The Vodafone (LSE: VOD) share price has continued to underperform the market over the past few weeks. The stock registered a small bounce between the beginning and last week of November, but it has since resumed its decline.

Following this performance, shares in Vodafone have fallen 14%, excluding dividends over the past 12 months. By comparison, the FTSE All-Share Index has returned 13% over the same timeframe. This implies that the stock has underperformed the broader market by 27%, excluding dividends. 

Vodafone share price drop 

Shares in the company dropped in November after it reported its fiscal first half 2022 results. The figures showed a 22% decline in operating profit, although overall group service revenue increased by 2.8%. Cash generated by operating activities increased 7.4% in the period. 

These numbers were not particularly inspiring. Operating profit slipped due to higher capital spending costs and a lack of lucrative roaming fees. Free cash flow generated by operating activities also collapsed. 

The company’s adjusted free cash flow for the period totalled €23m, down from €451m in the prior-year period. Net debt increased by 0.9% to €44.3bn.

According to the corporation, cash flow will be weighted to the second half. Management is guiding for adjusted free cash flow of €5.3bn for the current financial year. 

If Vodafone hits this projection it may be able to make a dent in its debt pile, which is one of the company’s biggest challenges. Management is focusing on getting debt under control and has been selling off assets to try and streamline the business. 

Until the company can make a material dent in its debt mountain, I think the market will continue to give the business a wide berth. Without a strong balance sheet, Vodafone may struggle to make the investments required to stay ahead of its competition.

The firm may also have to cut its dividend if it suffers a sudden decline in profitability, as paying off debt holders is far more important than rewarding shareholders. 

Challenging outlook 

Put simply, it looks as if the market is avoiding the Vodafone share price because of the company’s weak balance sheet and declining profitability. 

If the organisation hits its free cash flow targets for the year, it may be able to reduce debt, and this could help improve investor sentiment. As the economic recovery starts to gain traction, the company’s profits may also recover, which would only enhance investor sentiment further. 

As such, I am cautiously optimistic about the outlook for the Vodafone share price. That is why I would buy the stock as a speculative position for my portfolio today.

If the company can capitalise on the economic recovery, reduce debt and cut costs, earnings will recover, and the market may rerate the stock to a higher growth multiple. On the other hand, if the group continues to struggle, the stock may continue to underperform the market.

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.

At first glance, it might look as if the JD Sports (LSE: JD) share price has crashed in the past few weeks. The stock has plunged from around 1,100p to 225p at the time of writing. 

However, this is nothing more than a cosmetic change. At the beginning of October, management recommended what is known as a share split. The company issued five new shares for every existing share, splitting the stock to reduce the share price. 

In theory, this has not had an impact on individual shareholders. The value of the business remains the same. It is just the number of shares outstanding that has changed. And with each investor being given five new shares for every existing share, each shareholders’ percentage claim on the underlying business has not changed. 

When it announced the decision to split the stock, management noted that the resulting smaller share price would increase the “efficiency” of trading and “improve the liquidity and marketability of the company’s shares.“

Put simply, the JD Sports share price has become easier for investors to trade. There has been no impact on the underlying business. 

Booming sales 

According to the company’s latest trading updates, sales and profits are growing rapidly. The group reported a record result for the first half of its financial year, with revenue totalling £3.9bn, up from £2.5bn last year. Profit before tax jumped to £365m, up from £42m in the prior-year period. 

And JD has plenty of capital to push forward with its growth ambitions. It had a net cash position on the balance sheet of just under £1bn the end of July 2021. 

Management is investing heavily to boost the group’s international and local footprint. Much of the investment is going into enhancing logistics networks, with significant leases signed on new warehouse facilities this year. 

Despite the company’s breakneck growth, management is maintaining a conservative stance. The organisation is wary of additional pandemic trading restrictions, which is why it is hoarding cash. The threat of disruption from e-commerce is also driving the group’s heavy investments in infrastructure and logistics facilities to improve customer service and streamline the fulfilment process. 

The outlook for the JD Sports share price 

Despite these risks and challenges, I believe that the JD Sports share price looks attractive at current levels. The company is one of the most successful UK retailers, and its investment initiatives suggest that the business is not going to slow down any time soon.

I am also encouraged by the company’s strong balance sheet. Many retailers have collapsed in the past due to high levels of borrowing. It does not look as if JD is going to make the same mistake. 

As such, I would be happy to buy the stock for my portfolio today as a growth play. As the economic recovery continues, I think the corporation will continue to report rapid revenue growth. 

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.

The UK housing market has boomed in 2021 on the back of a stamp duty holiday and a country full of people still keen to move home. For my money, I think there’s more growth to come in the housing market, which is good news for investors in building and construction. Here are three cheap UK shares I plan to invest in for 2022.

Barratt Developments worth investing in

It has been a bit up and down in 2021 for Barratt Developments (LSE:BDEV), which traded at a 52-week high of 799p back in April, but there are sound reasons to think the company can hit those heights again.

Industry insiders are expecting house building demand to be strong in 2022, with the Construction Projects Association anticipating a further 9% growth in house building projects. This is good for Barratt whose core business remains home construction.

Barratt has made mistakes in the past that it is still paying for, which tempers enthusiasm a little. Earlier this year for example, Barratt shelled out £56m to fix construction errors on past projects, including a Croydon tower block built back in 2002 that featured similar problems as the ill-fated Grenfell Tower in London. There is no guarantee further past errors won’t crop up again.

Nevertheless, Barratt still has plenty of cash on the balance sheet to finance new building projects. It looks like a reasonable share investment to me.

Taylor Wimpey to head upwards?

Like Barratt, Taylor Wimpey (LSE:TW) has been purchasing as much land up as possible over the last 12 months or so, suggesting it expects the house building boom to continue. If this is the case, I expect Taylor Wimpey’s share price to head upwards in 2022.

There are clear risks with its bold land purchasing strategy though. Firstly, and even though I agree with the sentiment, Taylor Wimpey is assuming that new-home demand will continue next year. I hope it is right, but this isn’t a given, especially if interest rates rise and the housing market cools off.

Secondly, if the market cools it means cash is tied up. This will hit dividend payments. I’d still be confident Taylor Wimpey is a decent punt, though. I certainly think there is more upside to investing than there is downside.

Persimmon’s strong dividend yield

Last but not least, I think Persimmon (LSE:PSN) is worth some consideration. The key reasons for supporting this share are the same as Barratt and Taylor Wimpey, but there is one more factor that makes Persimmon attractive. A strong dividend yield of 8.4% at the current share price far outstrips those two rival firms, making this stock an attractive passive income proposition.

The negative caveats apply to Persimmon too, just as they apply to Barratt and Taylor Wimpey. Growth in the Persimmon share price assumes demand for new housing in the UK remains high throughout 2022.

I can see further growth in the share price, but I’ll be reassessing my position at the end of H2 2022, by which time we’ll have a better ideas which direction the house building market is heading in.

Garry McGibbon has no position in any of the stocks 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’m looking ahead to 2022 to see which FTSE 100 stocks have the highest dividend forecasts. These three shares have the highest forecasted yields out of the whole FTSE 100 index.

Let’s take a look to see if I should buy them for my income portfolio.

A FTSE 100 dividend stock

The company with the highest forecast dividend yield is Evraz (LSE: EVR) with an eye-popping forward-looking yield of 20% as I write. Now, with a dividend yield this high, I question just how sustainable it will be. It’s perhaps too high at this level.

Evraz operates in the mining sector, specifically as a miner of iron ore and coal, while also manufacturing steel. In the half-year report to 30 June, net profit surged to $1.2bn, which increased from $513m in the same period one year ago. Management said higher steel, vanadium and coal sales prices were factors leading to the outstanding performance.

However, Evraz hasn’t always paid a dividend in recent times. The company depends on one area of the commodity market, namely steel. If steel prices do fall then Evraz’s profits will decline, which will likely lead to a reduction in the dividend. Indeed, management noted some caution over “a possible correction in steel prices” in the half-year report.

I’m going to sit this one out for now as I think there are less risky dividend stocks to consider.

A ‘safer’ FTSE 100 mining stock

I’m also looking at Rio Tinto (LSE: RIO), another FTSE 100 mining stock. Only here, the company is diversified across the commodity markets in both industrial and precious metal mining. 

Rio Tinto has benefited from a boom in economic growth since the pandemic last year. This has boosted company profits, and then its ability to pay above-average dividends. But with the dividend forecast being for a huge 17% yield, so again, I don’t expect this to be maintained. 

Rio Tinto has consistently paid a dividend though. In fact, the last dividend payment it missed was in 2009, just after the financial crisis. Nevertheless, the company is still cyclical, and demand can fall quite drastically if economic growth begins to slow. It’s a key risk to consider before I invest.

On balance, I think Rio Tinto is the safer mining stock with a double-digit forecasted yield. I’d buy the shares for my portfolio.

Savings and investment

The last company is M&G (LSE: MNG). It’s a savings and investment company, and in 2019 it completed a demerger from Prudential.

The current dividend yield forecast is almost 11%, which makes it the third-largest dividend forecast in the FTSE 100. It’s paid a dividend every year since the demerger completed, albeit this is only since 2019. The company is also able to generate double-digit returns on its equity, which can be a sign of a quality business.

The risk with M&G is that business performance is tied to its assets under management (AUM). Performance can decline when financial markets fall, or even worse, crash. This will lower the fees the company can generate on its AUM, and therefore its dividend would likely be cut. 

M&G’s management is committed to its dividend policy though, so I still see this as a strong dividend stock to consider for my portfolio.

Dan Appleby owns shares of Rio Tinto. 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’m optimistic about the stock market in 2022. The difficult period this autumn means the UK market, in my opinion, remains undervalued. There are certainly a lot of high-quality companies around and I think these two UK shares in particular could do well in 2022 and for many years after that.

A top UK share

Polar Capital Holdings (LSE: POLR), the boutique asset manager, is a company I’ve felt good about for a while. I’ve added the shares to my portfolio and am almost certain to buy more in 2022.

In the six months to 30 September, assets under management (AuM) — a key metric in analysing asset management companies — increased from £20.9bn to £23.4bn, a rise of 12% over the period. And then AuM have increased to £25bn as of 12 November.

Core operating profit (excluding performance fees, other income and exceptional items) was up 65% to £36.3m compared to the comparable half-year period.

When combined with opportunities to grow internationally, add new investment teams and funds to its roster and its already high margins, I think the future looks very bright for Polar Capital. The stock combines a dividend yield of 5% with the potential for the share price to grow dramatically.

Of course, there are risks. If its funds start to underperform then Polar Capital shares could suffer as investors pull out their money. Polar is also quite reliant on its tech fund, although it does have some diversification outside of tech too.

For me, the potential upside of the shares far outweighs the risks and I’m very likely to keep adding to my holding.

Jim Slater-style growth stock? 

UP Global Sourcing Holdings (LSE: UPGS) is a share that has no doubt been hit in recent months by concerns over shipping issues. This may carry on for a while into 2022, but at some point it should normalise. One of the best times to invest is when others are fearful, according to none other than Warren Buffett.

There’s a potentially attractive entry point now into the shares as they trade on a forward P/E of just 13. The price-to-earnings-growth ratio, on a forward basis, is just 0.5, making it potentially a Jim Slater ‘Zulu-style’ undervalued growth share, that is, a share with a PEG under 0.7. 

UP Global Sourcing has been growing revenue and profits at an impressive rate, even through the pandemic. With a market cap below £200m it has plenty of headroom to grow further.

The company is an owner, licensee, designer, developer and manager of a series of brands focused on the home. These brands include Salter and Russell Hobbs. The former was acquired in July 2021 for an initial cash consideration of £32m, with a further deferred consideration of £2m potentially to be paid over two years. Acquisitions are both a source of growth, but also pose a risk if they are poorly managed. 

Another risk is that shipping costs and inflation persist and this hampers its growth. That in turn would hit the shares.

But I think the risks are small and that this growing company could provide a very healthy return in 20202 and beyond. That’s why I’m very likely to buy the shares.

Andy Ross owns shares in Polar Capital Holdings. The Motley Fool UK has recommended Polar Capital Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Nvidia share price has had a very strong 12 months. It has more than doubled over that time. Few UK shares could emulate such a performance, especially UK growth shares, which have, in the recovery from the pandemic, been overshadowed by lowly rated value shares.

Nonetheless, I think this often overlooked UK tech stock could have an amazing 2022. It could even, in my opinion, earn investors a bigger overall return than Nvidia in 2022.

Outperforming Nvidia

The stock I’m thinking of is GB Group (LSE: GBG). It provides global digital identity and location services. That helps organisations validate and verify the identity and location of their customers. In a digital age, it’s very well placed to keep growing.

The most recent half-year results showed a 5.4% improvement in revenue to £109.2m. Its organic revenue at constant currency was ahead 12.6% at £108.7m.

It aims to be a global leader in its field and analysts seem confident. Barclays has set a target price of 1,000p for the company, compared to the GB Group share price of 729p at the time of writing.

The recent fall in the share price, I think, makes buying the shares all the more tempting. That’s especially as GB Group remains a growth share, despite its recent slowdown in revenue growth. When looking at its growth year-on-year, it’s in an attractive niche that also pays a dividend.

But the shares are expensive. As such, any slowdown in growth could see the share price slide. As with all tech, it’s reliant on innovation in a very competitive industry. There’s always a risk that newer and better technologies from rivals could undermine the company’s appeal and new competitors could emerge. That could potentially hurting margins. 

Another strong tech stock

Electrocomponents (LSE: ECM) is another under-the-radar share I really like. I owned some of the shares many moons ago, but recent results have once again caught my eye. The latest interim results showed like-for-like revenue growth of 31% year-on-year, or 22% versus two years ago, at the electrical products distributor.

It’s another company well positioned to grow as technology evolves, I feel. Electrocomponents has many strong customer partnerships. It says it has 1.2m customers in 32 countries, so it’s a serious global business and isn’t reliant on just a few companies for its revenues, as some other tech companies are. It has a long history too as it was founded in 1937. 

Analysts at Berenberg raised their target price from 890p to 1,230p following the results, showing their view on its improving prospects. Electrocomponents isn’t flashy or well known so its share price growth is likely to be steady compared to some of the better known technology companies. However, overall I think it is a very good business, as shown by its revenue growth. I may add it to my own portfolio. 

Of course, there’s no knowing if GB Group will do better than Nvidia in 2022. No investor has a crystal ball. The point isn’t to say that Nvidia can’t also be a very profitable investment, it’s an exciting company. However, I prefer GB Group with its lower P/E ratio and because it’s not involved in the under-pressure computer chip production industry.

Overall, I  just think GB Group has a lot of potential, could be set for a fantastic 2022 and I’m very much considering buying the shares.

Andy Ross owns no share 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.

£10 a week might not go far in many areas of life. But when it comes to passive income, I think £10 a week could make a difference to me. A tenner a week is enough to start building long-lasting passive income streams, in my view. Here’s how.

Passive income for £10 a week

There are a couple of reasons I think £10 a week is a sufficient amount to invest in income-generating dividend shares.

First, over the course of a year, £10 each week adds up to more than £500. For a comparatively small regular outlay, that’s a reasonable capital sum with which to invest.

Second is the power of compounding. Let’s say that I invest in dividend shares with an average 5% yield. Over one year, 5% of £520 is £26. But if I reinvest the dividends each year, after five years I would be looking at a capital pile of £638. Still at 5%, that would be generating around £32 a year in passive income. Remember, that’s just from my first year of weekly savings. After five years, I’d expect a lot more income because I’d also hopefully be getting income from the money I put aside in years two to five. Over the long term, I reckon £10 a week can help me generate meaningful passive income.

Is this income guaranteed?

In my example before, I assumed a yield of 5%. But is that realistic?

Certainly there are a number of FTSE 100 companies offering dividend yields of 5% or above. Those include well-known names such as Vodafone and Legal & General. But dividends are never guaranteed. Lower profits or a downturn in business can lead a company to cut its dividend, as Vodafone did several years ago.

That’s why I seek to diversify my passive income streams across different companies and business sectors. £520 a year is enough to let me spread my portfolio in this way. Of course, the dividend income is still not guaranteed. As we saw last year, for example, an unexpected event can lead to widespread dividend cuts and cancellations. But if I invest in a range of high-quality companies with a policy of paying dividends, I reckon the chance of receiving income from them over time is significant.

Why I like dividend shares as a passive income idea

Given there are other ways I could seek to earn passive income with £10 a week, what is it about dividend shares that attracts me?

I like the fact that I don’t have to do any work. I can simply invest my money in some well-known companies and rely on them to put in the effort. In an age of inflation, I also like being able to target income of 5%, 6% or even higher by investing in dividend shares even among well-known large companies. While there’s more risk in shares than investing my money in a savings account, for example, I think the superior passive income potential compensates me for that risk. Putting aside £10 a week, every week, I think I could start to build passive income streams for the years and decades ahead.

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

As a value investor, I enjoy hunting down cheap stocks, particularly in the FTSE 100 index. At the weekend, I spotted five beaten-down shares that have suffered a terrible 2021.

The FTSE 100’s five biggest fallers over one year

These are the FTSE 100’s five largest losers over the 12 months to Friday, 3 December.

Share price losses at these FTSE 100 flops range from 22.3% to almost 30%, with an average loss of 25.3%. Furthermore, I see three of the stocks as being particularly volatile next year:

Fresnillo: a play on precious metals

Fresnillo (LSE: FRES) — based in Mexico City and listed in London — was established in 2008. It’s the world’s largest producer of silver from ore and Mexico’s second-largest gold miner. Currently, Fresnillo operates seven mines, three development projects, and six exploration prospects. Its flagship mine has been in use for more than 500 years. In 2020, the firm produced 53.1m ounces of silver and 769.6k ounces of gold.

Fresnillo’s profitability is strongly tied to the prices of silver and gold, both of which have declined over the past year. This FTSE 100 share’s price has ranged from a high of 1,280p on 7 January 2021 to a low of 742.6p on 27 July. On Monday, it closed at 887.8p, valuing the miner at £6.5bn. I don’t own this share at present, but I’d buy at current price levels. However, I’d fully expect this mining stock to be similarly volatile in 2022.

IAG: airline fracture?

Shareholders in airline chain International Consolidated Airlines Group (LSE: IAG) have had a turbulent trip in 2020-21. Thank to Covid-19 lockdowns, the IAG share price has collapsed since January 2020. Over the past 12 months, the stock has ranged from a high of 222.1p on 16 March 2021 to a low of 122.06p on 26 November. On Tuesday, this FTSE 100 stock closed at 142.34p, leaping 10.64p (+8.1%) to value the airline group at £7.1bn.

I don’t own this FTSE 100 share, but I’m encouraged by recent rebounds in the IAG share price. In the past six trading sessions, this stock has leapt by 16.6% from its late-November low. This followed reports that the latest Covid-19 Omicron variant is less harmful than first feared. Even so, I wouldn’t buy IAG at present. I’d prefer to see how things develop going into 2022 and the spring holiday season.

Ocado: a FTSE 100 flop in 2021

My third FTSE 100 faller that could continue to struggle is online supermarket Ocado Group (LSE: OCDO), whose shares have endured a torrid 2021. At its 52-week high, Ocado stock surged to 2,886p on 27 January. On 28 January, I warned that this growth stock was a bubble waiting to burst. Sure enough, it’s been steeply downhill ever since. On Monday, the stock closed at 1,582p, down 2.7%. This values the loss-making high-tech grocer at £11.9bn. What’s more, this Footsie share currently trades just 36.68p (+2.4%) above its 2021 low of 1,545.32p on 12 October.

I don’t own Ocado shares at the moment — and I would decline to buy at current levels. In its 11 years as a public company, Ocado has run up massive losses chasing customers and revenues. Also, it burns through cash and has never paid a dividend. Lastly, I suspect this FTSE 100 share’s price could continue to bounce around wildly in 2022!

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.

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