When a stock is heavily shorted, it’s a very bearish sign. It means that a large number of investors are betting on the stock’s price falling in the future. In the case of Cineworld, the most recent data showed that it has a short interest of 9.5%. This makes the cinema operator the most shorted stock in the UK. So, does this mean that the Cineworld share price is set to decline further, or after its 27% yearly decline, can it recover?

Risks of Omicron

The Omicron variant has put the company’s future into doubt, and over the past month, the Cineworld share price has declined 30%. This is mainly due to fears that demand could be hit. At worst, there’s also the prospect of another lockdown, which could hit the company hard. But is this large share price decline warranted?

The ideal situation for the company is that demand can continue recovering, despite the risks posed by Omicron. This would continue the trend seen over the past few months, with cinema bookings hitting their highest level of growth since October 2019. It even managed to generate positive cash flow in October, and group revenues were 90% of 2019 levels. If similar momentum can continue, I feel the Cineworld share price could soar.

But this is a big ‘if’. Indeed, restrictions have already been announced in response to the new variant, and this includes compulsory wearing of masks in cinemas. This may lessen the appeal of cinemas, and lead to people staying at home once again.

Further, if there’s a new lockdown, the results could be disastrous. This is especially true considering the company’s extreme levels of debt. In fact, in this scenario, insolvency wouldn’t be out of the question. This risk is the reason why the shares have dropped so much recently.

The debt situation

Even before the pandemic, Cineworld’s debt position seemed pretty unsustainable. Yet at least it was profitable then. But operating losses in the first half of the year totalled over $200m. And debt has also continued to soar. In fact, net debt currently totals $4.6bn, far greater than its current market capitalisation of around $700m. As such, even if it’s forced to issue more shares to pay off some of this debt, this is unlikely to make much of a dent in the total. There are also several forthcoming interest payments, and if the company can’t return to profitability, default is a possibility. This could result in insolvency and even see the Cineworld share price fall to zero.

Has the Cineworld share got further downside?

In the case of another lockdown, I believe that the Cineworld share price will fall a lot further. This is one reason why I think it’s so heavily shorted.

But there’s also the chance for the shares to soar. Indeed, before Omicron, the recovery was progressing well. If this recovery can continue despite the emergence of the new variant, I believe the upside potential could be huge. There could even be a short squeeze. I’m not going to buy though, until I can see more evidence that a new lockdown isn’t coming. This is because the risks seem too great right now. 

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.

Last Friday’s US inflation figures show that prices have risen faster than at any time in the last 40 years. November inflation figures for the UK are also out soon. If previous trends are anything to go by, prices are likely to be sharply higher. As the same picture emerges around the world, I’m looking at a dividend-paying ETF as a hedge against rising prices.

Looking for protection

I believe that high-dividend-paying shares can be protection against inflation. These companies tend to be steady firms in solid sectors. In an inflationary environment, they could even be able to increase the prices of their goods or services and maintain or increase their dividends more than the rate of inflation.

For my own portfolio, I’ve always liked ETFs (exchange traded funds). These are funds that track an index or sector and can be bought and sold like a share through most online brokers. They allow me to invest in multiple companies in a single fund and are usually low-cost.

One I’m considering

SPDR S&P Global Dividend Aristocrats UCITS ETF (LSE: GBDV) is one fund that’s always on my radar. Its aim is to invest in global high-dividend-yielding companies by following the S&P Global Dividend Aristocrats Quality Income Index. This tracks companies that have over a $1bn market capitalisation and that have sustained or elevated dividends for at least 10 consecutive years. At the same time, the firms must maintain a positive return on equity and cash flows from operations. Such companies should have pricing power in an inflationary environment.

Diversification is always on my mind when investing and this ETF scores well in terms of number of firms, geographical location and industries.

First, there are around 100 companies in this fund. No company has more than a 3% weighting within the ETF. Second, the fund is geographically diverse. US companies make up 45%, but the remaining firms come from all across the world. Finally, it covers a wide variety of industries including banking, utilities and insurance.    

This ETF is large at over $700m and has a reasonable ongoing charge. The dividend yield is currently around 3.7%, which is acceptable given the diversity of the ETF. 

The outlook

It’s worth me remembering that there are some risks. One that comes to mind is the dividend trap. This is where a dividend isn’t sustainable in the long run because the underlying business isn’t good. I’m also aware there are other alternatives that might provide more protection in the face of inflation, such as gold.

As I see it, demand for oil and gas is pushing up energy bills around the world. Shortages of many goods, because of factory shutdowns due to covid restrictions, are pushing up prices. The rise of the omicron Covid variant is likely to exacerbate things.

On balance, given that inflation is likely to continue to soar next year, I’m seriously contemplating adding this high dividend-paying ETF to my portfolio.

Niki Jerath does not own shares in SPDR S&P Global Dividend Aristocrats UCITS ETF. 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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The recent increase in volatility in markets has raised the spectre that another stock market crash could be just around the corner.

The emergence of Omicron a few weeks ago sent markets into a tailspin. However, subsequently both the FTSE 100 and the S&P 500 made back all their losses. What drove this sudden reversal was retail investors buying the dip; indeed, a very similar pattern emerged when the Delta variant was first discovered.

Is this a wise move or is it a case of fools rushing in where angels fear to tread?

Will history repeat itself in the event of another stock market crash?

Firstly, to my mind, the likelihood of a stock market crash being precipitated by another lockdown is minuscule. The world is in a totally different place than 20 months ago not only in terms of the vaccines but knowledge about the virus more generally.

Secondly, even if one assumes a worst-case scenario of further lockdowns, I am not convinced that all the same winners will emerge this time around. For example, the incredible run up in the share price of the likes of Peloton and Zoom are, in my opinion, well and truly over. In truth, neither company had an enduring competitive advantage. After all, everyone who wanted a Peloton bike likely already has one; as for Zoom, going head-to-head with the mega-cap Microsoft and its Teams offering was only ever going to result in one winner in the long term in my opinion. As a long-term investor, I am not interested in investing in short-term trends as I am just as likely to pick a dud as a multi-bag winner.

A third difference is rising inflation. In the US, it now stands at a whopping 6.8%, its highest level in 40 years. In the UK, it sits at 4.2%. Inflation tends to build on itself; that is why I personally never believed in the Fed’s transitory notion in the first place.

Most retail investors today have never lived through a period of rising inflation. The last significant bout began in the late 1960s, and during the following decade inflation rose in three separate waves, each peak and subsequent trough higher than its predecessor.

What does all this add up to?

Central banks do not inspire confidence in me in their ability to deal with the rising cost of living. Last month, the Bank of England stunned most economists by holding off raising interest rates. This month, Omicron has given them the perfect excuse, should they so wish, to delay again.

It isn’t difficult to see why the Bank of England and the Fed are reluctant to raise interest rates. With both governments and corporations drowning in debt, the recovery from Covid-19 still at an early stage, and the darling of the stock market, the tech sector, perfectly priced for a near-zero interest rate environment, just the mere hint of a significant rate rise to quell inflation could bring the whole pack of cards tumbling down.

The mantra amongst retail investors that has quelled every single stock market wobble since the Covid crash — “don’t panic, the Fed has got your back” — doesn’t seem to have the same ring to it any more.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Andrew Mackie has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft, Peloton Interactive, and Zoom Video Communications. 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 Abrdn (LSE: ABDN) share price hasn’t had a great 12 months. It’s now fallen by 14% over one year as I write today. But really, the share price has stagnated since the end of 2018. The stock also had a rather volatile time during 2020 as the pandemic unfolded, so investors haven’t had much to cheer about.

But is this set to change? I say this because the company announced a large acquisition this month. The signs are that it’s a top quality business too.

Here’s what I think about the prospects for the Abrdn share price now.

The acquisition

On 2 December, Abrdn announced that it was acquiring Interactive Investor for £1.49bn. Previously, Interactive Investor was a private company, so investors couldn’t buy the shares on a stock exchange.

Interactive Investor is a subscription-based investment platform. Its competitors include other listed companies, such as Hargreaves Lansdown and AJ Bell. I view these companies as high quality because they achieve impressive returns on capital. Both are highly cash generative too, and require little in the way of cash investment to maintain the businesses.

Unfortunately, as Interactive Investor is a private company, the amount of publicly available data is sparse. Nevertheless, knowing about Hargreaves Lansdown and AJ Bell meant I had a fair idea of the potential quality of the acquisition here.

Indeed, Abrdn said Interactive Investor has over 400,000 customers who invest around £55bn via its platform. Furthermore, its operating margin was said to have improved from 23% to 34% between 2018 and 2020.

What’s even better about this acquisition is that it’s expected to be double-digit earnings enhancing in its first full year after completion. This is a positive sign in my view.

Abrdn’s other businesses

If I were to buy Abrdn shares, I’d have to be comfortable with its other businesses. The company offers a range of investment solutions across asset management, investment platform technologies and financial planning. As it stands, Abrdn manages and administers £532bn of assets for its clients. This is impressive scale, and means the company can generate significant profits on its asset base.

However, City analysts are forecasting net profit to decline by 28% this year. And in 2022, net profit is expected to rebound by only 7%. This isn’t great, so Abrdn’s management maybe views the acquisition of Interactive Investor as a way to boost growth.

Are Abrdn shares a buy?

I think the acquisition here is a good move for Abrdn. Interactive Investor shows signs of being a quality company. The fact that it should be earnings accretive in the first full year suggests it’s good deal for Abrdn too.

However, acquisitions can go wrong if they aren’t integrated well. There’s some risk mitigation here, though, as Interactive Investor’s current CEO will continue to lead the business. It will also operate as a standalone company within Abrdn, so there should be little disruption.

I’m going to see how the acquisition is integrated before I buy Abrdn shares. I think there are better options for my portfolio right now.

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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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I doubt I’m the only investor thinking that the last few weeks have been akin to wading through treacle. But on a positive note, it’s worth remembering that times like these can be the lifeblood of long-term Foolish investors looking for cheap UK shares to buy. Accordingly, here are two examples I’d have no issue adding to my portfolio today.

Lockdown beneficiary

In retrospect, the time to pick up stock in online casino and gaming operator 888 Holdings (LSE: 888) was just before Boris Johnson announced the first national lockdown. Back then, the share price was around 80p. A couple of months ago, 888 achieved a 52-week high of 494p. 

Unfortunately, I didn’t act on my own bullish call in 2020, due to the sheer number of attractively-priced options out there during the market crash. Even so, I’d still be prepared to buy now, especially as 888’s valuation has now fallen back below the 300p mark.  

Aside from general market skittishness, some old-fashioned profit-taking is probably behind this selling pressure. Some investors may have taken the 15% reduction in business-to-consumer betting revenue in Q3 as a sign that trading momentum is now slowing. A more likely catalyst, however, is the recent legal shake-up in the Netherlands that requires online betting firms to obtain a licence. In response, 888 has ceased to operate there — a decision that’s expected to hit profit by $10m. 

I’d snap up this cheap UK share

Since this is a temporary measure, I think the fall may be overdone. Shares in 888 now trade at just 14 times forecast FY22 earnings. That looks great value, considering 888’s agreement to buy William Hill’s non-US assets could put a rocket under profits in time. What’s more, the stock comes with a potential 12p per share dividend next year (or 4.1% yield at the current share price).

All this before we’ve even considered the increase in business 888 could see if there’s a fourth national lockdown.

Buy the dip?

Another cheap UK share I’m interested in buying would be commercial and domestic lighting firm Luceco (LSE: LUCE). Despite staging a brief comeback in November, shares in the mid-cap were back to 337p by last Friday. That’s a significant drop from the 52-week high of 513p it hit back in September. 

This fall leaves Luceco’s forecast P/E at a little under 16. This may not look like a screaming bargain initially. However, this number should never be looked at in isolation, especially if the company scores well on quality metrics.

While past performance is definitely no guide to the future, Luceco has long generated high returns on invested capital. It’s this, according to UK top fund managers like Terry Smith, that plays a significant role in great long-term returns. Luceco could therefore prove to be a steal at current levels.

I must emphasise the word could here. There is a chance that recent cost pressures may not peak in early 2022 as the company expects. The fact that less than half of the company is available to buy on the market (i.e. a low ‘free float’) may also mean the share price lurches rather than drifts lower.

Still, I’m not concerned with trying to time the market exactly. What’s more important to me is buying a decent business at a sane price and holding on. I remain bullish on Luceco.

Paul Summers 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 Cineworld (LSE: CINE) share price fell more than 5% on Friday. Over the past 30 days, the shares have fallen 29%. Broadening the horizon, things look even bleaker for the firm, with the share price falling over 45% in the past six months.

The primary reason behind the short-term fall is the Omicron variant and the threat it poses to the leisure sector. This sector was hit extremely hard by the pandemic, with lockdowns leading to customer numbers plummeting. However, does this drop present me with a buying opportunity? Let’s take a closer look.

A good opportunity?

Although the Omicron virus does present a risk for Cineworld, it looks as if its impact won’t be as bad as first expected. If this is the case, we could expect cinema capacity to keep climbing back towards pre-pandemic levels. This is something the firm has almost been able to achieve already, with its most recent report showing that capacity for October had reached 90% of the same period for 2019. If the firm is able to enhance its customer capacity throughout 2022, revenues will begin to recover. This could be a real positive for the Cineworld share price.

Assessing Cineworld shares’ value, they do look very cheap to me. Pre-pandemic, the shares were trading at around 180p. They’re now sitting at just 47p. In addition to this, the firm’s price-to-earnings ratio is just 2.5 times. For context P/E ratios below 10 are considered very good value.

Cineworld share price risks

Of course, the Cineworld share price being cheap makes sense. The firm’s most recent results were pretty appalling. For the six months up to June 2021, revenue came in at just $292m, down from over $700m in the same period in 2020 (which was itself very weak). In addition to this, debts have climbed to $4.6bn. Shrinking revenues and growing debts are a red flag for any firm.

The current economic environment also worries me. With inflation on the climb, many investors are expecting a rise in interest rates. The next Monetary Policy Committee meeting will be held on 16 December, where a potential rate decision will be made. If they do rise, it’s likely to magnify the large debts the firm has amassed throughout the past 18 months.

In addition to this, as my fellow Fool Royston Wild pointed out, the number of shares held in short positions has been growing substantially over the past few months. Around six months ago, just over 3% of the shares were ‘held short’. This number has since climbed to 9.4% of total floated shares. The fact that institutional investors are betting on the stock falling doesn’t fill me with confidence.

The Verdict

In my opinion, the risks for the Cineworld share price outweigh the positives. The Omicron variant poses a large risk to the wider retail leisure sector. In addition to this, poor results coupled with large debts worry me. Although the shares do look cheap, I’m not willing to take the risk for my portfolio just yet.

Dylan Hood 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.

GlaxoSmithKline (LSE: GSK) has been a relatively poor investment over the past decade, however attractive the Glaxo share price has looked. According to my research, including dividends paid to investors, the stock has produced an average annual return of 5.5% over the past decade. That is compared to the FTSE All-Share Index yearly total return of 7.3%.

Over the past year, the company’s performance has picked up, although not by much. The stock has produced a total return of 19.4% over the past 12 months. That compares to 15.2% for the FTSE All-Share Index. 

However, I think the next 12 months could be a transformative period for the Glaxo share price. That is why I would buy the stock for my portfolio for this year and beyond as the company rebuilds for the next growth phase. 

Glaxo share price restructuring

For as long as I can remember, investors and analysts have been calling for the company to break itself up. They have argued that the enterprise does not make sense in its current form. The slower-moving consumer healthcare business does not fit well alongside the faster-growing vaccines and drug development business.

Slow and steady consumer companies also tend to attract lower valuations than fast-growing drug development corporations.

Glaxo laid out its plans to break up in 2020, and the split is finally set to take place next year. Investors will be given shares in a new consumer healthcare company, while the pharmaceutical and vaccines business will stay as one. 

The company will be passing on the majority of its debt to the consumer business. This makes sense because consumer healthcare is more predictable than pharmaceuticals. Unfortunately, this debt switch, coupled with the pharmaceutical arm’s requirement for reinvestment, will mean a dividend cut.

Analysts are forecasting a reduction of 31% overall. The payout is likely to remain lower for the consumer business as it reduces debt. 

Still, for the pharmaceutical side of the enterprise, operating profit growth will average more than 10% a year. Vaccine production and development, as well as speciality medicine sales, will contribute to growth. 

Higher valuations 

Considering all of the above, I think the stock is cheap, considering its potential. Investors will be willing to pay more for the pharmaceutical and consumer healthcare businesses, despite the lower dividend. 

The simplicity of the consumer healthcare business may attract a different class of investor that is willing to pay more for stability. At the same time, the growth side may attract growth investors, who could also be willing to pay more. 

Of course, there is no guarantee this scenario will play out. Trying to predict if a stock will be worth more or less in a year than it is today is almost impossible. The group could have to deal with additional costs and even extra regulations that could upset the demerger. This is something I will be keeping in mind. 

Nevertheless, overall, I think the Glaxo share price is extremely attractive as an investment for 2022. 

Rupert Hargreaves 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.