo share price.

The pandemic has also hit Boohoo hard, demonstrated by issues with international deliveries and inflation to freight-related costs. All these issues led to Boohoo issuing a profit warning in December 2021, with projected sales growth falling from around 25% to just 14%. This sales growth seems to have been caused by higher return rates on products and I think this might have been caused by lockdown fears, with customers having fewer events to attend. These figures bear resemblance to a previous trading update in September 2021 that showed a 20% drop in first-half profits. The price action during this period understandably demonstrates negative sentiment surrounding Boohoo. Between these two profit warnings, the Boohoo share price tumbled nearly 64% and this move took place on higher volume. This indicates that sellers are quite comprehensively winning the price battle. It is also worth noting that the price has penetrated the critical support level at 135p, instead falling all the way to 96p.

There are, however, some stories about Boohoo that are much more positive. With many high street retailers going out of business, Boohoo has snapped up brands at cheap prices. These include Dorothy Perkins and some of the Arcadia empire. This leads me to believe that Boohoo is a beneficiary of any high street collapse. It is also expanding into the Middle East through the Debenhams brand. In addition, the UK government’s potential ban on Chinese fast-fashion app Shein could be good news for Boohoo, because this prevents further international competition from diluting the UK market.

Boohoo does have a good business model, but this has been severely disrupted by the pandemic and the labour abuse allegations. I think these problems will ultimately subside, but I would like to see a serious rally in the Boohoo share price before I commit to investing in this AIM 100 stock.

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

2021 has been largely a good year for FTSE 100 stocks. But there are some stocks, as always, that have performed better than others. Among the best-performing of these are two stocks I have written about a fair bit in the recent past. One is the warehousing real estate investment trust (REIT) Segro (LSE: SGRO) and the other is letters and parcels delivery specialist Royal Mail (LSE: RMG). Both have seen over 40% increases in their share prices this year. 

The e-commerce boom

This should be no surprise. E-commerce-related stocks have done well in recent times. Thanks to lockdowns, many more people have discovered the wonders of online shopping. And the e-shopping experience has evolved over the last couple of years to meet the fast-growing demand seen during the pandemic. Analysts have said the shift towards online buying and selling, which was already happening, was speeded up because of the unusual situation we found ourselves in. So prospects for stocks in the industry might just have improved for good. 

Cheaper compared to other FTSE 100 stocks

As a result, I think that even after the pandemic is over, both Segro and Royal Mail stocks could continue to grow. They might not grow at as fast a clip as we have seen recently, but they could keep rising nevertheless. And this is particularly so considering how low their prices still are relative to other FTSE 100 index firms. 

Segro, for instance, has a price-to-earnings (P/E) ratio of only seven, while Royal Mail’s is six. This compares to the P/E for the FTSE 100 index of almost 18. In other words, compared to the average stock in the index, these two are far more affordable. Admittedly, with Segro there is the question of whether a REIT’s price should even be measured using the P/E. But it does give me a comparison against other FTSE 100 stocks, for lack of an alternative. And even if I ignore the valuation measure for Segro, that still leaves me with Royal Mail, which is glaringly cheap as well. 

Their dividends

I like that the stocks pay dividends. Royal Mail stands out in this case as well. It has a dividend yield of almost 3.3%, which is close to the average FTSE 100 yield of 3.5%. Segro’s yield is much lower at 1.3%. But I think this could be because of the steady rise in its share price over time. In any case, it still stands out as a growth stock for me to buy. 

What I’d do

I bought Royal Mail recently, and it has already been a rewarding stock for me to hold. And Segro has been on my investing wishlist for some time. I am braced for potentially smaller gains from both stocks in the next year, as the pandemic moderates further and people can step out even more freely than before. But I think their real potential will be realised over the next decade when online shopping becomes an even bigger phenomenon than it is today. 

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

I didn’t predict the massive surge in many shares that occurred from the bottom of the coronavirus crash in 2020. My best guess at the time was stocks would claw their way back slowly and painfully as the world struggled through the pandemic.

A correction by stealth

However for me, 2021 has been characterised by what many are calling a correction by stealth. We haven’t seen FTSE 100, or other indices, crashing. But many individual investors have experienced crashes in their own portfolios. Indeed, lots of stocks have toppled over in 2021.

And a similar pattern has repeated in the markets through the decades. The stock market surges, but it goes too far and valuations become stretched. Then it corrects. And guess what — it goes too far down and valuations begin to understate the potential of underlying businesses.

But although the swings can be wide, constant feedback often causes them to narrow over time. And in the end, the market can settle down near fair value as the oscillations slim down. And I think we are getting near that point now.

The arrival of the pandemic was a big unsettling event for the markets to digest. So it’s not surprising it became over-stimulated. However, businesses, economies and science have now made many adjustments to accommodate the ongoing pandemic — and so have the markets. And I think there’s great potential for ‘normal service’ to resume in 2022 for stocks and shares.

Normal times, exciting opportunities

To me, a return to ‘normal’ means a well-behaved stock market that isn’t pinging around in panic. And it also means stocks will likely settle somewhere near their fair valuations with investor speculation reined in. With a bit of luck, the traditional skills for analysing and valuing businesses will become effective again. And investors can move forward and ply their trade in the time-honoured manner that has been so successful for the likes of Warren Buffett, Lord John Lee, and many others.

Of course, there’s no guarantee that another unknown — or black swan — event won’t arrive in 2022. But my feeling is the current pandemic is now well-known and well-managed by the world. And that’s despite the recent surge caused by the Omicron variant. I’m not expecting Omicron to derail stocks in the way we witnessed at the beginning of 2020. However, there is potential for me to be wrong about that.

Nevertheless, as we move into 2022, some stocks remain below their fair valuations. And I’m assuming a return to stable markets in 2022. So to me, it’s a great time to invest in stocks and I’m looking forward to a new year on the markets. However, my confidence about the outlook for shares doesn’t guarantee a positive investment outcome — all shares carry risks alongside any positive potential.

But I’m working hard with my research and building my watchlist for 2022.

Kevin Godbold 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.

Was this article helpful?

YesNo