After smashing performances in the first nine months of 2021, US-listed tech firms AMD (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA) have slumped in value over the past week. Indeed, Nvidia stock is off nearly 10% over the past five days. Shares in AMD have dropped by a more sedate 2%, although this is still worse than the S&P 500. The index has declined by 0.4% over the same period. 

I need to put this performance into perspective. Over the past year, AMD and Nvidia have both been some of the market’s best-performing investments. The latter has returned 113% over the past 12 months, while the former has added 43%. Over the period , the S&P 500 has returned just 25% by comparison. 

These companies have been riding the general boom in demand for anything technology-related in 2021.

Nvidia stock boom 

Surging demand for semiconductors and graphics processors has pushed Nvidia’s profits higher by 55% in its current financial year. That is outstanding and certainly justifies some of the stock’s recent outperformance. For the third quarter of 2021, AMD’s net income jumped 137%. 

The global semiconductor and chip market is incredibly tight. There are two elements behind this market environment.

Over the past two years, there has been a jump in demand for all kinds of tech. Producers are struggling to manufacture enough chips and processors to fit into these products.

As the industry has always pursued a just-in-time production model, where makers try to match supply and demand, they have struggled to keep up.

At the same time, the pandemic has accelerated trends in the technology sector.

Trillions of pounds are flowing into new technologies around the world, particularly in the areas of robotics and artificial intelligence. The pandemic has accentuated the need for these technologies, as labour shortages and staff safety have been driving investment needs. 

This booming tech market has only complicated the unbalanced supply/demand picture. 

Challenges ahead

These factors look set to persist for at least the next few years. That suggests the outlooks for AMD and Nvidia are highly attractive. 

However, both companies’ valuations already reflect this potential, in my mind. Both corporations are selling at forward price-to-earnings (P/E) ratios of more than 40. This suggests the market is expecting a lot from these firms in the year ahead. 

Unfortunately, this valuation leaves no room for error. If either of these businesses miss the market’s growth expectations, they could be punished by Wall Street. 

This is the most considerable risk facing AMD and Nvidia stock right now. If either underperforms, they will face a hostile market environment. Multiple factors could cause challenges. The supply chain crisis, rising prices, and potential pandemic disruption could hurt either of their production targets. 

As such, I am cautiously optimistic about the outlook for both businesses. However, I am not willing to add either of the stocks to my portfolio today, considering their valuations and the challenges that could hit growth over the next 12 months.

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.

2021 is almost over. Like many others investors, I’m analysing the best stocks to buy for next year. So far, these three shares are top of my watchlist.

One of the best to buy now?

Last month, I said: “I think the Boohoo (LSE: BOO) share price is potentially too cheap to ignore”.  That’s still my opinion. This week’s profit warning doesn’t change the investment case for me. In fact, it seems even more compelling now given the shares over the last month or so have fallen by a quarter.

Christmas could be a boon for the company, especially if Omicron leads to more restrictions and encourages more consumers to buy online.

But with Boohoo already saying that returns are up due to shoppers sending their dress purchases back, Omicron could also dampen Boohoo sales. But I see that as a short-term issue.

Another problem is, investors seem to be turning away from fast fashion shares in general as ASOS shares have also been falling. Supply chain issues are key problems both are facing.

Boohoo shares strike me as cheap now, so combining that with its still-high (relatively speaking) level of growth, makes me think it’s a potentially profitable investment long term. It’s one of my best stocks to buy for 2022 and it won’t be long before I add it to my portfolio.

A smaller-cap income and growth option

finnCap (LSE: FCAP) could be a great small-cap growth stock, combining capital growth with income, which I think is a very powerful combination.

The group focuses on providing financial services to quite a number of listed companies, but also privately-held growth companies.

The financial services group has solid fundamentals. For example, it has a strong operating margin, which has jumped to 18.7% from 4.6%. That’s lower than earlier in the pandemic but the margin now is also higher than in 2019. Return on equity has also improved a lot in the last three years, to 29%. It was 16.4% in 2019.

The problem is, if 2022 sees a slowdown in IPOs and other fundraising activity, demand for finnCap’s services could melt away, which would hit its revenue and profits. This makes me a bit nervous.

On the plus side though, it’s a higher-yielding share. The dividend yield is around 4.8%. This income, along with it being a smaller-cap stock with growth potential and solid fundamentals, means I’m interested in buying the shares for my portfolio.

A riskier investment

Totally (LSE: TLY) is a smaller-cap penny stock that I think is also potentially one of the best stocks to buy now ahead of 2022.

The healthcare services provider should benefit from the NHS backlog as it provides insourcing. This is a system whereby hospitals subcontract medical services and procedures to it, and it uses hospital premises and equipment for delivering treatments.

In the short term, if Omicron leads to more hospital admissions this may put its general ops on hold. That could impact revenues. But longer term, I think there’s a big opportunity for the group.

An ageing population, ongoing pressures on hospitals (especially over waiting times) and increased spending on the NHS, all mean Totally has a number of factors in its favour to help boost growth.

I’m thinking it could be one of the best stocks to buy for my own portfolio, as I don’t hold any similar companies. 

Andy Ross owns no share 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.

NIO (NYSE: NIO) stock has sunk over the past year, falling around 35%. This is despite the general rise in many EV stocks. For example, Tesla has risen over 40% in the same period, while new EV maker Rivian managed to reach a valuation of $93bn, despite not making any revenues. As such, why has NIO stock fallen so significantly, and is now a great time to buy?

Why have the shares fallen so much?

There are several different factors that have caused NIO to suffer so considerably in recent months.

Firstly, there are worries about Chinese stocks. Indeed, due to the persistent tensions between the US and China, there is the very real risk that Chinese companies will no longer be able to list in the US. This has already led to Didi delisting from the US. As such, if the Chinese government decides that it no longer wants to allow the US regulators access to internal auditing documents of Chinese companies, NIO may have to delist as well. This would force the company to either list in Hong Kong or Shanghai, and this would cut off a key source of funding from the US stock exchange. That could see Nio stock fall further.

Further, there is also the issue of rising competition. Alongside the current market leader Tesla, this includes several traditional automotive companies, like Toyota and Volkswagen, which are also investing heavily in EV cars. In China, there is also the presence of EV makers such as XPeng, which has recently announced that it will roll out a supercharger that can charge one of its cars in five minutes. This may give XPeng a competitive edge, which could have detrimental effects for NIO.

Upside potential

Despite these risks, NIO does certainly have a ton of potential. For example, in the third quarter of 2021, it recorded 24,439 deliveries, a 100% rise year-on-year. This meant that total revenues in the third quarter totalled $1.3bn, a 116% rise year-on-year. This represents incredible growth and clearly demonstrates the potential of the EV maker.

Further, there is the upcoming NIO day, which is scheduled for tomorrow. It has already been announced that a new model will be released, and this is a sign that the firm is continuing to develop. I think that this could have a positive effect on the stock.

Would I buy the stock?

Despite the risks with NIO, I still believe that there is upside potential. For one, it is currently valued at $46bn, which is around half its value of February 2021. This gives it a price-to-sales ratio of under 10, which is fairly cheap in comparison to other EV stocks. For example, Tesla has a price-to-sales ratio of around 20 yet is seeing far slower revenue growth. This higher valuation may be because Tesla has reached profitability, and has not got any Chinese worries, yet it still indicates that NIO may be cheap. For this reason, while it may not be a ‘no-brainer’, I’m still very tempted to buy, despite the problems that face the company.

Stuart Blair 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.

NIO (NYSE: NIO) stock has sunk over the past year, falling around 35%. This is despite the general rise in many EV stocks. For example, Tesla has risen over 40% in the same period, while new EV maker Rivian managed to reach a valuation of $93bn, despite not making any revenues. As such, why has NIO stock fallen so significantly, and is now a great time to buy?

Why have the shares fallen so much?

There are several different factors that have caused NIO to suffer so considerably in recent months.

Firstly, there are worries about Chinese stocks. Indeed, due to the persistent tensions between the US and China, there is the very real risk that Chinese companies will no longer be able to list in the US. This has already led to Didi delisting from the US. As such, if the Chinese government decides that it no longer wants to allow the US regulators access to internal auditing documents of Chinese companies, NIO may have to delist as well. This would force the company to either list in Hong Kong or Shanghai, and this would cut off a key source of funding from the US stock exchange. That could see Nio stock fall further.

Further, there is also the issue of rising competition. Alongside the current market leader Tesla, this includes several traditional automotive companies, like Toyota and Volkswagen, which are also investing heavily in EV cars. In China, there is also the presence of EV makers such as XPeng, which has recently announced that it will roll out a supercharger that can charge one of its cars in five minutes. This may give XPeng a competitive edge, which could have detrimental effects for NIO.

Upside potential

Despite these risks, NIO does certainly have a ton of potential. For example, in the third quarter of 2021, it recorded 24,439 deliveries, a 100% rise year-on-year. This meant that total revenues in the third quarter totalled $1.3bn, a 116% rise year-on-year. This represents incredible growth and clearly demonstrates the potential of the EV maker.

Further, there is the upcoming NIO day, which is scheduled for tomorrow. It has already been announced that a new model will be released, and this is a sign that the firm is continuing to develop. I think that this could have a positive effect on the stock.

Would I buy the stock?

Despite the risks with NIO, I still believe that there is upside potential. For one, it is currently valued at $46bn, which is around half its value of February 2021. This gives it a price-to-sales ratio of under 10, which is fairly cheap in comparison to other EV stocks. For example, Tesla has a price-to-sales ratio of around 20 yet is seeing far slower revenue growth. This higher valuation may be because Tesla has reached profitability, and has not got any Chinese worries, yet it still indicates that NIO may be cheap. For this reason, while it may not be a ‘no-brainer’, I’m still very tempted to buy, despite the problems that face the company.

Stuart Blair 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 Barclays (LSE: BARC) share price has performed strongly in 2021, rising around 24%. Yesterday, it rose further after the Bank of England’s announcement that it was raising interest rates. This is a major sign of confidence in the UK economy’s resilience, as well as potentially helping Barclays raise its profitability.

A terrific 2021 performance

Barclays has performed extremely well in 2021, and earnings per share are forecast to reach 34p for the year. This is significantly higher than every single year since 2008 and would put the bank on a price-to-earnings ratio of under 6.

Further, the investment banking segment of the firm has seen huge success over the past year, helping Barclays outperform its competitors. For example, in the third quarter, investment bank revenues surged by 14% year-on-year. This was driven by a surge in M&A deals and private equity buyouts, which have led to increased fees for Barclays. Nonetheless, there is the risk that such activity will decrease next year, and revenues will decline.

Even so, I think that any decrease in revenues from the investment bank can be made up for through the company’s lending business. This is because of the recent interest rise from the Bank of England from 0.1% to 0.25%. Such a rise should help make up for any lost revenues in the investment business. This will hopefully have a long-term positive effect on the Barclays share price.

The risks

Despite these positive signs, there are some things to watch out for. For example, 2022 profits are unlikely to reach 2021 levels. This is because this year’s profits include credit impairment releases of around £622m so far, which occurred because the impacts of Covid were not as severe as initially feared. Next year, there are likely to be some impairments, even though they are projected to be below historical levels. They will still have an adverse effect on profits, however, in comparison to the positive effect this year. This means that the current P/E ratio of under 6 must be taken with a pinch of salt.

Further, the impacts of Omicron may be severe, especially if businesses start to struggle. This could lead to a far higher default rate and cause Barclays to lose money. As such, in the case of additional restrictions the harm the economy further, the Barclays share price may be hit hard.

Why am I still confident about the share price?

While there are several risks, I think that these are mainly factored in to the Barclays share price, except for the prospect of a full lockdown. Further, over the next few years, I expect that interest rates will continue to rise, and this should have a positive effect on the profitability of the bank.

Further, after announcing an interim dividend of 2p per share earlier this year, the full-year dividend is forecast to total around 6p per share. This is equivalent to a yield of over 3%, another reason for me to buy the shares. As such, I’m very tempted to add more to my portfolio.

Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays. 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 Bank of England has raised interest rates for the first time in three years. But what could this mean for UK shares and should I make any changes to my Stocks and Shares ISA? Those are the questions that I’m asking myself today.

The central bank decided to increase its base rate of interest to 0.25% from the record low rate of 0.1%. It did so despite the Omicron variant threatening to disrupt the economic recovery. The main reason it chose to act now appears to be an attempt to keep inflation under control. From used cars to gas bills, prices have been rising across the board. Analysts expect inflation to hit 6% next year. That’s triple the bank’s target. That said, despite this rate hike, interest rates are still near record lows and are unlikely to threaten any economic recovery, in my opinion.

Will a rate hike affect UK shares?

Some UK shares are more affected by interest rates than others. For instance, it could be good news for high street domestic banks including Lloyds, Barclays and Natwest. In fact, all three banks were among the top performing FTSE 100 shares on Thursday, the day of the hike. Generally, banks can benefit from higher interest rates. They profit from the difference between interest earned and interest paid out. When rates rise, they can potentially pass on these higher charges to customers.

So will bank shares continue to benefit? Well, it’s not that simple unfortunately. There are several other factors at play. Banks also benefit from a thriving economy. Currently, there are parts of the economy that are struggling. Just when the hospitality and travel sectors were starting to recover, the latest variant caused a setback. This part of the economy has been hurt from cancelled pre-Christmas parties and frequently changing travel restrictions. Many bank shares have struggled to reach pre-pandemic levels, and I reckon any gains could still be limited for now. I don’t currently own any bank shares in my portfolio. I will monitor them but for now, I’m finding much more compelling share ideas elsewhere.

Shares to avoid?

If rate rises continue next year, which UK shares should I avoid? If inflation continues to rise, the Bank of England could increase interest rates further. In that scenario, I’d be keen to avoid companies in the utilities sector. Shares including National Grid, United Utilities and SSE could all underperform. Utilities shares tend to compete with bonds. So when interest rates rise, multi-asset investors can shift funds from utilities to higher-yielding bonds.

Some things to bear in mind, however. There could still be a small place for utilities in my portfolio. They tend to offer defensive characteristics and higher than average dividend yields. As such, they can act as a balance to some of the more volatile growth stocks in my portfolio.

Overall, although the interest rate rise could affect several UK shares, I’m currently happy with my portfolio and won’t be making any significant changes.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and 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.

Ever sell some shares and regretted it? I’m in that position at the moment. I’m a fan of dividend shares, purely because I think they are a good way of generating passive income. Well, earlier this year, one by one, I sold off my shares in three FTSE 100 dividend shares and I’m tempted to get back involved. Let me explain why.

Lloyds Banking Group – is it a good dividend share purchase?

I sold my shares in Lloyds Banking Group (LON:LLOY) earlier this year when I made a premium of around 33% on my original purchase price. At the time of selling my Lloyds shares to reinvest in other FTSE 100 companies, I thought I’d made a sensible decision. The Lloyds share price had hit 40p and I didn’t think there was scope for it to rise much further.

In retrospect, this was a mistake and I’m happy to acknowledge it. As I write, the Lloyds share price is hovering around the 45p mark and a healthy-looking dividend has been paid too since I sold. So not only have I missed out on a rising share price but I missed out on a dividend. Ouch.

You never stop learning in this game. What this episode reinforces is that investing for at least the medium term should be the goal, along with my longer-term aim of building my passive income from dividend shares.

The Lloyds share price still looks tempting – as does the dividend

Life is about learning, so I think I will need to bite the bullet and buy back into Lloyds. The current Lloyds share price doesn’t look too prohibitive, all things considered. As I wrote about Lloyds Banking Group previously, senior management have done a lot of work to streamline the workforce. This work has evidently been going well.

The risks I noted previously still exist, principally that Lloyds remains a massive organisation where tech innovation isn’t necessarily instinctive, especially when compared with young upstarts like Wise.

What swings it for me is the dividend. The next Lloyds dividend is forecast to be around 4.3% based on the current share price, which I think is pretty good considering the stock has been carrying some momentum through 2021.

Two other FTSE 100 dividend shares I’m considering buying back into

The two other FTSE 100 dividend shares I booted from my portfolio in 2021 were British American Tobacco and Vodafone, simply because I thought there were better investments out there.

The forecast share dividend yields for these two firms are currently around 8% and 7% respectively. At this very early stage of my research, I’m more inclined to get back into Vodafone because my instinct is that a 12-month share price decline of over 15% is not a fair reflection of the company’s prospects.

As ever, though, it won’t be instinct that guides my share purchases. It will be facts and figures. I’ll be more likely to invest successfully over the longer term if I do my homework and trust my investing principles.

Garry McGibbon owns shares in Lloyds Banking Group. The Motley Fool UK has recommended British American Tobacco and 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.

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At the end of the year, it can be good to review the things I learnt from it. Following on from this, I can take the investing lessons and use them to my advantage in 2022. Even though it’s a new year, the themes running through the markets carry over from December to January easily. With that in mind, here are my top four stock tips for next year, based on my lessons from this year.

Understanding the impact of data

My first stock tip is to pay more attention to economic data releases. This year has highlighted the importance of data such as inflation, unemployment and property price levels. These releases have impacted individual stocks a lot, along with the broader FTSE 100 index. 

For example, inflation has risen from 0.7% in March to 5.1% in November. This steep increase means that inflation is running at the highest level in over a decade. This has put pressure on stocks, particularly in the second half of this year. Higher inflation increases the likelihood of higher interest rates.

I think this will be key in 2022 as well, so I need to watch and pay attention to when the figures are due for release. 

This ties in with my second stock tip, which involves keeping up to date with the monetary policy decisions from the major central banks. I don’t need to go and get a degree in economics, but I do need to understand some key relationships. For example, understanding why inflation would make a central bank more likely to raise interest rates. Or to understand why high interest rates are generally negative for the stock market. 

If I’m aware of what the policy actions will mean for my stock portfolio, I’m in a better position to act before decisions get made in 2022.

Investing tips when putting £1,000 to work

My third stock tip is to ensure I diversify my £1,000. Over the past year, the best performing FTSE 100 stock has gained almost 80%. The worst performer has lost 30%. So there’s a huge mix in terms of performance over 2021. As much as I think I can pick one stock to beat the rest in 2022, it’s a much more sensible idea to spread my money over half a dozen stocks instead. 

Based on the performance in 2021, there’s likely to be a large mix of stock returns next year.

My fourth stock tip would be to focus more on dividend stocks. Even with the small interest rate hike yesterday, interest rates remain very low. BY contrast, dividend yields in the FTSE 100 have moved higher (on average). So for 2022, I’d consider allocating more of the £1,000 than usual to top dividend stocks.

These can help me not only pick up valuable income during uncertain times, but also help me to offset the erosion that comes from low cash rates and high inflation pressures.

Overall, the above four stock tips can hopefully allow me to better navigate 2022. Having learnt the lessons from this year, I should be well placed to make next year a success!

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

I’m searching for the best cheap UK shares to buy for next year. Here are two penny stocks I think could be brilliant buys.

Gold star

I believe the stars could be aligning for gold to have a strong 2022. So buying producers of the precious metal like Pure Gold Mining (LSE: PUR) could be a good idea for me.

A worsening Covid-19 crisis could fuel strong gold price rises next year (the yellow metal struck record peaks above $2,000 an ounce in summer 2020 during the height of the pandemic). Runaway inflation as we enter the new year also bodes well for the safe-haven asset (US consumer price inflation just hit its highest since 1982).

I’d also be encouraged to buy Pure Gold, given the progress it’s making at its flagship asset at Red Lake, Ontario. Production at the Canadian asset — which Pure Gold describes as “one of the highest-grade gold mines on the planet” — jumped 54% in quarter three versus the previous three months, thanks to improved grades and greater tonnage, to 9,260 tonnes. The gold miner is seeking throughput of 1,000 tonnes per day by mid-2022, versus 685 in the third quarter, as upgrades at the site kick in.

At current prices of 42p per share, Pure Gold Mining trades on a P/E ratio of 8.9 times for 2022. This sits inside the widely-regarded value benchmark of 10 times and below. Even though development and production problems are an ever-present threat, this low valuation makes the penny stock highly attractive to me right now.

A top renewable energy stock

Electricity generator Greencoat Renewables (LSE: GRP) is another top penny stock for me to buy for a potentially-volatile 2022. Our demand for electricity remains broadly constant, despite the onset of economic, political and/or social crises. So I’m not expecting profits here to fall off a cliff if inflation keep surging and/or the Covid-19 crisis worsens.

In fact, I’m expecting earnings at Greencoat to take off as green energy grows in popularity. So do City analysts who expect this UK renewable energy stock’s profits to soar 42% in 2022. BloombergNEF has suggested wind and solar combined could account for 15% of primary energy supply by 2030, and 47% by 2040. That compares with just 1.3% today, suggesting Greencoat could be a hot growth stock for the coming years.

Greencoat’s also a great income share, in my opinion. The defensive nature of its operations provide the stability to regularly pay big annual dividends. For 2022, its yield sits at a mighty 5.6%.

Shares like Greencoat Renewables aren’t without their risks, of course. Revenues can take a smack if the wind stops blowing and energy generation grinds to a halt. It can also cost a packet to keep wind turbines spinning and expenses can balloon following extreme weather events.

Still, it’s my opinion that — all things considered — this green UK share could prove a lucrative investment over the long term.

Royston Wild 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.