While market conditions can suit trading in and out of stocks on a short-term basis, it may be preferable to take long-term positions by looking in more detail at company fundamentals. Whenever I decide to use this strategy to find top FTSE 250 stocks with future potential, I look no further than the work of Warren Buffett – arguably the world’s most successful investor. Buffett’s central principle is investing for the long term through the power of compounding growth: the re-investment of earnings to achieve additional growth over a period of time.

A key component of this investing ideology is Earnings Per Share (EPS), which is the profit per outstanding share of the stock and is a good indication of the profitability of a company over a period of time. Buffett also takes into account the price-to-earnings (P/E) ratio, to better project future prices and therefore establish whether the stock is under- or overvalued. Let’s take a look at three top FTSE 250 stocks that may be found through this method.

Ashmore (LSE: ASHM) is an asset manager specialising in Asian investments with solid EPS data for the past years. With a compounding annual growth rate of 7.27%, this stock may not initially appear exciting. In spite of this, however, it is a consistent earner and could provide stability in a higher risk portfolio. It also has an attractive P/E ratio of 16.87, which leads to a projected share price of 464p. This means that Ashmore is significantly undervalued based on its profitability and I am pleased that I bought this stock. While it might be argued that the recent slip in share price from 380p to 295p presents an attractive buying opportunity, the unknown reasons for the slippage is concerning and I think I will be looking very closely at this issue in the near future.

Additionally, the long-term view draws my attention to Games Workshop, a stock that sells fantasy miniatures and licenses video games. As one might imagine, this industry has performed well during the Covid-19 pandemic, because more people have been at home and seeking new ways to amuse themselves. With exceptional growth in EPS, Games Workshop has managed a compounding annual growth rate of 38.98% and a P/E ratio of 23.82. This all means that the projected share price is 7,210p, but the current price is 9,970p. In essence, this means that Games Workshop is currently overvalued in my estimation, thus there may be cheaper stocks elsewhere in which to invest my money.

Finally, I am interested in Plus500 (LSE: PLUS), an online Contracts for Difference (CFD) broker. Like Games Workshop, Plus500 has benefited from lockdowns, with people taking an interest in investing with any cash saved from not travelling or dining out. Again, I would be adding this to my portfolio based partly on its compounding annual growth of 35.79%. With a P/E ratio of 392, however, I am sceptical. This may be an indication of an artificially high share price projection, because the projection is 2,508p. Currently, this stock is trading at 1,309p and is still some way off the projection. I will be keeping an eye on Plus500, though, because its fundamentals are solid – I think more time is needed to assess where this stock is going.

Andrew Woods owns shares in Ashmore. The Motley Fool UK has recommended Games Workshop. 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.

This has proved a week to forget for Cineworld Group (LSE: CINE) and its beleaguered share price.

News that Omicron infections are doubling every two-to-three days has raised the spectre of half-empty cinemas as people stay at home again. Full lockdowns could well be just around the corner if infection forecasts prove correct too.

Its share price slide worsened considerably on Wednesday as news that it faces colossal litigation costs filtered through. The UK leisure share slipped as low as 27.06p at one point, the cheapest level since October 2020.

As a stock investor, I love to go shopping for bargains. Does Cineworld’s slump provide a terrific dip opportunity or should I avoid it like the plague?

Courting fresh trouble

Cineworld’s share price tanked almost 40% on Wednesday as news emerged that it will have to pay around £725m related to its scrapped takeover of Cineplex. The deal, which was agreed in December 2019 for a cool C$2.8bn, was abandoned in summer 2020 by Cineworld as the Covid-19 crisis intensified.

The Ontario Superior Court of Justice threw out its claim that Cineplex had breached covenants. It ordered the UK chain pay damages “of C$1.23bn for lost synergies to Cineplex and C$5.5m for lost transaction costs.”

Cineworld will appeal the decision, it said, adding that it doesn’t expect to have to pay up during the 30-day appeals period.

Balance sheet worries worsen

Such a colossal sum would be a sledgehammer blow to investor mood even under usual circumstances. Given that it will add extra stress to the fragile balance sheet, and comes at a time when cinema takings are in danger of tanking again, it couldn’t have come at a worse time.

It raises the prospect that Cineworld will have to undertake further rounds of emergency financial measures. Will it be forced to take on more loans, pushing debt servicing costs still higher and giving it less financial firepower to rebound from Covid-19?

Could it possibly have to issue new shares again, diluting shareholders’ holdings in the process? Remember, Cineworld had a staggering $8.4bn worth of net debt on its books as of June.

Will Cineworld’s share price drop to 0p?

Cineworld’s share price bounced on Thursday as dip buyers piled in. But I won’t be adding the beleaguered business to my shares portfolio.

I’ve remained convinced since I sold my Cineworld shares last autumn that it continued to walk a tightrope even as Covid-19 restrictions were eased. News of rebounding box office sales are all well and good (latest financials showed admissions in October at 90% of 2019 levels). They illustrated the enduring allure of the cinema that could drive profits at the firm sky-high again. But fresh trouble was never far away as the pandemic dragged on.

Things could get particularly dicey for Cineworld and its share price if the Omicron variant begins to run riot in the US too. The business sources around three-quarters of revenues from the States. For these reasons, I’d much rather buy other UK shares today.

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.

It’s been an interesting year for shareholders in former telecoms monopoly BT Group (LSE: BT.A). The BT share price has zigzagged wildly in 2021, soaring between March and June, before crashing back to earth by late October. But what do I think might happen to this popular stock in 2022?

The BT share price oscillates wildly

Nearly five years ago, the share price was riding high, closing at 391.75p on 13 January 2017. It then began a multi-year slide, ending 2017 at 271.7p, before closing 2018 at 238.1p and 2019 at 192.44p. What’s more, BT shares were on something of a roller-coaster ride in 2020. They ended the year at 132.25p, having hit a Covid-battered low of 94.68p earlier in the year.

On 26 February 2021, BT shares had slipped to close at 123.55p, down 8.7p (-6.6%) this year. But then the shares enjoyed one of their strongest surges in years, as the price climbed relentlessly higher. Four months later, the stock hit its 2021 high of 206.7p on 23 June. At this point, BT shares had added 74.45p — soaring by more than half (+56.3%) — in under six months.

However, what goes up often comes down, so BT stock underwent yet another collapse. Just over four months later, the shares closed at 135.2p on 25 October, having gained less than 3p (+2.2%)  in 2021. Looking at the BT share price chart, it resembles an upside-down V between March and November. Oh dear.

BT stock bounces back again

On Thursday, the BT share price closed at 166.3p, up 2.5p (+1.5%) on the day. Since 25 October, this stock has rebounded by 31.1p, surging by 23%. On 31 October, with the shares standing at 138.93p, I said that BT was a fallen angel with growth potential. Hence, I said that I would buy at this price. I know it has been a frustrating stock to own for most of the past five years. It’s lost 19.1% over six months, gained 20% over one year, slumped 34.9% over three years, and crashed by 55.1% over five years. But I see potential for recovery at BT in the coming years, perhaps leading to a re-rating of its shares.

I’d buy BT today

At current levels, BT shares trade on a price-to-earnings ratio of 15.9 and an earnings yield of 6.3%. But analysts expect these fundamentals to improve in 2022-23, as it cuts costs and pension contributions. Also, BT cancelled its dividend in May 2020, its first suspension in 36 years. But the cash payout has now been restored at a proposed 7.7p a share for 2021-22. That equates to a dividend yield of 4.6% a year, above the FTSE 100’s 4% yield.

BT is worth £16.3bn today. If I had this sum, would I buy the business? I would, which is why I would also buy stock at its current price. Interestingly, French-Moroccan billionaire Patrick Drahi agrees with me, having built up an 18% stake in BT over the past six months. I know that the firm has fumbled and stumbled along for years, but I suspect it can look forward to a brighter future. For me, it might be the ideal combination of an income-generating value stock with a potential growth kicker. If BT can successfully restructure to focus on 5G telecoms networks and full-fibre internet, it could be a great stock to own in 2022 and onwards. But I’d expect a rather bumpy ride!

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.

The economic rebound could be in severe jeopardy if the Omicron variant proves to be severe. In this climate it might be tempting to run for the hills until the outlook becomes clearer.

This isn’t a strategy I’m thinking of adopting however. There are plenty of UK shares I’m expecting to thrive in 2022 even if the Covid-19 crisis carries on. Indeed, here’s a top FTSE 100 share I’m thinking of buying for next year.

Will the Bank of England boost homes demand?

The housebuilders have had a terrific couple of years as Stamp Duty holidays have turbocharged buyer demand. But even though the tax has fully returned, I’m tipping UK shares like Persimmon (LSE: PSN) to play another blinder in 2022. I’m expecting newbuild sales to remain strong as interest rates remain low versus historical standards, and the government’s Help to Buy support scheme will continue.

The outlook for Persimmon and its peers could get a lot rosier too if the Bank of England (BoE) loosens mortgage affordability rules. Threadneedle Street will consider scrapping a rule that requires borrowers to show they could afford a 3% rise in interest rates. The review slated for the first half of next year could help tens of thousands of renters get onto the property ladder, pushing house prices still higher.

Persimmon is souping-up construction rates to make the most of future opportunities too. It’s on track to build 10% more homes in 2021 than last year. The FTSE 100 builder’s spent some £380m in the year to 8 November to build its land bank for further production growth too.

A dirt-cheap FTSE 100 stock

I’m not shocked that City analysts think Persimmon’s earnings will continue growing in 2022. Last month’s news that average private home reservation rates were 16% higher year-on-year between 1 July and 8 November gives it great momentum moving into the new year. The number crunchers think profits will increase 4% from 2021 levels.

As a consequence, Persimmon looks dirt-cheap from an earnings perspective. At £28.28 per share, the firm trades on a forward price-to-earnings (P/E) ratio of 10.7 times. However, it’s in the dividend arena where Persimmon really looks mightily attractive to me. Predictions of extra dividend growth leave the builder with a mighty 8.6% dividend yield for 2022.

A bright long-term outlook

However, I am concerned about the impact of soaring material and labour costs on Persimmon’s profits column. I’m also mindful that it construction targets could fall if supply chain problems worsen and it can’t source products. That said, I still believe builders like this remain terrific investments for 2022.

The government thinks 300,000 new homes will need to be created every year by the middle of the decade. This could prove to be a huge understatement, in my opinion. Especially so if the BoE loosens those aforementioned mortgage rules. It’s why I’m considering adding Persimmon to my shares portfolio today.

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.

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Things might have looked up for a number of stocks in 2021, but some lagged behind. Like this AIM stock, which is down by 2% over the year. It did make some gains earlier this year, but it has now lost those and is down by almost 5% from the start of the year. I am talking about the manufacturer of infection prevention and contamination control products Tristel (LSE: TSTL).

Tristel’s share price is up 18% in a month

However, the situation is now turning around for Tristel. In the last month alone it has risen some 18%. No points for guessing why. Covid-19 cases are on the rise again, driven by the newly discovered Omicron variant. This could lead to higher sales for its hospital surface disinfectants. We have seen this happen in the past as well. Right after the pandemic started, the company saw a spurt in demand for these products, which more than made up for a decline in sale of other products like medical device decontaminants. 

For this reason, Tristel has managed to record strong growth over the past couple of years despite the Covid-19 disruption for many other companies. In fact, as would be expected, its stock was one of the big gainers after the stock market crash of March last year. Since some of its segments also gain from normalising health and economic conditions, however, the stock continued to rise until early this year. Even after the correction of the past few months, the stock is still priced slightly higher than it was before the pandemic started.

2022 could be good for the AIM stock

Looking forward, I think 2022 could be a good year for Tristel too. Recently, it said that sales have picked up for it across geographies as normal services to hospitals have resumed. This could have impacted the stock positively anyway. But now that we are looking at another potential Covid-19 wave, I think its financial performance could remain even more elevated. Its stock price has already been on the rise in the past month, as I was saying earlier. 

In any case, as a defensive stock it is one to consider making an investment in during uncertain economic times. Even before the Omicron variant came about, economic recovery was quite slow. For instance, the UK barely grew in October from the month before. And the same could have continued in the foreseeable future as well. Now, with the new variant and fears of another lockdown around, the future looks even more grey. 

My assessment

While this does explain the AIM stock’s current popularity, I do see its valuation as a stumbling block for me. It has a high price-to-earnings (P/E) ratio of 78 times. If we go into another lockdown, I reckon it is possible that its share price could rise anyway. It reckon it could even become one of my best investments for 2022. But it is also possible that the whole Omicron situation blows over and recovery gathers steam. Despite its strong credentials, it could then weaken further as other stocks look underpriced by comparison. Because of this, I would wait and watch how the situation unfolds and make a call on whether or not to invest in the Tristel stock then. 

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.

I often look for beaten-down large-cap shares with recovery potential. Thus, I went bargain-hunting in the FTSE 100 index on Tuesday afternoon. While browsing the index, I found four bombed-out shares that have suffered a terrible 2021. I don’t own any of these losers, but I’d buy two of them today.

The FTSE 100’s winners and losers

Over 12 months to 14 December, the FTSE 100 gained 10.8%, excluding dividends. However, returns generated by individual Footsie shares vary widely. Of 100 stocks in the index for a year, 70 have risen. These gains range from 0.1% to 88.7%, with the average gain across all 70 winners being 25.2%. This leaves 30 FTSE 100 losers. Losses among these 30 laggards range from 0.1% to 28.5%. Across all 30 losers, the average decline is 11.8% — 22.6 percentage points behind the wider index.

The biggest losers over one year

These are the FTSE 100’s four biggest losers in the year ending 14 December 2021:

Note that each of these four stocks is in a bear market, having fallen 20%+, with yearly losses ranging from 21.7% at Fresnillo to 28.5% at Flutter Entertainment. Across all four, the average slump is 25.3%. As a veteran value investor, I often invest in battered stocks that might bounce back. Experience tells me that today’s dog stocks sometimes turn into tomorrow’s star shares. That’s why I’d buy two of these stocks today.

Two FTSE 100 flops I’d buy

The first share I’ll reject is online supermarket Ocado Group. I wrote last month that this FTSE 100 share could be a wild ride in 2022. Over the past decade, Ocado has been heavily loss-making while burning through cash. But OCDO leapt 7.3% on Tuesday following a well-received trading statement, so I might be proved wrong. The second share I will reject is Flutter Entertainment. Though I’m keen on this stock, I’d prefer to see Flutter’s next trading update before buying its stock.

Thus, the two stocks I’d buy are mining companies Fresnillo and Polymetal International. Established in 2008, Fresnillo is the world’s largest producer of silver from ore and Mexico’s second-largest gold miner. In 2020, it produced 53.1m ounces of silver and 769.6 thousand ounces of gold. Therefore, if precious metal prices rise next year, so too might Fresnillo shares. On Tuesday, they closed at 863.6p, valuing the group at £6.4bn. The shares trade on 13.8 times earnings, for an earnings yield of 7.3%. The dividend yield of 2.8% a year is below the FTSE 100’s 4%, but still worth having.

I’d also buy the stock of Polymetal International, an Anglo-Russian miner of precious metals, registered in Jersey with headquarters in Cyprus. On Tuesday, its stock closed at 1,245p, valuing the group at £5.9bn. POLY shares currently trade on a lowly price-to-earnings ratio of seven and a chunky earnings yield of 14.2%. Also, their dividend yield of 7.8% a year is among the highest in the FTSE 100.

Mining for value

Finally, I’ve had perhaps two decades of experience of investing in FTSE 100 miners. During this time, I’ve seen metals prices soar and slump in boom-bust demand cycles. Likewise, I’ve witnessed company profits collapse at even the world’s largest miners. And I know that even mega-cap miners sometimes cancel, cut, or suspend their dividends during tough times. Therefore, although I’d buy both of these mining stocks today, I’d fully expect their share prices to be volatile in 2022 and beyond!

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