I think investing in stocks and shares is one of the best ways to generate a passive income. Unlike other passive strategies, investing in the stock market does not require a massive amount of capital upfront.

Indeed, any investor can start buying equities today with just a few pounds. That means it could be possible to start generating an income almost immediately. This is not possible with other strategies, such as buy-to-let. Owning rental property requires tens of thousands of pounds upfront investment. And while income produced can be significant, it also involves a lot of extra work. 

With that in mind, here is the strategy I would use to invest £250 a week for a passive income stream. 

Investing for a passive income 

One of the easiest ways to build a passive income portfolio is to acquire high-yield stocks. Companies such as Persimmon and British American Tobacco fit the bill perfectly. Both of these stocks support dividend yields of 8%, at the time of writing. 

The one drawback of this strategy is the fact that, more often than not, a high yield is a sign that the market does not believe the payout is sustainable. This means it can be pretty tricky to pick high-yield stocks. It requires additional analysis of the business, its balance sheet and growth prospects. 

Still, I would be happy to acquire both of these companies for my passive income portfolio. However, I would limit the exposure in my portfolio to around 20%. For the rest of the portfolio, I would try to invest in corporations that have more scope for capital growth, as well as income. 

Unfortunately, this will mean sacrificing some income. Growth stocks tend to hold back a percentage of profits every year rather than distributing all of their income. Management can then reinvest this income back into the business to fund expansion plans. 

I believe this is the best use of my £250 a week investment, as it will open the door to both income and capital growth. Some companies can reinvest profits at a double-digit rate of return, which is far more than I would be able to achieve by investing the same amount of money in income stocks. 

Growth and income

A selection of companies I would buy for my passive income portfolio that have both income and growth credentials are IG Group, Hikma and Bunzl. 

These firms may not be traditional income investments. Still, as I noted above, I think their capital growth could more than compensate for the lack of income. 

Of course, this is not guaranteed. Any one of these companies could encounter growth headwinds, such as rising costs or competition in their respective markets. If costs rise substantially, or competition increases, they may not grow as fast as expected. In this scenario, they may have to reduce their dividends. 

Rupert Hargreaves owns British American Tobacco. The Motley Fool UK has recommended British American Tobacco, Bunzl, and Hikma Pharmaceuticals. 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 Rolls-Royce (LSE: RR) share price has fallen by 18% in the last month. It is no surprise really. The Omicron variant has created fresh uncertainty, which has particularly affected travel-related stocks. With a price of 115p, the FTSE 100 stock is now closer to 100p than it is to the highs of even one month ago, when it was around 140p. So the next obvious question to my mind is if it will fall below 100p now. 

Why 100p is significant

To me as an investor, the 100p number has a psychological significance. Any price below this would make Rolls-Royce a penny stock again, as it was for some time during the pandemic. And that means that it would be cheaper than most other FTSE 100 stocks.

Some analysts do expect the stock to fall just a tad lower than 100p, to 99p in the next 12 months, as per data compiled by the Financial Times. These are only the most pessimistic forecasts, though. On average, analysts think that there is a 15% upside to the stock, which would bring the price back up close to November’s levels.

Forecasts are always subject to uncertainty. But I think right now, of all times, that is more the case than it usually is going by the Covid-19 situation. Which is why, I think there is a bigger case for figuring out how much downside there is to the stock right now than there normally is. From the looks of it, it does appear that the pandemic situation will get worse before it gets better. And considering that the stock needs to fall only some 13% to reach penny stock levels, I reckon it is quite likely that it will. It might even happen before 2021 ends, going by the fact that it has fallen 18% in the last month alone. 

Would I buy the Rolls-Royce stock at a lower price?

However, the bigger question for me is whether I would buy it if it does fall to these levels.

There is no denying that the aero-engine manufacturer has really got its act together this year and made some serious progress, even though there was a very good excuse for fumbling, if it did. And its latest trading update shows continued strengthening of the company. It has achieved net cash inflow in the third quarter of its current financial year. Earlier, it also achieved its disposals target of £2bn, moving it forward along the path of restructuring. It even managed to clock a net profit for the first half of the year. 

This gives me confidence in its ability to manage itself well in the future too. But, right now, the challenges it faces are really outside of its control. The coronavirus situation has brought a number of otherwise profitable and well-run companies to their knees. And the danger of that happening to Rolls-Royce exists too, in my view. For that reason, I would still wait and watch what happens next for the stock. Once there is more clarity on Covid-19, I would make a call then. Until then, I am more inclined to buy relatively predictable stocks. 

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

December on average is a good month for investing in shares. The phenomenon known as the Santa Rally has happened in the majority of years since around 1950. It’s when shares typically rise as the calendar year draws to an end.

Reasons why it happens are opaque. It’s possibly due to seasonal goodwill among investors, who are more willing to buy around Christmas, markets rising on lower volumes over the holiday period, fund managers rebalancing their portfolios before the end of the year, Christmas bonuses being invested, and potentially bargain hunting before stock prices rise in January (known as the January Effect). All of these probably intertwine. 

So far, this December has been going quite well. Touch wood that continues.

Investing in shares

To capitalise on a possible Santa Rally in the short term, and to position my portfolio ready for 2022, I’m keen to keep investing in shares. I recently added more high yielding Persimmon to my portfolio. As recently outlined in an article I also have Boohoo, finnCap, and Totally on my watchlist, along with some other higher yielding and small-cap growth stocks. Small- and mid-cap shares have struggled in recent months so are potentially fertile ground for finding fairly valued and cheap shares with growth potential. 

Also, after the last year, shares in fast fashion companies have also become very cheap as have some of the ‘pandemic winners’ such as CMC Markets, the spread betting group, which benefitted from the volatile markets in 2020. So I’m personally thinking about investing in these types of shares. 

A share catching my eye right now

Previously, I have looked at Up Global Sourcing (LSE: UPGS) as a growth share, well-positioned to provide a growing passive income. The dividend, particularly when it comes to year-on-year growth in the payout, remains attractive. More than that though, Up Global Sourcing is a growth-at-a-reasonable-price (GARP) opportunity, in my opinion.

Why do I think that? First of there’s revenue growth. It has gone from £79m in 2016 to £116 in 2020. That’s decent growth. The valuation is not high though. The forward price-to-earning (P/E) ratio is 13 and the price-to-earnings growth (PEG) ratio is 0.6. Together these indicate the shares may be undervalued.

Things might not work out so well if the supply chain issues last well into next year as that is forcing up costs for Up Global Sourcing and other similar consumer goods companies. The negative impact on profits would likely put investors off buying the shares, which in turn could hit the share price.

Up Global Sourcing is acquisitive and so there are potential traps associated with that, in terms of overpaying for acquisitions. The history of listed companies shows us when management goes for big acquisitions it can often destroy value. Micro Focus is a memorable recentish example. So that’s something I’ll keep an eye on.

Despite these risks, Up Global Sourcing strikes me as the kind of share I want to have in my portfolio. I will likely add it some time in early 2022 when I have more cash and have researched a bit further.

Andy Ross owns shares in CMC Markets and Persimmon. The Motley Fool UK has recommended Micro Focus 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.

A lot of personal development experts emphasise the importance of habits. The idea is that the right habits are more likely to establish a pattern of behaviour. That can lead to better results. I think that’s true for me as an investor too. With the right investing habits, I reckon I can dramatically improve my results.

Here are three habits which, taken together, I hope could double the passive income I receive from my portfolio of dividend shares.

1. Double the money

What’s the easiest way to double my money from dividend shares?

I think the answer is obvious: double the money I invest. That sounds so obvious it hardly seems worth mentioning. But actually, the simple sounding step of doubling how much I invest could have transformative effects for the passive income I earn. With the potential of lower trading costs in percentage terms and the power of compounding, I may see more a doubling of output for a doubling of input.

There is some potential pain from investing more. If I am already investing as much each month as I can easily afford, it might not be easy to do without sacrificing some other expenditure. It might be possible, for example by trimming my living costs or cutting down on unnecessary frivolities. I’ll have to make some hard choices. In the long term, though, I think a much larger dividend portfolio will probably do me more good than years spent drinking overpriced coffees each day.

But a lot of people don’t invest anything like the most they can each month. If I was in such a situation, regularly investing £50 for example, I could start investing £100 each time instead. After a few months, I would likely adjust to the larger outgoing just like one adjusts to higher electricity bills or rising insurance premiums. But by putting twice as much money into dividend shares each month, I’d hope to get twice as much passive income.

2. Go for great

A lot of investors are happy to settle for what they regard as good shares. But that isn’t a habit of highly successful investors like Warren Buffett. Instead, they typically look for great companies. Indeed, Buffett says that he likes to buy great companies at good prices.

Over time, the difference between a great dividend paying company and a merely good one can dramatically transform results in one’s portfolio.

Great companies have business models which can can produce strong profits on a sustained basis. That can be due to competitive advantages such as iconic brands, proprietary technology, or geographic monopolies. That can allow them to pay out high dividends compared to other companies.

Consider as an example the difference between Smith & Nephew and GlaxoSmithKline. Both are well-established global companies in the healthcare sector. Both have strengths to their business including proprietary technology and strong brands. But Smith & Nephew is operating in a business area where such factors might not matter as much. Will doctors or nurses pay a premium for wound dressings? I reckon they will, but the case to do so is less compelling than it is for life-changing drugs of the sort GSK makes.

Smith & Nephew yields 2.2%. GSK offers a yield over twice as high, at 5%. GSK is planning to separate into two businesses and its yield may fall as a result. Nonetheless, right now, adding GSK to my portfolio would offer me over double the passive income I would get from adding Smith & Nephew. I like Smith & Nephew as a business and would happily hold it in my portfolio. But if passive income is my objective then I think there are better choices available to me.

That said, yield isn’t everything. What if a share is a yield trap? Such shares look attractive because of high dividends, but in the long term their business results can’t fund such dividends and they may be cut. That’s why it’s important for me to focus on what separates a great company from a merely good one. For example, when a company has a high yield but the dividend isn’t covered by free cash flow, that could be a red flag for me.

3. Do less

One mistake many investors make is trading too much. In fact, some of the best performing investors of all time trade only very rarely.

Consider builder Galliford Try as an example. Right now I could get a 2.6% yield by buying the shares. But if I’d bought the shares last October, I could have bought them at 40% of the price today. So I would now be looking at a yield on my initial investment of around 6.5%.

The point here is not to focus on market timing. I think that’s too hard to do successfully. My examples above rely on buying the shares at their price bottom, which is very hard to know (although I did explain last November why I would consider Galliford Try as a recovery play). Rather, it is about being willing to sit on the sidelines of the market, for years if necessary. Then, when a really great opportunity arrives, as an investor I can make the right move at the correct time.

It is no accident that Buffett sits on cash for years, even when it adds up to tens of billions of dollars. As Buffett says, “If you want to shoot rare, fast-moving elephants, you should always carry a loaded gun”. In other words, if I want to double my passive income, I may need to stockpile cash without buying shares, for years if necessary. Then, when I see the opportunity to buy a great company at a good price, I can make my move.

Putting investing habits to work

The theory is easy – how about the practice?

I don’t think it’s hard for me to apply any of the above investing habits. But the more ambivalent I am about them, the less likely I am to put them into action when I need to. That’s why habit formation matters so much – it helps me develop a way of behaving which becomes almost second nature.

That isn’t hard to do. But I think it could transform the passive income potential of my portfolio.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and 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.

Over the past month, Deliveroo (LSE:ROO) shares have fallen by 28%. On Friday, the share price was hovering just above 200p. Recent developments have pushed the price lower, which leads me to wonder whether the shares could fall as low at 100p in the next year. As someone who bought at 390p from the IPO earlier this year, what’s my best option here?

Reasons for the slump

As I see it, there have been two main drivers for the move lower in Deliveroo shares. One is a longer-term issue over several months, the other is one that has surfaced in recent weeks.

The story that has hit the share price hard in the short term is news around employment contracts. The European Commission (EC) is attempting to regulate the gig economy, which involves people like Deliveroo’s riders. At the moment, these workers are classified as independent contractors. So, Deliveroo doesn’t have many obligations to them. That means no pensions, sick pay and other perks that actual employees would usually get.

Although there’s a moral case that the riders deserve some employee benefits, the Deliveroo share price has been falling on this news. The main reason for this is that it would increase the costs for the business. It would also increase the liabilities that the company would take on for employee welfare.

The longer-term issue I’ve noted is that there’s still uncertainty as to how demand will shape up in coming years. Lockdowns and other restrictions helped to boost demand in 2020 and part of 2021.

Even though some markets enjoyed a summer without restrictions, the rise of Omicron again will see people spending more time indoors. Therefore, I think some of the fall in Deliveroo shares in recent months is concern that Deliveroo is only doing well due to the pandemic, and fundamentally might not do that well in the long run.

The future for the stock

Personally, I struggle to see the Deliveroo share price hitting 100p next year. To fall another 50%, we would need to see some very poor financial results. Even if we saw the EC move forward with its proposals, I think the shares have already priced in the cost of this in recent days. Therefore, I don’t see that news story driving further significant weakness for the shares next year.

The flipside is that just because I don’t see the shares hitting 100p, do I see a move back to 300p+? This is a harder question. I think that Deliveroo will see higher demand in key markets over the winter due to Covid-19 restrictions. However, I’m not sure if investors will pay much attention to this, and they might see it as artificial demand. 

In my opinion, I think Deliveroo shares will probably find a range between 200-300p until something new happens. Therefore, I won’t be looking to buy more at the moment and will sit on my hands.

Jon Smith owns shares in Deliveroo Holdings PLC. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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 we head into a new year, I want to follow a couple of investment themes in 2022. I am buying companies for my Stocks and Shares ISA portfolio that fit into these strategies to capitalise on the investment opportunity. 

With that in mind, here are the companies and sectors I will be buying in 2022. 

Stocks and Shares ISA investments

The first major theme I want to build exposure to is the economic recovery. There are a couple of ways to play this. I can buy companies that will benefit from rising consumer spending, or follow manufacturing and industrial corporations which should benefit from an overall increase in economic activity. I am taking the latter route. 

The first company I would buy is Trifast. This enterprise quite literally produces the nuts and bolts of industry. Therefore, it should benefit from any increase in economic activity.

According to its half-year report to the end of September, revenues increased 31% and pre-tax profit jumped 84% year-on-year. Management is also looking for acquisition opportunities to increase the company’s overall footprint, which should help drive growth in the years ahead. 

Another industrial company I want to own is Spirent Communications. This business produces telecommunications equipment, particularly for the 5G market. As the rollout of 5G technology continues worldwide, it should benefit from the increasing demand for its hardware. 

Rising inflation will be a challenge both of these companies will have to deal with in the months ahead. This could increase their costs and reduce profit margins if they cannot pass the higher charges on to consumers. 

Booming market

I will also be building exposure to the resource sector in my Stocks and Shares ISA. As the economy reopens, the demand for essential commodities is rising. This trend is set to continue as governments around the world spend heavily to stimulate their economies after the pandemic. 

One of the largest commodity trading companies in the world is Glencore. It helps facilitate the trading of critical commodities from grain to coal and oil and gas across the globe.

This is a low-margin, high-volume business where the most prominent players can take the largest share of the market. As such, Glencore’s substantial global footprint gives it an edge over its peers. 

I am also going to buy Rio Tinto. Iron ore prices have jumped over the past 12 months as the demand for the construction material has rebounded. This is creating a highly profitable environment for the company. As earnings surge, I am expecting the business to return substantial amounts of cash to its investors. 

The one challenge all commodity companies have to deal with is volatile commodity prices. If the economy suddenly takes a turn for the worse, commodity prices could fall. This could have a significant impact on both firms’ bottom lines. 

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.

Investors in Cineworld (LSE:CINE) are understandably horrified this week after the shares collapsed by almost 40% on Wednesday. The stock price has since recovered a small amount of this decline. But even with that, the 12-month return generated by these shares now stands at a disappointing -50%. What happened? Is this the start of the company’s ultimate demise? Or is now the perfect time to start buying? Let’s explore.

The devastating power of a lawsuit

To understand what happened this week, I need to go back to December 2019. Cineworld had just signed a $2.8bn acquisition deal to purchase Cineplex, a Canadian cinema chain. The deal was supposed to close by mid-2020, and it would make Cineworld the largest cinema company on the planet.

At the time, this deal sounded fantastic. It once again allowed the company to expand its international operations, delivering even more growth to investors. Yet, as many already know, this deal never happened. That’s because, in June 2020, management announced the agreement was off, leading to an onslaught of legal proceedings.

Cineworld claimed that Cineplex had breached the terms of the signed contract. Without knowing the exact details of the agreement, it’s hard to say if the claims are true. But, if I were to speculate, I think the likely cause for the sudden pull-out had more to do with the global pandemic that decimated the business, which was now in full save-money mode.

It seems the courts agree with my view because, on Wednesday, the Ontario Superior Court of Justice ruled in favour of Cineplex. It awarded the firm CA$1.23bn while simultaneously dismissing Cineworld’s counterclaims. That’s obviously not the outcome Cineworld’s investors were expecting, and Cineworld shares crashed as a consequence. Management unsurprisingly disagrees with the verdict and has begun appeal proceedings. But how long this will take or whether the ruling will be changed is entirely unknown at this stage.

What happens to Cineworld and its shares now?

For the moment, nothing really changes. At least not yet. While the appeal proceedings continue, Cineworld has stated they won’t be making any payments to Cineplex. If the appeal is successful, then Cineworld shares will most likely surge to reverse this week’s downfall. But what if the appeal efforts fail and Cineworld has to cough up?

I’ve been following this company throughout the pandemic. And before this week, things started to look like they were finally heading in the right direction. In the latest earnings report, the success of many delayed blockbuster titles resulted in October UK revenues growing by 27% versus pre-pandemic levels. Meanwhile, international performance has also been catching up and is now close to returning to 2019 levels as well.

But after taking on considerable debt to stay afloat in early 2020, most of the profits are being gobbled up by interest payments on loans. And with only $437m of cash on its balance sheet, Cineworld will likely once again have to load up on even more debt to pay the Cineplex fine. Needless to say, this is a serious problem. And one that could lead to insolvency.

Management still has several levers at its disposal to raise capital through equity or property sales. So, it’s still possible for the company to make a comeback. However, with the current state of the balance sheet and some significant restructuring required, I personally wouldn’t touch Cineworld shares with a 10-foot pole.

Zaven Boyrazian 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.

After years of lukewarm performance, I think 2022 could be a charmed year for Lloyds Bank (LSE: LLOY). There is no doubt that there is still a whole lot of uncertainty in the macroeconomic environment. But it is also true that because of this, it is easy to overlook how much is now going for the bank. 

Interest rates rise

Just earlier this week, the odds turned even more in its favour. The UK’s inflation rate unexpectedly came in at a high annual rate of 5.1% for November. High inflation was expected, to be sure, but the jump was higher than anyone’s expectations. The fact that the Bank of England targets an inflation rate of 2% puts this into context. Reacting swiftly to this development, the central bank stepped in to increase its key interest rate to 0.25% from 0.1% earlier. 

Lloyds Bank stock could gain big

FTSE 100 banking stocks rallied on this news. Naturally so. High interest rates give banks more leeway to increase their own lending rates as well. This in turn could improve their margins. Moreover, this is hardly a one-time interest rate increase. Inflation is expected to stay elevated over the next year as well. As a result, there could be successive rate hikes by the central bank and by commercial banks as well. 

I think that Lloyds Bank, along with Natwest, stands to gain far more than other FTSE 100 banks from this development. This is because most of its business is derived from the UK, unlike most others. 

Higher potential dividends, low P/E

There is one more reason to believe that it can gain big in 2022. Banks can now pay dividends at their own discretion. Some readers might recall that early on in the pandemic, the authorities had asked them to stop paying dividends to ensure the stability of the financial system and even the economy. They were later allowed to pay some dividends based on a formula calculated according to the nature of their assets. However, more recently, even these “guardrails” as the Bank of England put it, were removed. 

Before the pandemic, Lloyds Bank had an eye-watering double-digit dividend yield. In 2021 so far, its yield is 2.7%, which is a far cry from where it used to be. I reckon its share price could start rising as its increases its dividends, because that will make it far more attractive from a passive income perspective.

Further, its price-to-earnings (P/E) ratio is also quite low at around seven times. Based on this and fundamental factors, I had earlier forecast that the stock could actually rise to 100p in time.

What could go wrong

Of course, it goes without saying that the pandemic could still play spoilsport. We cannot foresee how the situation will play out, and if it does worsen, the recovery might be affected. And that is never good for banks, because there is limited demand for loans then. If, however, we are able to move past the current pandemic situation sooner rather than later, I reckon the Lloyds Bank stock could double over the next year, making it one of my best investments for 2022. 

Manika Premsingh 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.

I have been looking for UK shares to buy for my portfolio next year targeting those with excellent long-term growth prospects. Two businesses really stand out to me as being undervalued right now, compared to their long-term potential.

I think both of these companies have substantial competitive advantages as well as robust business franchises, which should help them capitalise on the economic recovery as it takes shape. 

Shares to buy for 2022

The first company on my list is the insurance group Hiscox (LSE: HSX). This corporation has suffered over the past 24 months, due to rising claims from business interruption insurance policies.

These claims have forced the group to make substantial payouts to customers, which have weakened its balance sheet and reduced its ability to capitalise on rising insurance rates across the rest of the market. 

However, as the company works its way through these issues and new policies are issued that exclude pandemic cover, this headwind should come to an end shortly. It should then be able to capitalise on favourable tailwinds in the rest of the sector. These are the reasons why I think the corporation would make a great addition to my portfolio of UK shares in 2022. 

With the shackles removed, Hiscox’s growth could accelerate. This could drive a re-rating of the stock. 

That said, the company will always be exposed to insurance risks. Challenges like significant catastrophe losses could hit profitability and weaken its balance sheet. This is something I will be keeping in mind. 

UK shares for growth 

The other company that I think is one of the best shares to buy now is Great Portland Estates (LSE: GPOR). This business owns a unique selection of properties in Central London. The value of these properties plunged last year as the pandemic wreaked havoc with the real estate sector across the country.

However, this year, property values have started to recover. Great Portland’s portfolio increased in value by 2% during the six months to the end of September.

It has also been signing new leases with tenants. The average rental uplift on these leases is nearly 10%. This shows the quality of the portfolio and the rising demand for office space in the centre of the capital.

Despite these attractive qualities, the stock is still trading below its net asset value per share of 796p. Considering this valuation gap, I would buy the stock for my portfolio. I think the value of the shares could increase next year as the economy rebuilds. 

Headwinds the enterprise and may face over the next 12 months include higher interest rates, which could increase the cost of its debt. Additional pandemic restrictions may also hit demand for new leases. This would hurt the firm’s outlook and near-term recovery potential from the pandemic. 

Rupert Hargreaves owns shares in Great Portland Estates. 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 April next year, we’ll all start to feel a lot poorer.
 
How much poorer is open for debate — I’ve seen figures estimating that the average household will be £1,700 a year worse off, but also figures of around £3,000. Either way, that’s a lot of money.
 
The clue as to why is that reference to April. That’s when the tax rises contained in the last Budget will hit. And even Rishi Sunak, the chancellor of the exchequer, is conceding at that point, tax as a percentage of GDP will be at its highest since the 1950s.

Inflation’s nasty bite

But wait a minute. People are already feeling poorer. I’ve talked about inflation before, of course. Now, however, you can see it in the prices that we pay for everything.
 
Groceries, fuel, energy costs: everything is getting more expensive. I can see it; you can see it — and now, at long last, even the Bank of England is seeing it, with the Consumer Price Index standing at 4.2%. And yes, I still think that it is underestimating the level to which inflation will rise by early next year — just as it has done since the summer.
 
And that is having an effect on consumer spending — even now.
 
Let me share some figures with you from a press release put out by Hargreaves Lansdown a few weeks ago, based on the Bank of England’s monthly Money and Credit report. Between the start of the pandemic and April this year, there were only two months in which UK consumers charged more to their credit cards than they paid off. But since May, this has happened in five of six months.
 
The pandemic-induced savings boom, back when those of us with incomes had nothing to spend those incomes on? Forget it. A third of consumers are saving nothing each month, reckons Hargreaves Lansdown’s senior personal finance analyst, Sarah Coles. And almost half of us wouldn’t have enough savings to last for three months, she adds.

Sectoral swoons deliver bargains for the bold

What to do? No, I’m not going to exhort you all to cut back on the lattes and foreign holidays (Ha! Some chance, I hear you say.)  And no, I’m not going to counsel you to mortgage granny, and buy shares.
 
I think another course of action beckons, instead.
 
In general, I’m a ‘bottom up’ investor, looking for undervalued companies. But occasionally, the macro picture is a bigger influence on me. Five years ago, for instance, the commodities market swooned. As I’ve written before, mining and resources firms — and those firms that supply them — looked like screaming buys, and I bought.
 
The shares of Australian miner BHP Group, for instance, traded below £6. Today, they are over £20. Etc, etc.
 
And now, the prospect of poorer consumers heralds another opportunity.

Can’t spend; won’t spend

Only this time, it’s a double opportunity — an opportunity to first re-position portfolios, and then buy in, when prices are low.
 
For the investment thesis is very simple: consumer discretionary expenditure is about to slump. Post-Christmas, I’m expecting significant belt-tightening, with further belt-tightening to come in April, when those tax rises hit.

And for businesses that rely on consumer discretionary spending, that doesn’t spell good news.
 
Eventually, the lean times will fade. The 1950s were followed by the 1960s. The macroeconomic environment will eventually improve, and tax burdens lessen.
 
But until that starts to happen, I’m bearish regarding shares that rely on consumers feeling flush with cash. Eventually, those shares will be ‘buys’ again — bargains, even, for those investors who select the right entry point. But not right now.

Malcolm owns shares in BHP Group. 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.