One of the greatest risks for an investor is an outright stock market crash. Most, if not all, share prices would decline and it would leave my portfolio looking pretty miserable. It was only back in March 2020, at the onset of the pandemic, that the stock markets last crashed.

But stock markets have recovered considerably since then. So much so that Michael Burry of ‘The Big Short’ fame says there’s more speculation and overvaluation today compared to other times the stock market crashed.

It’s not just Michael Burry now though. Charlie Munger, who’s Warren Buffett’s long-standing business partner at Berkshire Hathaway, has had his say recently. Here’s what Munger said, and what I’m going to do.

Charlie Munger: madder than the dotcom boom

Munger was being interviewed at the Sohn Conference in Sydney when he gave his assessment of the current financial markets. He said: “I consider this era even crazier than the dotcom era.”

This is a strong statement considering how very mad the dotcom era was. And of course, markets did crash back in 2000, and didn’t recover for years afterwards. If Charlie Munger is right, then we may be about to see another stock market crash like we did when the dotcom bubble burst.

Stock market crash: here’s what I’m doing

I agree with Charlie Munger in some ways. I wrote about Rivian recently, and described how it reminded me of the dotcom bubble. It’s a pre-revenue company with a market value of close to $100bn. This, to me, seems crazy, even if it may one day go on to great things.

We’ve also seen some US growth stocks crash this year that looked richly valued. Docusign is an example I’ve written about. But there have been others, such as Peloton and Zoom, that have fallen by double-digits yet still look highly valued to me. That said, there are some good businesses here, and I might be interested in buying the shares if they become cheaper.

Charlie Munger did say one other thing in his assessment of today’s stock markets: “You have to pay a great deal for good companies and that reduces your future returns.”

I think this is generally true in the US. But the UK market is cheap right now in comparison. For example, the FTSE 100 index is valued on a forward price-to-earnings (P/E) of only 12 as I write. The US equivalent index, the S&P 500, is valued much higher on a forward P/E of 21.6. There are many good companies in the S&P 500 index, but Charlie Munger may be right in that I’d have to pay a great deal for them. This would certainly reduce my future returns.

So, I’m going to carry on looking for quality UK shares, and always consider the price I pay for the companies I buy. If the stock market does crash, I’ll consider it an opportunity to load up on shares that might be too expensive today.

Dan Appleby 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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As pledges for emission reductions continue to make global news, electric vehicle companies are experiencing something of a heyday. Over the past year alone numerous EV companies have come to market, most with extremely high valuations. Here I assess whether two of these EV stocks, Rivian Automotive (NASDAQ:RIVN) and Lucid Group (NASDAQ:LCID), are about to become the next Tesla (NASDAQ:TSLA).

As the largest and most established EV company, Tesla has remained unrivalled for a number of years. Now, new competitors Rivian and Lucid are attempting to shake things up. Both stocks have performed particularly well recently, with Lucid up almost 400% this past year and Rivian up 72% in only a matter of days between 10th and 16th November. 

Rivian and Lucid

My main criticisms of these EV stocks is the vast disparity between share prices and company fundamentals. Rivian’s IPO a few weeks ago is a clear example of this, with shares initially floating at $78 then soaring to a peak of $172 within six days. This has given the company a market capitalisation of over $140 billion, all whilst producing zero cars and reporting losses of $1 billion in the first half of 2021.

Lucid is in the same boat as Rivian. Despite not having produced a single vehicle, its market value has surged past that of Ford Motors to reach almost $90 billion. With the first car not scheduled for release until mid 2022 and recent Q3 earnings reporting a net loss of $1.5bn, I believe its current share price is unjustifiable.

Reservations about these overpriced stocks come also from equity research analysts. For example, Morgan Stanley has recently issued a strong sell rating on Lucid, suggesting the stock price will plummet to $16, representing a 70% downside from its peak share price.

Tesla

In comparison to Rivian and Lucid, Tesla remains in the driving seat as an established and profitable industry leader.

In fact, in a tweet just last month, Elon Musk pointed out just how far behind these new EV start-ups are in comparison to Tesla, the only American car maker to have achieved both positive cash flow and high production volumes in the last 100 years.

Although I believe Tesla has an equally lofty valuation, a whopping $1 trillion, its diversification into the autonomous driving sector sets it apart from traditional EV companies, all competing for the same rapidly diluting market share.

The verdict

Whilst both Rivian and Lucid deserve applause for attempting to disrupt the EV industry with their new cars, I think both stocks are extremely overvalued and incomparable to Tesla. For me, their only achievement is that of being two of the largest US companies by market capitalisation with no revenue

New, smaller EV players face the virtually impossible challenge of rivalling Tesla, a company now producing a million cars per year and logging a profit for the fourth consecutive quarter. I believe it won’t be long before Rivian and Lucid stocks are bumped out of the fast lane and so I am steering clear of these stocks.

Yasmin Rufo 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 stock market hasn’t exactly been the best performer recently. With the discovery of the Omicron virus variant and the uncertainty that comes along with it, US growth stocks have been hit quite hard. And with double-digit declines, some are starting to look quite cheap.

So has the recent volatility created buying opportunities for my portfolio? I certainly think so when it comes to Teladoc (NYSE:TDOC).

Telemedicine getting hammered

Teladoc shares have been pretty abysmal performers in my portfolio this year. Despite having a tremendous run in 2020, the US growth stock has fallen almost 55% over the last 12 months. The decline started long before Omicron entered the picture. But the increased uncertainty undoubtedly hasn’t helped matters.

Despite what the share price indicates, Teladoc has actually been performing admirably. In fact, looking at the latest earnings report, revenue over the first nine months of 2021 came in 108% higher than a year ago, at a record-breaking $1.48bn!

That’s almost 50% more than what was generated in the whole of 2020 alone and was primarily driven by an increasing customer roster along with higher platform usage.

What’s more, if there’s another round of lockdowns is on the horizon courtesy of Omicron, then demand for Teladoc’s services will likely continue to rise even higher. This is one of the reasons why I believe this growth stock may have been oversold, making it look relatively cheap. But if that’s the case, why has the stock seemingly collapsed?

Revenue is surging, profits… not so much

In late 2020, Teladoc completed a massive acquisition of Livongo Health. This move made the company arguably the biggest player in the telemedicine space. But it also caused Teladoc’s ledger to drip with red ink. A large chunk of stock-based compensation was issued to Livongo employees as part of the acquisition. And over the last nine months, this incurred a cost of $241m, which pushed total losses to a staggering $417.8m.

Massive losses are hardly a pleasant sight, so I can understand why investors are moving towards the exit. Even more so, given the firm now has over $1.2bn of debt on its balance sheet. But, personally, I’m not too concerned.

Most of these loans don’t mature until 2025 and, in the meantime, there is over $800m of cash equivalents to meet short-term obligations. Furthermore, stock-based compensation is ultimately a one-time expense. As such, I wouldn’t be surprised to see sudden improvements in profitability in the next 24 months.

A cheap US growth stock worth buying?

Compared to the start of the year, Teladoc shares certainly look cheap. And if management hits its 2021 full-year revenue target of $2bn, that places the price-to-sales ratio at around 7.4. For a business delivering triple-digit growth combined with strong liquidity, that’s quite an attractive price, in my mind. Therefore, I’m definitely considering increasing my position.

Zaven Boyrazian owns shares of Teladoc Health. The Motley Fool UK has recommended Teladoc Health. 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 am currently looking for UK shares to buy for my portfolio in 2022. I am concentrating on finding businesses with an upcoming growth catalyst. This could take many different forms. From companies that may experience a recovery next year to those that could capitalise on a significant economic tailwind. 

With that in mind, here are the five stocks I would be happy to add to my portfolio today, considering their potential next year. 

Shares to buy

The first couple of companies I would buy ahead of 2022 are recovery stocks. The pandemic has decimated the public transport sector, but I am excited by the long-term potential for this industry. To get cars off the road, policymakers will have to encourage consumers to use public transport, which suggests demand for these services will only increase. 

That is why I would buy public transport operators FirstGroup and Stagecoach. I would buy both because they operate in different sectors of the industry.

As such, I believe a portfolio containing both would be a way for me to build diversified exposure to the sector. 

Hospitality recovery

The other recovery plays that interest me are JD Wetherspoon and IWG. Like the rest of the hospitality industry, Wetherspoons has suffered during the pandemic. However, I think it can capitalise on the economic recovery over the next few years. The company’s low-cost offer should appeal to consumers, especially in an inflationary environment when costs are rising across the board.

Meanwhile, serviced office provider IWG is already reporting an uptick in demand. The pandemic has changed how companies and workers view employment. Flexible working patterns are now becoming the norm, and this is leading employers to adopt more flexible office solutions. 

IWG has one of the largest global portfolios of flexible office space. Its flagship Regus brand has a global presence. I think this gives the company a competitive advantage to gain an edge over peers in economic recovery. 

I am interested in these recovery plays because I believe the economy will continue to rebound in 2022. Unfortunately, there is no guarantee this will happen. Further disruption from the pandemic, or an economic recession caused by higher interest rates, could delay the recovery. These headwinds could hold back the recoveries at the companies outlined above. 

UK shares for volatility

Global fintech firm Plus500 has performed relatively well throughout the pandemic. Volatile financial markets led to a surge in trading activity on its platforms last year. Many of the consumers that joined the group in 2020 have continued to trade in 2021. 

I think this trend may persist into 2022. And if there is another pandemic-related sell-off, Plus500 has the potential to capitalise on this activity, just as it did in 2020. 

Despite these qualities, the group does face some challenges in the form of competition and regulations, which could reduce profitability and increase group costs. 

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.

Over the past year, Alibaba (NYSE: BABA) stock has crashed nearly 60%. And over the past four weeks, the sell-off has only accelerated. Shares in the Chinese e-commerce giant have fallen 31% since the beginning of November. 

While I can understand why the market has been selling the stock, I think current investor concerns overlook the group’s true potential. 

The outlook for Alibaba stock

As one of the largest e-commerce groups in China, Alibaba’s market opportunity is massive. And when I say massive, I mean genuinely massive. It is projected that by 2024, e-commerce sales in China will be worth more than $3.3trn a year. 

And that leading position means it has around 51% of the Chinese market, although this share has been under pressure in recent years. Some estimates suggest it could fall below 50% for the first time next year. 

While this is disappointing, it needs to be put into perspective. Amazon‘s share of the US e-commerce market is around the same, but this company has a market capitalisation of $1.7trn. Alibaba’s market value is $300bn. The size of the US e-commerce market is less than $1trn. 

So Amazon has the same share of a smaller market and is worth five times more. This does not make much sense to me. Even though it is losing market share, I think Alibaba deserves a higher valuation than Amazon, considering its position in a much bigger market. 

That said, Alibaba does have a smaller global footprint. Its presence outside of China is almost non-existent. What’s more, the American retailer is more diversified. Its cloud computing and marketing businesses now provide more profit than the retail side of the company. 

China threats 

Alibaba does have a level of diversification away from the retail side of the business, but, again, this is mostly concentrated in China. More importantly, Chinese regulators do not want companies like Alibaba to expand too much overseas. They argue that this could jeopardise national security if overseas regulators demand access to valuable data resources. 

The risk that Chinese regulators will clamp down on Alibaba is one of the primary reasons why the stock has fallen so far, so fast, in recent weeks. The clampdown has already claimed one company, ride-sharing group DiDi, which has been asked to delist from the New York Stock Exchange and relist in Hong Kong. 

This is a significant risk, and it is impossible for me to quantify. I am not going to pretend to know what is on the mind of Chinese regulators. As such, I cannot say with any certainty if they will decide to clamp down on the business or not. 

Considering this risk and the market opportunity available to the group, I would be happy to buy the stock for my portfolio, but only as a small speculative position. I think the company’s potential is clear, but so are the risks.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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.

NIO (NYSE: NIO) stock has faced significant selling pressure over the past month. Shares in the electric vehicle (EV) manufacturer have fallen by around 26% over the past four weeks. The stock has dipped approximately 30% over the past 12 months. 

There are a couple of reasons why the market has turned its back on NIO this year. Even though the company has increased its output, and the demand for its vehicles is rising, concerns about the group’s ownership structure and competition have weighed on investor sentiment. 

But is this an opportunity for savvy long-term investors like myself, to snap up a bargain the rest of the market is avoiding? 

NIO stock opportunity? 

If I strip out all of the concerns surrounding the business, it looks as if the EV producer is performing ahead of expectations. 

Earlier this year, the group cut output projections due to supply chain constraints. However, it recently reported better than expected delivery numbers for the third quarter.

Although the company’s output is still a fraction of the size of larger competitors such as Tesla (around 25k to Tesla’s 250k per quarter), it is trying to scale up its output rapidly. 

Management is pushing forward with new factories, which should enable the group to hike output and meet the rising demand for EVs in China and around the world. 

Unfortunately, the increasing output will require money — a lot of it. To fund the capital spending needed, throughout November, the company issued $2bn of shares through what is known as an at-the-market offering. This structure drip-feeds new shares into the market as a way to reduce the negative impact on the stock. 

Even though using an at-the-market offering can reduce the impact of a share issue on a stock price, it still dilutes existing investors. This means each investor has a smaller claim on the business than they did before the issue began. 

NIO’s offering is now complete, and the company has the funding required to pursue its growth plans. 

Risks ahead

I think this recent development highlights the risks of investing in NIO stock today. The company is still in its early stages of development and it is losing money. By comparison to its peer, Tesla, these fundamentals are not particularly attractive. Tesla’s output is 10-times higher, and the corporation is profitable. 

Therefore, despite NIO’s potential, I would not buy the stock for my portfolio today. I think some of the recent declines in the company’s share price reflect the new shares in issue, and management may have to repeat this action to raise more money in the future.

With some big growth plans in the pipeline and no profits, NIO will need additional funding at some point. It is likely the group will call on investors again to provide this additional capital. 

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.

Rolls-Royce (LSE: RR) shares were devastated by the pandemic, falling drastically from their pre-Covid level. However, in the last quarter, momentum seemed to have picked up for the firm, with the shares climbing to 144p during October.

This momentum quickly ended, however, with the announcement of the Omicron variant. The shares have slumped over 12% in the past 30 days as a consequence. Does this present me with a buying opportunity? Let’s take a closer look.

Rolls-Royce share price outlook

Rolls makes the majority of its money from servicing jet engines. As such, the constant travel bans have plagued share price growth. While things seemed to be easing, the Omicron variant has led to a resurgence in coronavirus regulations. Many long-haul flight routes have virtually halted. The bad news was felt across the travel industry, with IAG and EasyJet both seeing double-digit share price drops after the news broke. In addition to this, many analysts don’t expect the aviation industry to fully recover until 2024. If this is the case, it could place a lid on the future growth of Rolls-Royce shares.

However, the Omicron variant has also boosted government responses to the coronavirus. For example, in the UK Covid-19 booster jabs are now being rolled out at a much faster rate to combat the variant. With more and more of the UK population vaccinated, it’s likely that travel numbers will ultimately increase. This could help keep Rolls-Royce shares afloat.

I think the 2022 summer season could prove pivotal for the travel industry. If the sector can enjoy high capacity, then consumer sentiment may be restored. This could lead to more abundant travel throughout the latter half of 2022, speeding up recovery for the sector. This would be great news for Rolls-Royce shares. However, it’s contingent on governments tackling the virus effectively.

Economic problems

One thing that worries me about Rolls-Royce is the firm’s capital structure. It currently has over £4bn of debt on its balance sheet, largely from pandemic-linked loans to keep the firm afloat. The reason this worries me is tied to the direction of the UK economy. Inflation has been steadily creeping up of late, with UK consumer price inflation (CPI) hitting 3.8% over the past 12 months. This is almost double the UK’s target of 2%. Due to these high increases, many investors are expecting an increase in interest rates. If this occurred, it would add to Rolls’ debts.

In just over a week, Rolls will release a trading update. I think this will prove pivotal for the direction of Rolls-Royce shares. In addition to this, it will show investors if the recent addition of Anita Frew as a non-executive director might be making an impact. Frew has chaired multinational chemicals company Croda International for the last five years, delivering huge success. If the report contains some good results, I’d hope that Frew’s impact on Rolls’ management could lead to some great longer-term growth for the firm.

Overall, although Rolls-Royce shares do look cheap to me, I’m not confident enough to buy just yet. I’ll be waiting eagerly to see the firm’s trading update before I consider adding the stock to my portfolio.

Dylan Hood has no postition 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.

Like many others, I consider Warren Buffett to be the best investor of all time. I also appreciate the famous billionaire’s ability to untangle complex investment ideas to create simple, memorable advice.

Possibly most interesting is the advice he left to the trustees of his wife’s estate. In 2013 in his letters to shareholders he wrote that he’s advising the trustees to invest 90% of the assets “in a very low-cost S&P 500 index fund”.  

This advocacy for S&P 500 index funds is something that the Sage of Omagh is known for and it got me thinking. I decided to follow the route he’s advising that he thinks will protect one of the most important people in his life.

My thinking

The S&P 500 is widely considered the most important index in the US and an essential barometer of American stock market health.

It contains 500 large companies that a committee selects. Firms must have a big enough market cap and have at least 10% of shares outstanding. This is in addition to liquidity and profitability requirements.

I believe that buying a low-cost S&P 500 exchange traded fund (ETF) is the easiest way for me to replicate his advice. An ETF is a fund that that tracks an index or sector and can be bought and sold like a share through most online brokers. ETFs allow me to invest in multiple companies in a single fund and are usually low-cost.

I’m looking at one in particular. Vanguard S&P 500 ETF (LSE:VUSA) is the one I’m exploring. This is huge in size with over $37bn in assets and is very low cost, with a 0.07% ongoing charge.

As the ETF follows the S&P 500, it includes big-name companies such as Microsoft, Apple and Amazon. In terms of industries, the index includes a variety of sectors such as technology, retailers and banking.

Am I going to invest?

Though it might not be for everyone, I think that I’ll include this ETF in my own holdings as part of a balanced portfolio.  

That said, the ETF and the index itself are not without their faults. Most noticeably the index only includes US companies. It’s true that many of these companies derive some of their earnings from outside the US, but this percentage has been falling over time.

Also, the index is market-cap-weighted. This gives a higher percentage allocation to companies with the biggest market capitalisations. This can mean that the biggest few firms come to dominate the index.

Finally, if I buy, I can only get the return of the index rather than possibly outperforming if I pick individual stocks. 

But on balance, I think that if this advice from Warren Buffett is good enough for the trustees of his wife’s inheritance, I think it’s good enough for me too!

Niki Jerath owns shares in Vanguard S&P 500 ETF. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Microsoft. 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.