The FTSE 100’s climbed 57% over the last five years. But Lloyds (LSE:LLOY) shares have left the index in the dust with a gain of over 105%. 

Investors who bought the stock in April 2020 have done very well. This however, has as much to do with buying at the right time as the underlying business.

Five-year plans

With the benefit of hindsight, April 2020 was a great time to buy quite a lot of stocks. A number of companies saw their share prices hit by uncertainty around Covid-19.

This wasn’t true of every business. Some shares – especially those in companies in the life sciences industry – got a big boost as demand for vaccines surged. 

Lloyds however, was very much in the category of stocks that struggled. During the pandemic, it fell 50% and a good amount of the return since then has been a recovery from this.

To some extent, the stock’s an illustration of the benefits of being brave when there’s fear around. But this isn’t just the result of being in the right place at the right time.

Over the last five years, trading conditions for banks have improved considerably. Interest rates have gone from 0.1% to 4.5% and Lloyds has been a major beneficiary. 

In general, higher rates make for better margins and Lloyds has seen its net interest margin widen from 1.8% to 2.2%. That doesn’t seem like a lot, but it amounts to a 22% increase. 

Outlook

It’s probably fair to say that the big forces that have driven the Lloyds share price over the last five years are unlikely to repeat themselves. And in fact, there are signs they might be turning.

This month is set to be a crucial one for the bank. The threat of big liabilities arising from its previous practices around selling motor loans has been weighing on the stock for some time.

The case is set to be heard in the Supreme Court this month. And if things go well, Lloyds could be in a position to release the £1.2bn it has put aside to cover potential losses.

That’s around 2.5% of the company’s current market value. Adding this to an ongoing share buyback programme worth £1.7bn could generate significant returns for shareholders.

Elsewhere though, there are some potential challenges ahead. The Spring Statement last week reported that UK GDP is set to grow more slowly than expected for the rest of the year. 

That’s not good for banks – including Lloyds – and it might incentivise the Bank of England to cut interest rates. If that happens, lending margins could contract again. 

More to come?

Lloyds shares have been a terrific investment over the last five years. But this wasn’t easy to see in April 2020, when the pandemic was gathering momentum.

Investors considering the stock today need to be careful. The company is in a much stronger position, but there’s a lot more scope for things to get worse. 

I’m not convinced the current share price fully reflects the risks at the moment. But I’ll be watching carefully to see what happens as the motor finance-related hearing at the Supreme Court unfolds.

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“Investors seem to be so overly focused on the top line that they’re missing what’s going on underneath.”

Zaven Boyrazian, Share Advisor

The Tesla (NASDAQ:TSLA) share price has long been a subject of debate. However, more than ever, the stock’s valuation multiples now pose critical questions for investors. With a price-to-earnings (P/E) ratio and forward price-to-earnings-to-growth (PEG) ratios that are significantly higher than industry norms, the stock trades at stratospheric premiums compared to carmaking peers like BYD and Ford.

Even if these multiples halved overnight, Tesla would still command valuations dwarfing those of its competitors. This dissonance reflects a market pricing in moonshot bets on autonomous driving and robotics. These are bets that face mounting execution risks.

Valuation: a sector outlier

Tesla’s non-GAAP forward P/E of 99.8 times sits 578% above the sector median of 14.7 times, while its PEG ratio of five towers over the industry’s 1.3. Historically, these multiples look less extreme — Tesla’s five-year average P/E is 229.7 times — but that’s cold comfort when earnings growth is slowing. Deliveries fell 4% year on year in early 2025, while European data specifically is even more damning. Moreover, halve these earnings multiples, and the figures would still be significantly higher than industry norms, even in tech.

What’s more, analysts are changing their tune. HSBC has warned of a further 50% drop to $130 a share due to “eroding brand strength” in Europe and China, as well as Model Y production hiccups. Even bullish analysts like Deutsche Bank have slashed targets (from $420 to $345), acknowledging weakened demand for core vehicles.

AI and robotics moonshots

Tesla’s premium hinges on new ventures, particularly Full Self-Driving (FSD) and the Optimus Bot. A robotaxi service launch in mid-2025 is in the works, but there hasn’t been too much to get excited about. That’s especially compared to peers like Waymo, which is already operational and has demonstrated reliability in commercial fleets. Meanwhile, FSD’s subscription model faces resistance in cost-sensitive markets, limiting its appeal in key regions like Asia.

Optimus’s commercial viability also remains unproven, with critics questioning its scalability beyond factory use. Nonetheless, Musk plans to build 5,000 Optimus robots this year, claiming it could eventually be Tesla’s most profitable product. These initiatives justify some premium for Tesla’s valuation, as they represent bold steps into transformative technologies. However, success is far from guaranteed. Investors will need patience as Tesla navigates these high-risk, high-reward opportunities.

Tariffs, politics, and ‘Musk risk’

External pressures compound Tesla’s challenges. Escalating US-China trade tensions could disrupt supply chains and inflate costs. Moreover, Musk’s polarising political alignment has apparently alienated environmentally conscious EU buyers for now. Europe’s 45% delivery plunge in January underscores vulnerability to protectionism/brand image issues. What’s more, there’s also concern among investors that Musk is preoccupied with DOGE (the Department of Government Efficiency) in the US. These factors suggest that Tesla’s valuation may be more fragile than it appears.

In short, Tesla embodies a paradox: a carmaker valued as a tech disruptor. While its robotics and AI bets could revolutionise margins, current multiples bake in near-flawless execution. Personally, I want to see Tesla as a competitive force in robotics and autonomous vehicles. However, for now I can’t put my money behind a stock that trades with a PEG ratio of five.

The M&G (LSE:MNG) share price has been pretty stagnant over the last 12 months. But it recently took a 10% hit as investors mulled over its 2024 results. Management successfully delivered on some of its medium-term targets, yet customer net outflows continue to offset positive progress being made.

Throw in the impact of a sector-wide accounting standards change that wiped £760m off the balance sheet’s equity line, and it’s not surprising to see the stock price slip.

But has this created a buying opportunity for long-term investors? Let’s take a look.

A mixed bag of results

Like many insurance enterprises, M&G’s been pushing ahead with its cost savings initiatives. The group’s asset management business’s cost-to-income ratio improved year on year from 79% to 76%. That was thanks to a combination of higher revenues and lower expenses. And at the same time, the company has increased its cumulative savings target by the end of 2025 to reach £230m from £200m.

On the other hand, the rise in popularity of bulk purchase annuities (BPAs) is causing pension funds to change investing tactics and pull money out of stocks. Pension funds make up a big chunk of M&G’s customer base. So the impact of such decisions is showing up in the financials.

In 2024, the firm’s PruFund offer saw client net cash outflows land at £0.9bn – worse than expected. Higher interest rates and a shift from deficit to surplus are both acting as tailwinds for the BPA market. And it’s a big boost for insurance companies specialising in such transactions. They’re expected to stick around while interest rates remain elevated.

Sadly for M&G, the company has limited exposure to this space compared to its peers. And while it’s attempting to capitalise on this tailwind, net cash outflows might continue to plague its financials moving forward.

Where’s the share price going?

Given this mixed bag of results and rival firm Phoenix Group Holdings seemingly stealing the show, what do analysts expect over the next 12 months? Looking at the latest share price targets, the average consensus suggests the M&G share price could reach as high as 225p by this time next year. Compared to the current trading price, that means a £1,000 investment could grow to £1,106.

Of course, forecasts are never set in stone. Despite the optimistic stock price outlook, most institutional investors – nine out of 15 — have a Hold rating on the business.

There continues to be growing uncertainty surrounding its net cash outflows. Rivals don’t appear to suffer from this to the same extent. Yes, there’s positive progress being made in other areas of the business. But I think there are more interesting opportunities for investors to consider elsewhere.

Following the release of its 2024 results, the Phoenix Group (LSE:PHNX) share price enjoyed a double-digit rally, rising by over 10% on the news. It’s a welcome change of pace compared to the downward trajectory this life insurance stock has been on since interest rates started climbing in 2021.

Typically, higher interest rates are more beneficial to the banking sector. That’s actually a big reason why shares like Lloyds and Barclays have delivered much stronger performances lately. However, they’ve also sparked fresh activity within the pension market with the volumes of bulk purchase annuities and pension risk transfers ramping up. That’s provided some nice catalysts for Phoenix Group. And the impact was on full display in its latest results.

Raising guidance

Operational cash generation jumped 22% to £1.4bn, while total cash generation came in at £1.8bn. The latter is £300m higher than the top end of management’s previous guidance. And incoming efficiency improvements throughout 2025 and 2026 could see a total of £250m in annualised savings over the next two years or so.

Initially, management wasn’t expecting operational cash generation to reach £1.4bn until 2026. However, with this milestone achieved two years earlier, the group has upgraded its two-year targets. Specifically, it expects adjusted operating profits to hit £1.1bn by 2026, up from the original target of £900m. For reference, this metric stood at £825m in 2024, which was a 31% boost from the 2023 levels.

Needless to say, this is terrific news for shareholders, especially if Phoenix Group remains on track. And in terms of its 12-month share price target, analyst forecasts range from 515p (-10%) all the way to 850p (+50%). So in the best-case scenario, investing £1,000 today could grow to £1,500 by this time next year, along with a 9.4% dividend yield that’s just been hiked once again for the ninth year in a row.

The challenge of complexity

With interest rates expected to decline steadily, the excitement surrounding bank stocks will likely start to dwindle, especially if the conclusion of the motor finance scandal ends up going badly for them. That could translate into a migration of investor capital into sectors like life insurance.

However, this sector can also get complicated. Despite the tremendous growth in cash flow, Phoenix’s after-tax profits actually collapsed into negative territory by £1bn. Subsequently, the balance sheet reported a 55% slash to accounting equity.

The root cause is a change in IFRS 17 accounting rules that were implemented last year. Insurance businesses like Phoenix now have to recognise certain profits over a longer period of time, which has been wreaking havoc on financial statements.

Management claims this shift in accounting standards doesn’t have a material impact on the business and that equity should recover as of 2027. However, for non-specialist investors, wading through increasingly complex accounting to work out what’s going on under the surface could make Phoenix a tough idea to get behind. After all, if something goes wrong, it could be challenging to detect.

Nevertheless, complexity is often where the best bargains can be found. And while it may take a few years before the Phoenix share price takes off, the chunky dividend yield helps make up for this potential delay. That’s why I think investors should consider taking a closer look at this insurance stock.

The last six months have been terrific for the Centrica (LSE:CNA) share price with the group’s market-cap climbing by almost 30%. That might sound a bit odd given the group’s latest results showed operating profits collapsing from £2,752m to £1,552m. Even more so, considering the analyst consensus surrounding this business is actually pretty positive despite earnings seemingly imploding.

So what’s going on? And where could the Centrica share price be 12 months from now?

Earnings are normalising

Typically, when profits collapse by over 40%, investors tend to jump ship since it’s a sign of serious trouble. However, in this case, it’s a perfect demonstration of Centrica’s sensitivity to commodities like oil & gas.

In 2023, surging energy prices helped propel profits to record levels. But it was clear this cyclical boost was only going to be temporary. And now that energy prices have started normalising again, Centrica was up against a tough comparison period.

Therefore, despite the drop, profits for 2024 actually landed within analyst expectations. And even with capital expenditures increasing from £415m to £564m, free cash flow generation still landed near the £1bn mark. As a result, management’s net cash war chest increased from £2.7bn to £2.9bn. When paired with higher interest rates, the group’s net interest income jumped from an outflow of £19m to an inflow of £34m.

In other words, the health of Centrica’s balance sheet improved. With that in mind, it’s not so surprising to see that 13 of the 16 analysts tracking this enterprise currently have the stock at a Buy or Outperform recommendation. And overall, the average 12-month share price forecast for Centrica is 175p. Compared to the current share price, that suggests the stock could deliver returns of up to 16% by this time next year – roughly double the FTSE 100’s long-term annual average.

Nothing’s guaranteed

A 16% potential gain from a mature industry titan that’s hiking dividends is certainly nothing to scoff at. However, as promising as this might be for some investors, there are always risks to consider moving forward.

The latest forecasts anticipate energy prices to continue falling in the coming years. And consequently, Centrica’s revenue is likely going to take a hit. Analyst projections expect this impact to be offset through margin expansion. However, there’s no guarantee that management will deliver on these expectations.

In the meantime, the company has to fend off fierce competition. And since the Electricity Market Reform in 2013, that’s proven to be quite a challenge. In fact, even after its recent rally, the Centrica share price is still over 60% lower than its 2013 peak.

Time to buy?

From a valuation perspective, Centrica shares are currently quite cheap. Looking at the price-to-earnings ratio, the stock’s trading at a 5.9 earnings multiple, far below the European industry average of 14. And given that the group’s debt burden has steadily been shrinking since 2020 while free cash flow has been improving, it makes me cautiously optimistic for what the future holds for this enterprise despite the risks it continues to face.

My portfolio already has sufficient exposure to the energy sector, but for investors seeking to diversify, Centrica may be worth a closer look.

BAE Systems’ (LSE: BA.) shares have been on a tear, surging 37% in just three months. For long-term investors, that’s a welcome boost, especially after a quieter 2023. But after such a sharp rise, is it time to take profits, or could the rally continue?

A top FTSE 100 defensive stock

BAE has been a big winner from rising global military spending. The FTSE 100 defence giant now has a record £77.8bn order backlog, fuelled by a string of major deals.

2024 results, published on 19 February, were solid, with profits before interest and tax topping £3bn for the first time, and sales set to surpass £30bn in 2025. The long-term outlook also looks strong, with earnings forecast to grow 8.4% annually until 2028.

Will Europe really spend big?

The shares rocketed after Donald Trump fell out with Volodymr Zelensky and Germany’s 19 March decision to exempt defence spending from its debt rules. That should unlock billions in potential funding as Europe realises it can no longer rely on US military might. 

The European Commission is planning €800bn defence fund, suggesting a major shift in spending priorities. But are European states really that committed?  France, Italy and Spain have complained that they’d rather use grants than loans, to avoid increasing their debt loads.

There’s also political uncertainty, with talk of a shift away from US-made weapons. The big question is, can European manufacturers like BAE really scale up fast enough to fill the gap? And if they do, will Trump retaliate by cutting non-US weapons procurement, which could hit BAE.

While the Ukraine conflict has been a key driver of defence spending, any unexpected peace deal (even a ropey one) could see European budgets quietly redirected elsewhere.

Is the growth star good value?

Despite its recent surge, BAE Systems shares are only up 17% over the past year, though they’ve soared 200% over five (plus dividends on top).

At 23 times earnings, the valuation isn’t exactly cheap, though it’s more reasonable than rival Rolls-Royce, which now trades at around 43 times.

The 15 analysts covering BAE Systems have a median price target of 1,664p, implying a 6% upside from today’s levels. That’s not exactly a screaming buy signal. Of course, forecasts can’t be relied upon, while many of these will have been made before recent shift on military spending.

Given the recent BAE Systems share price spike, some investors may be considering taking a profit and looking for other recovery opportunities.

I hold BAE Systems shares and plan to keep them for the long run. I feel investors should consider doing likewise. The company is a powerhouse in European defence, with strong growth prospects. But after the recent jump, I’d tread carefully around buying more.

Could the shares soar even higher? Absolutely. But there’s also a chance of a pullback. For me, BAE’s a brilliant long-term buy-and-hold stock that investors should consider. But right now, it might be wise to proceed with caution.

Over the last 12 months, the Legal & General (LSE:LGEN) share price has delivered a ground-shaking performance, with the stock basically flat. However, that hasn’t stopped shares from gaining popularity thanks to its impressive 8.8% dividend yield. In fact, the insurance giant now offers the third-highest shareholder payout in the entire FTSE 100!

Usually, a high yield can be a warning sign to steer clear. So is the Legal & General share price about to tumble? Let’s take a look at the latest analyst projections.

Near-term forecasts

As of this month, there are 16 institutional analysts following this business, nine of which actually rate the stock as a Buy or Outperform. That’s some pretty bullish sentiment coming from City analysts. However, when looking at the share price targets for the next 12 months, opinions start to diverge.

One appraiser’s convinced the Legal & General share price could climb to as high as 335p – a 37% increase from where it’s currently trading. Yet another believes the stock could fall by 14% to 210p. So what’s behind these projections?

Digging into the details

In 2024, the company delivered a 6% bump to core operating profits, boosting them to £1.62bn, in line with expectations. However, the root cause of this robust performance stems from pension risk transfers (PRTs). As a quick crash course, PRTs are a way for defined benefit pension providers to offload risk to the market and have become popular in recent years due to the rise of interest rates.

PRTs were actually responsible for 50% of profits in Legal & General’s Retirement division. In fact, the company currently controls the largest portion of market share in this space versus peers at 23%, according to RBC Capital Markets.

However, the gravy train seems to be slowing. Higher levels of competition and falling PRT volumes could impact near-term earnings growth. And this uncertainty’s likely a large reason why most investors aren’t rushing to capitalise on the near-9% dividend yield.

Despite this slowing tailwind, management doesn’t appear overly concerned about an impending slowdown, given it has just launched a £500m share buyback scheme. At the same time, dividends also received a welcome boost by 5% to 21.36p per share. These combined contribute to the group’s new target of returning at least £5bn to shareholders within the next three years.

Time to buy?

Seeing a company repurchase its own stock, hike dividends, and deliver profit growth are all encouraging signs. And when paired with an impressive dividend yield, it makes for a tempting offer.

Even if the PRT market continues to slow, efficiency efforts could help offset the impact on earnings through margin expansion. And with the shares trading at a fairly reasonable forward price-to-earnings ratio of 10.5, investors may want to consider taking a closer look, even with the risk of uncertainty.

With the Rolls-Royce (LSE:RR.) share price surging almost 90% in the last 12 months, the engineering giant has reached a record-high valuation of £68bn. That’s over 800% higher than just a few years ago, demonstrating the rapid improvements new CEO Tufan Erginbilgiç has delivered across the company. And now, with European defence spending on the rise, a new kindly tailwind is blowing for Rolls-Royce.

So can the engineering giant continue to surge?

The power of exceeding expectations

Analyst consensus for 2024 is that revenue’s expected to reach £17.35bn, and earnings per share will land at 18.18p. Following the group’s latest results, investors were understandably pleased that the company smashed forecasts, with sales landing at £17.85bn and earnings at 20.17p per share.

Exceeding earnings expectations by double digits is no easy feat. Yet continued operational efficiencies helped deliver better-than-expected margin expansion. Subsequently, underlying operating profits surged from £1.59bn to £2.46bn, while free cash flow essentially doubled from £1.29bn to £2.43bn. And best of all, that tipped Rolls-Royce’s balance sheet into a net cash position of £475m.

Yet looking at management’s guidance for 2025, this momentum doesn’t seem to be stopping. Free cash flow‘s anticipated to reach as high as £2.9bn by the end of this year, with underlying operating profits coming in at a similar level.

What’s more, the group’s 2028 mid-term targets also got upgraded, with free cash flow on track to reach anywhere between £4.2bn and £4.5bn, with underlying operating margins rising from the current 13.5% to as high as 17%. Pairing all this with a surprise £1bn share buyback announcement, it’s no mystery why the Rolls-Royce share price has been on a rampage.

But what does this all mean for investors hopping on board now?

Where’s Rolls-Royce headed?

As thrilling as the stock’s performance has been, it’s important not to get too caught up in the excitement. On a forward price-to-earnings basis, the shares are currently trading at 34 times the projected profits for 2025. That’s certainly not cheap. And it suggests investors have already baked in the firm’s revised 2028 earnings targets.

This is likely why, when looking at analyst forecasts, the average consensus reveals a 12-month price target of just 807.5p. That’s a 1% projected gain from current valuations.

Of course, management’s developed a habit of beating expectations. So if it continues to deliver better-than-expected results, more double-digit returns could be just around the corner. However, should the company stumble, then with so much future growth already baked into the share price, shareholders may have to endure some downward volatility.

One potential cause of this would be supply chain disruptions. Like many aerospace businesses, Rolls-Royce relies on just-in-time logistics. And with geopolitical tensions high in Eastern Europe, supply chain disruptions may start to emerge if the situation escalates. Alternatively, should conditions start to calm, defence spending promises across Europe may fail to materialise, hampering a growth catalyst for the business.

As a business, I believe Rolls-Royce has delivered a pretty remarkable turnaround thanks to prudent leadership. But as a stock, the valuation’s a bit too rich for my tastes right now. Instead, I’m looking at other companies in this sector that are far more reasonably priced.

The BT Group (LSE:BT.A) share price has been on a great run over the last 12 months, rising by almost 50%. That’s a welcome change of pace as it was only a few years ago that investors were jumping ship on fears of an overleveraged balance sheet.

Today, sentiment’s improved drastically. While debt remains a significant challenge, management’s seemingly making the right moves to tackle it. With operational milestones being hit, paired with an incoming surge to free cash flow generation, investors are placing bullish bets on this enterprise.

So can the company deliver? Let’s explore where the BT share price could end up over the next 12 months.

Righting the ship

Since Allison Kirkby became the new leader of BT in February 2024, the stock’s risen by 46%. This upward trajectory is partly down to the stock being priced so cheaply when her tenure kicked off. But there’s no denying she’s having a positive impact on the business.

Looking at the group’s third-quarter trading update (ending in December), BT’s rollout of fibre-to-the-premises (FTTP) has surpassed 1m homes for four quarters in a row. That’s a critical achievement since a leading reason why customers have walked out of the door is a lack of fibre internet options. Subsequently, BT’s fibre customer count has jumped 33%, reaching 3.2m.

Encouragingly, customer experience has also been improving. BT’s net promoter score – a gauge of how likely a customer would recommend a product or service, climbed by four points to 29.6. That still puts the company behind the industry average of 31. However, if BT continues to take the proper steps, that could change throughout 2025.

Overall, BT’s revenue and profits have yet to start delivering meaningful growth. Yet, Kirkby seems to be plugging the holes and filling the cracks, giving the business a solid foundation to jump back into growth mode.

12-month share price target

There are currently 21 institutional analysts following this business, 13 of which have recommended the stock as either a Buy or Outperform. When looking at the share price forecasts, one analyst believes the stock could rise to as high as 299p by this time next year. That’s an 84% potential jump if investors buy shares today!

As exciting as that sounds, it’s important to remember that forecasts are based on certain assumptions. In this case, it predicts the company can successfully deliver on its promise of £2bn of free cash flow by 2027, followed by £3bn by 2030. That’s a notable increase from the £1.5bn expected to be delivered in its 2025 fiscal year.

Despite the encouraging progress made, not all analysts are convinced. Those with a Sell rating on the stock believe the BT share price could actually fall to as low as 110p in the next 12 months – a 32% drop. While bleak, this outlook isn’t entirely unfounded. Should the company fail to improve cash flow margins, the debt burden will likely only get worse. After all, there’s £23.6bn of outstanding debts & equivalents to pay off.

In other words, BT’s share price performance seems tied to Kirkby’s. If she can deliver, this once-loved UK stock could regain its popularity. But there’s still a long road ahead. Personally, I want to see more progress before throwing any money into the ring.