IAG (LSE: IAG) shares have been up and down in the past 30 days. The resurgence of pandemic concerns seems to be a key driver behind this. The announcement of the Omicron variant on 25 November sent the share price tumbling almost 15% by the time markets closed. This trend spanned the whole industry with competitors easyJet and TUI both seeing double-digit drops too.

While IAG shares have fallen almost 12% in a year and 20% in the past 30 days, they jumped 8% last Monday. This was largely due to the Omicron virus concerns abating. These up and down price moves made me wonder whether now might be a good time to add IAG shares to my portfolio.

IAG valuation

First, looking at valuations, IAG shares actually look quite cheap to me right now. The firm’s pre-pandemic share price was well over 400p. Currently sitting at 142p, it’s trading with a price-to-sales (P/S) ratio of 1.77. This is lower than competitors Wizz Air and Ryanair, which are at 4 and 6.51 P/S ratios, respectively. This signals to me that the IAG share price may be relatively undervalued compared to its rivals.

In addition to this, CEO Luis Gallego has said he believes “a significant recovery is under way and our teams are working hard to capture every opportunity”. If transatlantic flight routes continue to improve, the firm expects to return to profitability by summer 2022. If the firm can deliver some profitable results, I would expect IAG shares to rise as a consequence.

The bear case for IAG shares

One thing that worries me about IAG is the continuing impact that Covid is having on the balance sheet. Forced to take on almost £4bn in debts, this could weigh the firm down moving forward. What’s more, IAG released disappointing 2021 Q3 results in early November. Passenger revenue fell 35% compared to the same period in 2020. In addition to this, borrowings increased 24%, adding to its heavy debt pile.

While the Omicron variant may be less harmful than previously expected, it’s still causing major delays to the reopening of global travel routes. For example, Austria announced a full lockdown on 19 November. It seems the global reopening of travel routes is going to be an uphill battle for the travel industry, and IAG shares will have to bear the brunt of that.

The Verdict

Don’t get me wrong, IAG shares do look cheap. However, I think this is for a reason. The firm’s poor results, coupled with looming Covid fears are a big red flag for me. I do think the beaten-down travel industry could be a good investment opportunity, but for me it’s too risky to touch at the moment. I would wait to see how IAG performs over the next six months before considering adding shares to my portfolio.

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.

I have been pondering over this for the past few months. For obvious reasons. Despite all the progress made in keeping the pandemic under check, the fortunes for travel stocks have hardly improved. It is little wonder then, that in the last year, the easyJet (LSE: EZJ) share price has halved. And it is now at one-third its pre-pandemic levels. 

What’s going on with the easyJet share price?

Both the uncertain future of travel and the extent of its share price drop suggest to me that it could be a long while before the easyJet share price returns to its pre-pandemic levels. I was optimistic about the stock last year, and definitely after the stock market rally started in November last year on the development of vaccines.

But the last half year has not been kind to the stock, which has been sliding downwards much of the time. It does not help that a bunch of reasons have come together that could hold it down for longer. The first and most obvious is the Omicron variant, that has necessitated stricter travel restrictions. Even if the restrictions themselves have limited impact on travel, they could still have a sentimental impact on the share price. 

Rising inflation is also problematic because fuel is a big cost for airlines. And according to some forecasters, fuel prices could even touch $100 a barrel by next year. In other words, the company could see rising costs as a time when its revenues are already low, which makes the return to profits that much harder.

Underwhelming results

I also found easyJet’s latest results underwhelming. For the year ending 30 September 2021, the company reported a headline loss before tax of £1.1bn. The loss has increased from last year, even though the pandemic was the most severe in the March-September 2020 period. This is explained by the fact that for the first six months of its financial year (FY) 2020, there was little impact from the pandemic. That is far more than we can say about 2021. I would be willing to overlook this, however, if the future looked better. But for now, I cannot say that it does.

That said, there are some silver linings to this cloud as well. The company expects that winter demand could be strong and by the final quarter of FY-2022, its capacity will be near pre-pandemic levels. According to analysts’ forecasts compiled by the Financial Times, its share price is expected to rise by 32% from current levels as well. Like all forecasts, this could change based on future developments and is not something to rely on. 

My takeaway

Keeping this in mind, I still have some hope that easyJet shares might not be a total loss for me if I just hold on to them for a while longer. They still look like a high-risk investment right now, considering how long the pandemic challenge has dragged on, though. I will hold on to them until early 2022, by which time the impact of the winter travel demand should become visible. Only then will I decide what to do next. In the meantime, I will focus on more promising stocks. 

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

2021 has been a good for the FTSE 100 oil biggie Royal Dutch Shell (LSE: RDSB). The stock’s ascent had started soon after the stock market rally started in last November. It was further bolstered by the increase in oil prices earlier this year. And as the economy recovery gathered pace, it has only strengthened further. In the last six months alone, its share price has risen some 27%.

Optimism on the Shell share price

And I do not think that this is the end of its climb either. Consider this. The stock is presently trading at around £17 levels, which is still 500p lower than its pre-pandemic value. I get that there is still some uncertainty around the stock. The pandemic keeps rearing its head, what with the new Omicron variant! And travel is most likely to be impacted if the situation gets out of hand again. This, naturally, will impact oil prices negatively. However, I think it is fair to say that the likelihood of going back to 2020 style lockdowns is rather limited. We are more likely to make progress. This in turn means that the Shell share price could keep rising. 

Indeed, analysts seem to believe that. Even the most pessimistic analyst forecasts expect a small increase over the next 12 months, while the most optimistic ones expect it to more than double! And I reckon some increase at least is possible if it continues to turn profits. It has been profitable for the first nine months of its current financial year, which suggests to me that it could end the year on a high note as well. 

Relative price and dividends

However, there are downsides to the stock too. The one ratio I always consider when deciding whether or not to buy a stock is the price-to-earnings (P/E) ratio, which allows an easy comparison across all other potential purchases for me. Shell’s P/E is around 38 times right now, which I think is high compared to 17 times for the FTSE 100 as a whole.

Its dividend yield could be better too. It is presently 3.7%, which is slightly above the average FTSE 100 yield. However, it might not cut it for me next year. Inflation in the UK is expected to average 4% next year. And that means my real passive return from Shell would actually be negative if it does not increase its dividends from their present levels. Also, its peer BP already has a higher yield of 4.6%, so I would much rather buy that stock for a passive income. 

My takeaway

On the whole, though, I like the Shell stock. It could be one great earnings release away from a far more tempered P/E ratio. If its earnings rise significantly, with the price at the same level, it follows that its P/E will decline. Also, bigger dividends might just be one announcement away. And I think it is probably, considering the likely profits for oil biggies this year. I think I would buy more shares now for my portfolio.

Manika Premsingh owns shares of Royal Dutch Shell B. 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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Looking to successful investors for inspiration on how I ought to invest my own funds can make sense. But if I want to invest with a more modest amount, can I really learn from a share picker deploying billions of pounds, such as Warren Buffett? I think the answer to that question is yes. Here’s how I would go about it.

Buffett’s success is built on approach, not amount

Buffett didn’t start his investing career with a lot of money. In fact, it began with what he scraped together as a schoolboy from part-time jobs such as a paper round. So while he may now have a large asset base to deploy, that wasn’t the basis of Buffett’s original investment success. Rather, it was the approach that he took to investing.

Fortunately for me, Warren Buffett has laid out that approach very clearly and openly. In his annual shareholders’ letters (available free online) and public pronouncements, Buffett has laid out how he approaches investing. While I may not attain his results, I can certainly follow his method if I choose.

Warren Buffett on investing

Buffett has said multiple times that for most investors, he thinks the smartest shares to buy are low-cost tracker funds.

Why does he like them? It can be hard for individual investors to outperform the market – and that includes professional stock pickers too. Add in portfolio managers’ fees and it is even more challenging for them to offer strong returns. Some will return less than a tracker fund, which simply mirrors a leading index, such as the FTSE 100.

So a low-cost tracker fund can offer the diversification and broad-based exposure of an index, without the sometimes punitive fees of an active portfolio manager.

But while Buffett reckons most investors would do better to invest in such a fund than pick individual shares themselves, that doesn’t mean they all would. After all, much of Buffett’s success has been down to his ability to pick shares to buy. He reckons some investors can outperform index funds. That could apply even with £1,000 – as long as one made the right choices in picking shares. I say “shares” because more than one company helps to improve diversification. That is important as a risk management principle whether investing £1,000, or billions like Buffett.

Shares I’d consider with £1,000

Buffett likes companies with a wide business “moat”, in other words a sustainable competitive advantage which can help them generate free cash flow for years to come. He only invests in businesses he understands. He avoids companies with red flags such as unusual accounting methods.

One share that I think matches those criteria and that I would consider adding to my own portfolio is consumer goods giant Unilever. Its iconic portfolio of premium brands gives it pricing power. One risk is inflation of ingredients costs cutting into profit margins.

Another share I’d consider buying for my portfolio using Buffett principles is Buffett’s own biggest holding, Apple. I reckon its installed base and ecosystem give it sustainable pricing power, which can translate into large future profits. But one risk is increased competition in smartphones, which could lead to lower revenues. With £1,000 in my portfolio, I’d be happy to split it between Unilever and Apple.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and Unilever. 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 getting harder for UK share investors to find dividend shares whose yields offset the problem of inflation. An era of low interest rates meant that there was a galaxy of stocks offering inflation-beating dividend yields. However, soaring inflation since the spring has made it increasingly difficult for income investors like me to make a positive return on a near-term basis.

The latest consumer price inflation (CPI) gauge in the UK showed prices soar by an eye-popping 4.2% year-on-year. October’s figure surged further past the Bank of England’s target of 2% to 10-year highs. Commentary coming out of the Bank of England suggests that CPI will continue to climb, too, as energy prices rocket, wages rise, and supply chain issues persist.

This week Bank of England deputy Ben Broadbent said that rising energy bills will push inflation “comfortably” above 5% in spring 2022. Weak economic growth might mean the Bank remains reluctant to hike rates to combat the problem, too.

Two cheap dividend shares I’d buy today

With this in mind, here are two big dividend paying shares I’d buy for 2022. Yields for each of these sit well above 5%, giving me a good chance of making a positive return from an income perspective.

#1: Centamin

Investment interest in gold, a commodity that’s bought as protection against inflation, is getting back into gear. This bodes well for producers of the precious metal such as Centamin (LSE: CEY). The latest World Gold Council data showed holdings in gold-backed ETFs rise by a net 13.6 tonnes in November. This was the first such rise in four months.

Inflationary pressures aren’t the only phenomenon that could keep pushing gold demand higher either. Rising concerns over Omicron and China’s real estate industry, for example, a just a couple of other potential price drivers. I’d buy Centamin despite the threat posed to commodity values from a rising US dollar. This dampens demand by effectively making it less cost-effective to buy assets that are priced in dollars. 

Centamin’s dividend yield for 2022 sits an inflation-beating 5.6%.

#2: Direct Line Insurance Group

I’m giving Direct Line Insurance Group (LSE: DLG) a close look today, too. And it’s not just because of its mighty 8.5% yield for next year, either. I think this UK dividend share could be a great way to protect myself against the dangers threatening the economic rebound. After all, sales of general and car insurance policies remain stable even when the pressures on consumer spending power increase.

I also like Direct Line because its brands (which also include Churchill insurance and Green Flag rescue) are some of the most trusted out there. I’m excited, too, by the massive investment it’s making in tech to attract customers and push down costs. This should pay off handsomely as the digital revolution clicks through the gears. I’d buy the insurer despite the threat posed to its revenues by popular price comparison websites.

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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I am on the lookout for the best UK shares for my portfolio. One stock I am currently considering is Marshalls (LSE:MSLH). Should I buy or avoid the shares for my portfolio? Let’s take a look.

Construction and building supplier

Marshalls is one of the UK’s leading landscaping product manufacturers. It manufactures and supplies a multitude of products such as natural stone and concrete for the construction, home improvement, and landscape markets. It has roots stretching back to 1890s.

Marshalls sells its products via three main channels. These are to builders merchants and private builders, large construction firms, and direct to consumers.

As I write, shares in Marshalls are trading for 722p, which is similar to this time a year ago when shares were trading for 721p. In the three months, shares have dropped from 845p to current levels. Is now a good opportunity for me to buy cheap shares in an established company?

Positive performance and outlook

Marshalls’ most recent trading update was a half-year report announced in August, which made for excellent reading. It reported that revenue has surpassed 2020 and pre-pandemic 2019 half-year levels, as did gross profit, which shows strong recovery since the pandemic affected it. Debt levels had decreased from 2020 and pre-pandemic levels, which was due to excellent trading and favourable market conditions. An interim dividend of 4.7p per share was declared. This was the same amount as in 2019. There was no interim dividend in 2020. Many UK shares cancelled dividends in 2020 to conserve cash.

Marshalls has a good track record of performance too. I do understand past performance is not a guarantee of the future but I use it as a gauge nevertheless. Prior to the pandemic-affected 2020 results, revenue and profit grew year on year for three years in a row. I expect the next full-year results to surpass 2019 levels if this half-year report is anything to go by.

The outlook ahead is positive for Marshalls in my opinion. The construction sector is booming right now and the UK government has committed to spending £100bn on projects over the next few years. This could boost Marshalls and it is also taking its own steps to grow further. It has decided to spend £21m in 2021 as capital investment to aid growth plans. This includes a new manufacturing plant in St Ives.

UK shares have risks

Despite my bullish stance, I must note credible risks of investing in Marshalls. It is well known that macroeconomic issues affect the construction industry most of the time. Current supply chain issues as well as rising inflation and costs could affect operations, performance, and the bottom line. This could affect investor returns. Furthermore, the pandemic is not over and any new variants could derail performance, like it did in 2020 at the beginning of the pandemic. Other similar UK shares could be affected by similar issues.

I would buy Marshalls shares. At current levels, I think the shares are a tad expensive with a price-to-earnings ratio of close to 30, so if shares were to cheapen I would be even happier to add them to my portfolio. I’m confident the construction boom will benefit Marshalls, and it has a good position in its market to continue growing, performing well, and providing investor returns.

Jabran Khan 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.