The GlaxoSmithKline (LSE: GSK) share price has risen by nearly 20% over the last 12 months. Shareholders will probably be hoping this continues. Despite this year’s gains, the Glaxo share price has lagged behind FTSE 100 rival AstraZeneca by 85% over the last five years.

Dividends have boosted returns

One comfort for Glaxo shareholders has been the continued stream of dividend cash. Shareholders have received a dividend of 80p per share every year since 2014.

Over the last five years, this payout has increased the total return provided by Glaxo shares from a measly 5% to a more respectable 30%. That means an investment of £3,000 in 2016 would be worth around £3,900 today.

That’s not a disaster, but it’s still a big disappointment compared to AstraZeneca. This rival business has turned £3,000 into £6,400 over the last five years, including dividends.

Are GSK shares about to start rising?

I think Glaxo’s share price performance could soon start to improve.

Under pressure from investors, chief executive Emma Walmsley has committed to a series of changes aimed at improving performance. The biggest of these is that Glaxo will be split into two companies in 2022.

When the split is complete, this sprawling group will be separated into a pharmaceuticals business and a consumer healthcare company.

The logic behind this split is that the pharmaceutical business will be smaller, more focused, and have less debt. This is expected to improve performance and free the business up to invest in new medicines.

In contrast, the consumer healthcare business — which owns brands such as Sensodyne and Panadol — is seen as a cash cow that should continue to deliver steady results. Separating this operation will allow it to be run more efficiently, with a greater focus on shareholder returns.

What about dividends?

Anyone who owns Glaxo shares before the split will keep these shares and be given an equivalent number of shares in the new consumer healthcare business. This will mean that each shareholder will own the same assets as before the split.

What will change is Glaxo’s dividend policy. Walmsley has confirmed that the total payout for 2021 is expected to remain at 80p. But from 2022, the dividend will fall sharply.

GSK and the consumer business are expected to pay a combined dividend of 55p in 2022. Based on the share price today, this will cut the total dividend yield from 5% to just 3.4%.

There’s even less clarity about 2023. The GSK pharma business is expected to pay a dividend of 45p per share. We don’t yet know what the consumer business will pay.

GSK: buy, sell, or hold?

I remain positive about the long-term prospects for GlaxoSmithKline. Although this group does have a history of inconsistent performance, I think that splitting the business is likely to improve the performance of both halves.

I’d be comfortable buying Glaxo shares for my portfolio today. If I already owned this stock, I certainly wouldn’t sell at this time.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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’m looking for the best UK stocks to buy for my shares portfolio. Here are two top firms I think could thrive in 2022.

Healthcare hero

NHS waiting lists are soaring as hospitals struggle with the ongoing Covid-19 crisis. Latest data showed almost 6m patients awaiting non-urgent hospital care in England in October. This was up more than 140,000 from September’s prior record. The number threatens to worsen considerably in 2022 as the Omicron variant is tipped to push up hospital admissions.

This bodes well for providers of private healthcare services like Spire Healthcare Group (LSE: SPI). A July report from charity Engage Britain showed that 21% of Britons have turned to private care recently for treatment. That compares with 13% a decade ago.

Massive underinvestment in the NHS means the number could continue growing too, irrespective of the future impact of Covid-19.

Turnover at Spire soared to £558.2m in the first half of 2021. This was up 38.9% year-on-year and 13.5% better than sales in the first six months of 2019. The UK healthcare share has 39 hospitals and eight clinics and is building its portfolio to exploit these favourable market conditions. More recently, it snapped up Sheffield’s Claremont Private Hospital in September.

In great shape

A word of warning, however. Spire currently trades on a high forward P/E ratio around 33 times. This sort of valuation could cause its share price to sink if earnings projections start to look a bit wobbly. Sustained high costs related to Covid-19, for example, could cause this, as could fresh postponements of elective surgeries if coronavirus infections explode.

Still, as a long-term investor, this danger wouldn’t stop me from investing in Spire today. I expect demand for its services to rise over the coming decade, at least as pressure on the NHS rises.

Another top stock for 2022

Clipper Logistics (LSE: CLG) is another UK share I’m tipping to have a strong 2022. Shoppers are deserting the high street again, even without the introduction of fresh Covid-19 restrictions on retail.

According to Springboard, footfall across UK retail destinations dropped 1.7% week-on-week in the seven days to December 11. That’s even though Plan B rules were yet to come in to effect. It’s possible that non-essential physical retail could take a proper battering if Omicron and tougher pandemic rules come into effect.

Clipper provides logistics services to major retailers and fast-moving consumer goods giants like ASOS, L’Oréal and Morrisons. So it stands to thrive again if concerned shoppers desert the high street for the internet.

Regardless, I’m tipping profits here to rise strongly as e-commerce traffic should still grow strongly, even if the coronavirus crisis doesn’t hit new highs. It’s why I already own Clipper in my Stocks and Shares ISA and I am thinking of increasing my holdings. City analysts think earnings here will rise 25% and 4% in the financial years to April 2022 and 2023 respectively.

I’d buy it despite the growing threat to broader consumer spending levels as the British economy cools.

Royston Wild owns Clipper Logistics. The Motley Fool UK has recommended ASOS, Clipper Logistics, and Morrisons. 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.

Should I buy penny stocks or FTSE 100 companies? Both of these investments have advantages and disadvantages.

Penny stocks and smaller businesses can produce larger returns than their blue-chip peers. Smaller companies tend to grow faster than larger ones as they can be more innovative and agile. 

However, smaller businesses tend to lack the checks and balances in place at large operations. This means they can be riskier investments. They can also struggle to find funding to keep the lights on during periods of economic stress. 

FTSE 100 challenges

FTSE 100 companies are not immune to these pressures, but they may find it easier to raise money in periods of economic uncertainty. They are also less likely to run into terminal issues.

For example, losing just one contract for a smaller business can be the difference between a profitable and unprofitable year. It is unlikely the loss of one or several contracts will significantly impact the growth prospects for a blue-chip stock. 

My solution to this problem is to own a diverse portfolio of both penny stocks and FTSE 100 equities. I think this approach will reduce the impact of losses on my portfolio if one of the smaller companies runs into problems. It should also help me overcome some of the issues of investing in blue-chips, namely the lack of growth. 

Investing with penny stocks

Two organisations I would be happy to own in my portfolio as part of this strategy are GlaxoSmithKline and Advanced Medical Solutions. The former is one of the largest pharmaceutical companies in the world. The latter is not a penny stock, but it is a small firm in the world of healthcare equities.

Nevertheless, over the past couple of years, the group has expanded rapidly as its innovative wound treatment solutions have picked up customers worldwide. Because the company is relatively small compared to its multi-pound dollar peers, there is always going to be a risk the corporation could start to lose market share to a larger competitor.

That is why I would own the stock alongside Glaxo. The FTSE 100 company’s growth has left a lot to be desired over the past five years, but it has paid a consistent dividend of around 5%. I think this level of income complements Advanced Medical’s growth potential nicely. 

Property market exposure

Another example is Natwest Group and Foxton’s. The bank and the estate agent are both exposed to the UK economy, in particular the property market. As a penny stock, Foxton’s has the potential to grow faster, but it lacks diversification.

Natwest’s UK-wide footprint provides diversification and expansion potential. The bank is also well capitalised and has scope for significant dividends.

One risk both businesses may have to deal with is an economic slowdown. In this scenario, both could suffer a decline in profitability. 

Still, despite this risk, I would buy the two companies for my FTSE 100 and penny stock portfolio. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Advanced Medical Solutions and GlaxoSmithKline. 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 past five years have been gruesome for holders of two large UK telecoms stocks. Both BT Group (LSE: BT.A) shares and Vodafone Group (LSE: VOD) stock have dived in the past half-decade. Furthermore, BT and Vodafone both took a beating during 2020’s Covid-driven market meltdown. But I see potential for value in these unloved stocks.

BT shares get battered

It’s been mostly heartbreak for owners of BT shares since late 2016. Just before Christmas 2016, the BT share price closed at 370.35p on 23 December. Last Friday, it closed at 167.4p. That’s a collapse of more than half (-55.8%) in five years. But things looked even worse last year. During the depths of the Covid-19 crash, BT shares hit a low of 94.68p, before recovering to end the year at 132.25p. The BT share price hit its 2021 high of 206.7p on 23 June, but then went into a four-month slide. On 25 October, this popular stock closed at 135.2p, giving up almost all of its 2021 gains.

Vodafone has a tough year

Still, at least BT shares are up by almost a quarter (+23.7%) in a year. That’s more than can be said for the Vodafone share price, which has lost 8.9% over 12 months. What’s more, Vodafone shares have crashed by 44.6% over the past five years (over 10 percentage points better than BT’s slump). Vodafone has also lost 14.2% of its value over the past six months. And it’s worth less than half of the 236.8p it closed at on 5 January 2018. Ouch.

BT versus Vodafone: fundamentals

Summing up, both stocks have been dogs for half a decade and more. But investors buy a company’s future, not its past. So, is there scope for BT and Vodafone to recover? Let’s look at the underlying fundamentals of these telecoms titans:

As you can see, Vodafone’s market value is almost twice that of BT, the UK’s former telecoms monopoly. However, the enterprise value of both firms is way higher than their market values. This is because they both have huge debts on their balance sheets. At 30 September 2021, BT’s net debt was £18.2bn, £1.6bn larger than its market cap. In addition, BT has a pension deficit of around £8bn. Also at 30 September, Vodafone had net debt of €44.3bn (£37.6bn). Again, this exceeds the market value of its shares by £7.4bn.

Which would I buy today?

For the record, I consider many European telecoms stocks to be undervalued, including BT and Vodafone. I don’t own either stock at present, yet I’d buy both today — and for different reasons. First, I’d buy Vodafone shares for their market-beating dividend yield. Their current cash yield of 6.8% a year is 1.7 times the dividend yield of the wider FTSE 100 index. As an income-seeking value investor, this cash payout is right up my street.

Second, I’d buy BT shares today for their recovery potential. In recent years, BT’s bosses became adept at stepping into problems. As a result, the company endured repeated blow-ups, damaging its reputation. But French-Moroccan billionaire Patrick Drahi has built an 18% stake in BT this year. Thus, at least one market pro agrees with me about BT’s future prospects!

Cliffdarcy 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.

Rolls-Royce (LSE: RR) has been losing altitude rapidly. The Rolls-Royce share price is down over 20% since its November high, at the time of writing this article yesterday. Over the past year, the shares have only added 2% compared to the 11% gain of the FTSE 100 index as a whole. Having missed out on an earlier Rolls-Royce rally, should I act on this latest fall be a buying opportunity for my portfolio?

Short-term reasons for the fall

Why has the Rolls share price gone into a tailspin again?

The answer is not only predictable – it was predicted. As I wrote last month when considering whether the Rolls-Royce share price could reach £2, “Further lockdowns in some markets could also reduce demand, hurting revenues and profits”. In recent weeks, pandemic fears have seen lockdowns and restrictions in multiple markets. The impact has been a drop in travel bookings.

As Ryanair’s chief executive noted, “Travel only exists on a degree of confidence”. Like other airlines, Ryanair’s bookings have fallen. Investors worry about what that means for Rolls-Royce due to its large business manufacturing and servicing aircraft engines.

Long-term reasons for optimism

Set against that, I do still see a number of reasons to be bullish about the Rolls-Royce share price.

The company has a large installed base of engines which need to be serviced. While demand for flying remains subdued, it is still higher than during the depths of the pandemic. The company said last week that its large engine flying hours are currently around 50% of their pre-pandemic level. Some airlines have recently placed large orders for new aircraft, suggesting confidence for high future demand. That should help boost revenues and profits at Rolls-Royce, one of only a handful of large aircraft engine makers.

On top of that, the company’s businesses in space and defence have proven to be fairly resilient even during the pandemic. I expect that to continue being the case, with much of this business relying on multiyear contracts with good future visibility.

The company turned free cash flow positive in its third quarter. It previously guided the market to expect that it would turn free cash flow positive in the second half. While the latest news means that technically it has hit that goal, I will be watching to see whether it continues to be free cash flow positive from now onwards. That matters because if the company has more cash coming in than going out, its liquidity will improve. That reduces the risk that it will need to tap shareholders for more cash in a dilutive rights issue, as it did last year. There is a risk that further lockdowns could lead to the company bleeding cash again.

My next move on the Rolls-Royce share price

I think the underlying case for Rolls-Royce remains decent.

I don’t think the possible demand fall caused by pandemic concerns is unexpected, which is why I flagged it last month. But the price fall means that the Rolls-Royce share price looks more attractive to me. I am also cheered by the news that the company has turned free cash flow positive. I would consider adding it to my portfolio on that basis.

Christopher Ruane 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 Scottish Mortgage Investment Trust (LSE: SMT) share price soared over 105% throughout 2020. And 2021 has also proved an encouraging year, with shares in the tech-heavy investment trust creeping up almost 10% year to date.

However, in the past 30 days, they have fallen over 11%. This is largely due to the Omicron variant posing an increasingly global threat. So, is now a good time to add the shares to my portfolio? Let’s take a closer look.

What is Scottish Mortgage Investment Trust?

In a nutshell, an investment trust is a publicly-traded company that aims to make money through investing raised capital in other companies. This can be appealing to potential investors as it allows them access to multiple shares under one diversified investment.

Scottish Mortgage is one of the best-known and best-performing trusts on the market. Its tech-heavy weighting has allowed the fund to grow at a momentous rate over the past few years. For example, over the latest three years, it has delivered 383% returns for investors. Although the fund has been able to capitalise on a bullish tech market, it has also demonstrated exceptional management. Take May 2021 — the fund announced it had slashed 80% of its Tesla position, banking high profits before the Tesla share price sank.

My macroeconomic concerns

The biggest concern I have for the Scottish Mortgage Investment Trust share price is linked to the broader macroeconomy. The Bank of England announced yesterday that it is increasing interest rates to 0.25%. This decision has come after months of increasing inflation, peaking at 5.1% in November in the UK. A similar story has been seen in the US, where prices have climbed even higher, rising 6.8% in the past year.

This could be bad news for equity markets. That is because as interest rates rise, people can gain a higher return on their savings, which carries substantially less risk than buying company shares. Therefore they sell stocks and shares prices fall as a consequence. 

This issue is especially worrying for Scottish Mortgage Investment Trust as it has such large exposure to high-growth tech stocks. These stocks are usually hit hardest by interest rates hikes. This is for two reasons. Firstly, they are usually more volatile than the wider market and investors tend to steer clear of them during uncertain markets environments. Secondly, they often carry high amounts of debt that can be magnified by increasing interest.  

In addition to this, the Omicron variant has magnified market uncertainty. The possibility of more lockdowns and travel restrictions is a huge threat to the global market. This is the main reason for the recent drop in the share price, I feel.

These factors combined have left Scottish Mortgage with a much riskier investment outlook in my opinion.

The Verdict

Don’t get me wrong, the trust has proved itself to be a top fund for high growth. This has been down to bullish markets and excellent management. However, for me, the current economic outlook is too risky to invest in it. As interest rates rise, I think we will see a pullback in many of the high-growth stocks the fund is exposed to. As such, I won’t be buying the share price dip.

Dylan Hood has no position in any of the shares mentioned in this article. 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 the past year, the performance of the HSBC (LSE: HSBA) share price has been pretty mixed.

Excluding dividends paid to investors, the stock has returned 13.5%. In comparison, the FTSE All-Share Index has returned 11.5%. Including dividends, shares in the Asia-focused bank have produced a total return for investors of 16.9% compared to the index return of 14.8%. 

The stock has outperformed the index over the past year, but I think this is discounting its potential. Indeed, the group reported profits for the third quarter of $6bn, an increase of 36% year-on-year. 

HSBC share price struggles 

On top of this impressive profit performance, the company reported an increase in its common equity Tier 1 ratio, a key measure of balance sheet strength for financial institutions. The ratio ended the quarter at 15.9%, above management’s target rate of 14% to 14.5%. 

Management has decided to unleash a $2bn share repurchase programme with so much excess capital on the balance sheet. The buyback will consume 0.24% of HSBC’s Tier 1 capital, leaving plenty of room for additional returns. 

There is also plenty of headroom on the balance sheet to maintain the current dividend. At the time of writing, the stock supports a dividend yield of 3.6%. 

So, HSBC is a well-funded, growing bank with an international footprint and plenty of scope to return vast amounts of capital to investors over the next couple of years. 

As such, it seems strange to me that shares in the company are currently selling at a price-to-book (P/B) value of 0.61. That is compared to its five-year average of 0.8. Its price-to-earnings (P/E) ratio of nine compares to the five-year average of 11.8. 

These figures imply the stock is undervalued by between 25% and 50%. 

That being said, just because a stock looks undervalued compared to history does not necessarily mean the market will correct this discrepancy. 

Growth challenges 

There are a couple of challenges the company is having to deal with today. These could explain why investors are not awarding the shares a higher valuation.

HSBC’s exposure to China is the most prominent. The Chinese economy is reeling as the property market enters a downturn, and stricter coronavirus restrictions weigh on economic activity.

This is a concerning scenario for a bank that has staked so much on the region in recent years. A significant increase in loan losses across the region will almost certainly dent HSBC’s balance sheet. This may impact shareholder returns.

Still, the Asian economy does have tremendous long-term potential. HSBC may encounter some turbulence in the near term, but I am optimistic about its potential over the long run. Its global footprint is a unique competitive advantage, and the company has a strong presence in Hong Kong, which gives it an edge over other Western peers. 

Considering these factors, plus the bank’s valuation and growth potential over the next few years, I would be happy to buy the stock for my portfolio today. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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 have been looking for penny stocks to buy for my portfolio in 2022. I think investing in these smaller businesses could be one of the best ways to invest in the UK economy for the year ahead. That is why I have been concentrating my efforts on this section of the market. 

As such, here are three penny stocks I would acquire for my portfolio today. 

Penny stocks for growth

The first company is retailer Card Factory (LSE: CARD). After a tough couple of years, the business may see a recovery in 2022. 

According to the group’s latest trading update published at the beginning of November, sales had recovered to near pre-pandemic levels by the third quarter. The company has also been able to substantially reduce net debt, putting it in a solid position to return to growth next year. 

Despite the return to growth, the stock is trading at a relatively attractive forward price-to-earnings (P/E) multiple of just six. That seems too cheap to me. 

The group may face risks as we advance, including the supply chain crisis and higher costs due to wage inflation. This could have an impact on profit margins. 

Outperforming expectations 

This year, one company that has outperformed all expectations is the automotive retailer Pendragon (LSE: PDG). Booming demand for second-hand vehicles has pushed used vehicle prices to record highs, and the corporation has been able to capitalise on this demand.

City analysts are forecasting a net profit for the group this year of £51m. This projection is based on management’s own forecasts. If the company hits this target, it will be the first time it has earned a profit since 2017. 

And, once again, despite this incredibly attractive underlying fundamental performance, the stock is extremely cheap. It is trading at a P/E ratio of just 4.7, based on earnings projections for the current financial year. Unfortunately, analysts are expecting growth to slow next year. Still, even on these lower growth projections, the stock looks cheap. It is dealing at a 2022 P/E of 6.7. 

Investors may be worried about the company’s high level of debt. This could become an issue as interest rates begin to rise. A drop in used-car prices may also hurt group earnings growth. 

Outsourcing demand 

Capita (LSE: CPI) recently published a depressing trading update. The company warned that contract attrition would have an impact on revenue growth as we advance.

This is disappointing, but the enterprise has made substantial progress in other areas. It has made a material reduction in net debt over the past couple of years and built sustainable foundations for future growth. 

It seems likely the company will continue to encounter turbulence in the near term. Overcoming contract attrition rates will be the biggest challenge the group has to deal with in the next year or so. 

However, I am willing to take a risk on this company for my portfolio of penny stocks considering its depressed valuation. The shares are selling at a forward P/E of just 7.8, falling to 5.4 for 2022. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory and Pendragon. 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’m looking for top FTSE 100 stocks to buy for 2022. Should I purchase these two blue-chip UK shares for my Stocks and Shares ISA?

Is Tesco too cheap to miss?

Tesco’s (LSE: TSCO) share price looks hugely attractive to me right now. City analysts think earnings at Britain’s biggest retailer will rise 175% in the financials year to February 2022. Consequently, it trades on a forward price-to-earnings growth (PEG) ratio of 0.1.

It’s my opinion however, that this low multiple reflects the rising risks to Tesco’s profits. It’s not just the problem of intensifying competition that makes me fear for the FTSE 100 firm in 2022. It’s the possibility that supply chain problems will worsen as new post-Brexit customs checks come into force, pushing up costs and raising the prospect of empty shelves.

The post-Brexit blues

To illustrate these problems, the IMF commented this week that “trade with the EU has dropped significantly” following Brexit. It added that “we expect there will be more impact ahead as the custom checks are going to be introduced in UK in the beginning of next year.”

This threatens to be a bigger problem for sellers of perishable goods like supermarkets as the time spent at ports lengthens.

There are reasons I like Tesco shares. I’m attracted by the grocer’s exceptional online operation, one that should reap massive rewards as food shoppers switch rapidly online. I also think the supermarkets could thrive in 2022 should the pandemic roll on (or even worsen) and people stay at home in large numbers.

A better FTSE 100 share?

However, the risks facing Tesco next year and beyond mean I won’t be adding its shares to my Stocks and Shares ISA. I’d much rather build my holdings in support services provider Bunzl (LSE: BNZL).

Now Bunzl isn’t as cheap as Tesco’s share price. City analysts think earnings here will slip 1% in 2022. This leaves it trading on a forward price-to-earnings (P/E) ratio of 19.9 times, far above Tesco’s average of 13.5 times for the short-to-medium term. But, as they say, “you get what you pay for”. And I think Bunzl’s a much better bet than the FTSE 100 grocer to deliver big shareholder returns.

Rock-solid

Quite simply, I believe Bunzl is one of the most robust FTSE 100 shares out there. It supplies a broad range of essential products to multiple industries across various continents. This diversification has underpinned a long record of sustained annual earnings growth, insulating it from weakness in one or two sectors and territories.

Indeed, these qualities make it a particularly great stock for me to buy, given the hugely-uncertain outlook for the global economy for 2022. However, I don’t just like Bunzl because it’s brilliantly boring. I’m actually excited by the company’s ongoing commitment to building growth through acquisitions. So far in 2021, it’s made 13 new acquisitions following two new deals last month.

Bunzl’s share price could suffer if M&A activity fails to deliver the anticipated rewards. But, all things considered, I think this is one of the best FTSE 100 stocks to buy in the current climate.

Royston Wild owns Bunzl. The Motley Fool UK has recommended Bunzl and Tesco. 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 think Boohoo (LSE: BOO) shares are currently too cheap to pass up, and with this in mind, I am considering buying the stock for my portfolio today. 

Why are investors avoiding Boohoo shares?

Whenever I stumble across a company that looks cheap, the first thing I try to do is understand why investors are avoiding the business in the first place.

With Boohoo, it is clear why the market has been avoiding the company over the past year. Even though the business has been able to capitalise on the surging demand for e-commerce retail during the pandemic, it has suffered some significant reputational issues.

The most important of these is the supply chain issues at its factories in Leicester. Its suppliers have been accused of underpaying workers. These acquisitions have caused a backlash against the group.

There have also been some concerns about corporate governance standards and a court case in the US over the firm’s pricing practices. 

However, the company has been working to resolve these issues. It commissioned a full review of its supply chain in Leicester and removed any suppliers that it believes are underpaying workers. It has also invested significant sums in improving the quality and transparency of its supply chain. 

Unfortunately, it looks as if this cloud will continue to hang over the company for some time. The global supply chain crisis is having an impact on the company. That is another short-term headwind for the group, although it is not alone.

With its UK-focused supply chain, Boohoo may actually be better-positioned than many of its peers to get around these issues. 

International expansion 

At the same time, the company is making substantial progress in its expansion overseas. Many UK corporations have struggled to crack the US market. Despite its legal troubles, Boohoo is marching ahead and rapidly grabbing market share in this region. 

And with a balance sheet stuffed full of cash, the company has the financial flexibility to acquire other struggling retailers. It has already used this playbook several times in the past two years to expand its footprint and grab new customers from former competitors. 

Put simply, I think Boohoo has encountered some growing pains over the past few years. It is now moving on from these issues. Its current valuation presents an opportunity for me to acquire the stock at a discount to capitalise on this growth. 

Even after the corporation’s recent profit warning, I think the stock still has plenty of attractive qualities. Boohoo has carved out a sizeable niche in the fast-fashion market over the past decade, and it is not going away anytime soon. The business is a leader in the e-commerce space, and it has a platform to drive growth in the next few years as the economy rebuilds.  

Rupert Hargreaves has no position in any of the shares mentioned. 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.