Since the pandemic lows, both BP (LSE: BP) and Shell (LSE: RDSB) have produced outstanding returns for investors who were brave enough to buy – BP is up 77% and Shell 91%. However, the share prices of both FTSE 100 companies have come under pressure recently for two main reasons. Firstly, the emergence of Omicron has led to fears that further lockdowns and travel restrictions will be needed to constrain its spread. Secondly, in order to cool down escalating oil prices, the Biden administration has suggested releasing strategic oil reserves.

Neither reason, in my opinion, changes the underlying investment case for either company. Instead, I believe the pullback has presented an incredible buying opportunity for me. Let me explain why.

In relation to Omicron, there is still so much we do not know including crucially how transmittable it is as well as its ability to evade protection afforded by existing vaccines.  What I do see at the moment is no appetite amongst governments to introduce further lockdowns and draconian restrictions, particularly not in the UK. Indeed, countries that have gone down this route have been met with significant public resistance.

On the second point concerning the release of strategic oil reserves, such an action will do nothing to address the supply and demand imbalances that have built up over the last few years driven primarily by the ESG agenda. I would go so far as to say that such a release would be a mere drop in the ocean.

The lack of capital investment in oil and gas exploration is the primary reason to believe that prices will, at least in the short to medium term, continue to rise. Unlike in previous commodity bull markets (leading up to the global financial crisis in 2008 and again in 2014) where the world was swimming in oil and gas, today, nothing could be further from the truth. There is a distinct possibility that we could be facing real shortages this time.

Of course, I could be wrong about near-term rising oil prices. Last month, the US Energy Information Administration predicted that oil prices would remain elevated throughout December but would subsequently drop by about $10 a barrel next year as production of crude ramps up and begins to exceed consumption toward the end of 2022.

The inflation genie out of the bottle

However, the fortunes of BP and Shell are not simply tied to the price of oil. Another related point that is worth bearing in mind is rising inflation expectations. Only this week, the Fed finally ditched referring to inflation as a transitory phenomenon. If inflation continues to surprise to the upside, which I believe is a definite possibility, central banks would be likely to accelerate the timetable for tapering the purchase of financial assets, and rising interest rates could, as a result, just be round the corner. That inevitably will precipitate a market correction and potentially a crash, particularly amongst overvalued US tech stocks. The result of such a sell-off would see a rush of capital into the undervalued, and largely abandoned, commodities sector.

Andrew Mackie owns shares in both BP and Royal Dutch Shell. 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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It’s been a busy few weeks for Halfords (LSE: HFD). The company released its interim results in November, which I wrote about here. At the time, the Halfords share price jumped over 15% on what was an excellent set of figures.

Then, just this week, the company announced it was acquiring tyre and repair specialist National for £62m. Halfords planned on funding the acquisition by selling new shares. This can sometimes cause a share price to fall if the new shares are sold at a discount to the market rate. Not this time though, as the Halfords share price rose over 6% yesterday after the fundraise completed.

But can the share price surge further? Let’s take a closer look.

The acquisition of National

I’m generally cautious about acquisitions as an investor. Sometimes they can be a great way to grow a business. For example, when BlackRock bought the iShares brand of ETFs (exchange traded funds) from Barclays, it turned out to be a huge success.

At other times, a company’s management might be looking to diversify the business into other sectors. Integrating a new business into a company can be challenging, particularly if management has little experience in the sector itself. It’s easier for me to buy shares in other companies myself so I diversify my portfolio.

I think Halfords’ acquisition of National could be a great one though. National is a tyre and automotive servicing, maintenance and repair business, so it fits nicely into Halfords’ current operations. Indeed, Halfords says it will secure its position as the UK’s largest vehicle service, maintenance and repair business.

Financially speaking, the acquisition is expected to be accretive to earnings as soon as the first full financial year after the investment. This is another good sign in my view.

Funding the acquisition

Halfords proposed to fund the acquisition by selling new shares. When companies do this, there’s always a risk for current shareholders of dilution (owning less of the business than they currently do).

However, Halfords was able to raise £63.4m by selling shares at the going market price of 320p. This is a sign of strong institutional demand for the shares.

Will the Halfords share price surge?

I view this acquisition positively. It’s in a sector that Halfords knows well, and will be earnings accretive in the first full year of operation. The fact that the fundraise was at the market price makes it more attractive as a potential shareholder.

With any acquisition though, there’s always an integration risk. It’s never a guarantee that two separate businesses will work well together. There could also be additional costs involved that haven’t been considered by Halfords’ management team. This happened with London Stock Exchange’s recent acquisition of Refinitiv, and the share price has suffered for it.

Taking everything into account, I think the Halfords share price will do very well from here. Analysts seem to think so too. The consensus target share price is 461p, which is a potential return of 35% as I write. 

So, for me, Halfords is a strong buy for my portfolio.

Dan Appleby owns shares of London Stock Exchange Group. 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’ve been looking at quality UK shares to add to my portfolio for 2022. These two companies updated the market this week and their share prices have risen. In a week when stock markets have generally fallen, this is a good sign that the businesses are trading well.

Let’s take a look to see if these stocks are buys for my portfolio.

A UK share to profit from the booming housing market

The first company I’m looking at is Belvoir (LSE: BLV). It’s a property franchise group specialising in residential lettings and property sales. The share price has had an unbelievable run since the pandemic low at around 90p in March 2020. As I write, the share price is 260p which marks a near 200% return since then. There’s been some weakness lately though as the shares have dropped around 20%.

On Thursday, Belvoir released a trading statement for the 10 months to October saying that the company has performed ahead of the board’s expectations. Income grew across the group, with notable strength in property sales that the company said was “mainly a result of the strongest market for property transactions seen since 2007”.

I normally look out for franchise groups as an investor as they can achieve fantastic business economics. It’s up to the franchisee to invest any upfront costs, leaving the franchisor to collect an income from the potential profit. Indeed, Belvoir’s cash generation is excellent, and the business requires little cash investment itself. Last year’s operating margin was a stellar 31% too.

I have to keep in mind that Belvoir’s business is dependent on the housing market staying strong. Any slowdown in property sales or lettings and profits will fall. But I see this as a quality stock to keep in my portfolio as we head into next year.

A quality investment management company

I’ve also been looking at Liontrust Asset Management (LSE: LIO). It’s an investment management company offering a range of funds across various asset classes.

Liontrust released its half-year report to 30 September on Wednesday and it was very impressive, in my view. Adjusted profit before tax was £43.1m, which increased from £22.3m in the same period during 2020.

A key metric for an investment management company is assets under management and advice (AuMA) as this figure determines its income generation. Liontrust’s AuMA increased by 73% over the 12 months to £35.7bn.

One of the reasons I think Liontrust is a quality business is its operating margin. It’s able to generate double-digit operating margins consistently, and last year it was an impressive 37%. Not only this, but its return on capital is also consistently in double-digits.

A risk to consider before I buy the shares is that stock markets may crash next year. This would lower Liontrust’s AuMA, and therefore income would fall. But on balance, I still think this is a quality UK share for me to own for the long term.

Dan Appleby owns shares of Belvoir. 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.

FTSE 100 fund manager Abrdn (LSE: ABDN) has just agreed a £1.5bn deal to buy DIY investment platform Interactive Investor. However, shareholders don’t seem too keen. The Abrdn share price has fallen by 10% since the deal was first reported on 8 November.

This latest slide means that Abrdn stock has fallen by 20% over the last year. I’m wondering if this could be a good opportunity for me to start buying the stock. After all, Abrdn shares now offer a 6% dividend yield. If the Interactive Investor deal is successful, growth could accelerate over the next few years, too.

Why buy it?

Abrdn has been struggling with growth since the business was created in 2017 through the merger of Aberdeen Asset Management and Standard Life. Shares in the combined company have fallen by 45% since 2017, reflecting the market’s downbeat view of this business.

Chief executive Stephen Bird is betting that one way to solve this problem is to tap into the growing demand from investors who want to manage their own cash. The deal to buy Interactive Investor means that Abrdn will become the number two player in the UK direct investing market.

Interactive Investor has 400,000 customers with an average of £135,000 under management each. That gives it a total of around £55bn of assets — enough to give the business a 20% share of the UK market, just behind Hargreaves Lansdown.

Like Hargreaves, it’s also very profitable. Last year, a 34% profit margin allowed the business to generate a pre-tax profit of £46m. That would have increased Abrdn’s 2020 profits by almost 10%.

Are Abrdn shares cheap?

The big problem for Abrdn is that it keeps losing funds under management. In 2019, the net outflow from its funds was £58.4bn. In 2020, the outflow was £29.4bn. During the first half of 2021, it was £8.3bn.

When assets under management are falling, revenue also tends to fall. To offset these losses, Abrdn has been cutting costs and gradually selling its stake in Indian insurer HDFC. These measures have provided support for the group’s dividend, but they aren’t a long-term solution.

I think this is why Abrdn shares do look quite cheap. The stock’s 6% dividend yield is nearly twice the FTSE 100 average. Abrdn’s share price of 227p is also below the company’s book value of 307p per share — a commonly used value indicator.

Would I buy Abrdn shares now?

Sometimes shares are cheap for a good reason. I think that might be the case here. Although I’m encouraged by the potential of Interactive Investor, I’m also aware that big mergers and takeovers don’t always have a great record of success. Abrdn itself is an example of this, in my view.

For now, the 6% yield looks safe enough to me. I might consider the stock for as a high-yield investment. But I’d want to keep a close eye on the company’s progress. If this business doesn’t return to growth soon, then I think the share price could fall even lower.

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

This year has been good to shareholders of Lloyds Banking Group (LSE: LLOY). With the economy bouncing back strongly from 2020’s lows, it has seen its loan losses plummet and earnings rebound. Hence, the Lloyds share price has surged from its January low. But what might 2022 hold for the UK’s largest lender?

The fall and rise of the Lloyds share price

Before Covid-19 crashed global markets, the Lloyds share price was doing fine. On 16 December 2019, it hit its 2019 closing high of 67.25p, before ending the year at 62.5p. Then along came coronavirus to spoil the fun. During the London market meltdown of spring 2020, Lloyds closed at 27.73p on 3 April. But the worst was yet to come, with the shares bottoming out at 23.58p on 22 September 2020. At the time, I thought this was crazy, so I said so.

Lloyds stock duly rebounded, closing out 2020 at 36.44p. It then lost ground, hitting its 2021 closing low of 33p on 29 January 2021. But it’s been largely uphill since then, with LLOY hitting its 2021 intra-day high a month ago, peaking at 51.58p on 2 November. On Thursday, the shares closed at 46.96p, down 4.62p (-9%) from this recent high.

I see Lloyds as a binary bet on the UK for 2022

As we’ve seen since last Friday, worries about new virus variants can still send stocks steeply southwards. Hence, if we fail to conquer Covid-19, then I suspect that the Lloyds share price next year will be driven by FUD (fear, uncertainty and doubt). However, if it appears that we’re winning the war on coronavirus, then optimism, hope and even euphoria could drive this stock steeply higher. That’s why I see Lloyds as a binary bet on UK economic recovery next year, where two extremes might emerge. 

Scenario 1: Hurrah!

In this Pollyanna plot, everything is golden. As 2022 wears on, coronavirus takes a beating and the global economy rebounds strongly. As a result, consumer spending soars, asset prices keep rising, and company earnings surge. In other words, it’ll be like the Roaring Twenties, when the world bounced back from the 1918 flu pandemic. In this outcome, I could see Lloyds’ earnings and dividends rise steeply, dragging up its share price with them. In this best of all possible worlds, I could see the Lloyds share price hitting 60p to 65p next year.

Scenario 2: Doom and gloom!

In this ultra-pessimistic scenario, Covid-19 runs rampart in 2022, leading to more social restrictions and lockdowns. Consumer spending plummets, international trade nosedives, company earnings collapse, and asset prices take a beating. In this setting, Lloyds’ lending losses explode, its earnings per share plummet, and the bank cancels its dividend to preserve cash. In this horrible outcome (comparable to spring 2020), I could see the Lloyds share price crashing back to, say, 25p to 30p.

I’d buy at the current Lloyds share price

Of course, we could also see something between the two. Regardless, I don’t own Lloyds shares today, but they look attractive to me on fundamentals. The stock trades on a lowly rating of 7.2 times earnings and an earning yield of 14%. The dividend yield of 2.6% a year is lower than the FTSE 100‘s 4.1% yield, but has room to rise. These numbers appeal to me as a veteran value investor. Hence, as an optimist, I’d buy Lloyds at current prices and hope for the best!

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking 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.

I’m searching for the best cheap UK shares to buy for my shares portfolio. Here are two bargains I’m thinking of buying right now.

Playing the online retail boom

The spread of Omicron poses a threat to stacks of UK shares as we move into 2022. Urban Logistics REIT (LSE: SHED), on the other hand, is a stock that could benefit as e-commerce growth rates might receive an additional boost. Analysts at courier Parcel Hero reckon online Christmas spending by Britons will likely match last year’s £35.3bn as people grow more cautious about visiting shops. It’s even possible that new restrictions (or even lockdowns) in the weeks ahead could propel expenditure well past these levels.

Urban Logistics provides the essential warehouse and distribution properties that keep e-commerce moving. So it’s well placed to benefit from any rise to online shopping activity. Rents are soaring in this part of the property market as supply fails to keep up with demand. I’d buy Urban Logistics even though weak consumer spending levels could pose a threat to profits growth.

At a current price of 172p per share, Urban Logistics trades on a forward price-to-earnings (P/E) ratio of 22.2 times. I don’t think this is an excessive valuation as rapid e-commerce growth appears to be here to stay. Besides, a chunky 4.4% dividend yield for this financial year (to March 2022) helps to take the sting out.

6.4% dividend yields

I haven’t stopped championing the wisdom of buying housebuilding stocks like Taylor Wimpey (LSE: TW). Fresh housing data this week revealed how strong trading conditions remain for such businesses.

According to Nationwide, average property prices in the UK rose 0.9% in November from the prior month. This was up from growth of 0.7% reported in October. A perfect blend of low interest rates, massive competition in the mortgage market and financial support from Help to Buy is keeping housebuyer activity ticking along nicely. And I see no end to this trend either. It’s why I already own shares in this particular homebuilder (along with Barratt Developments).

Indeed, Taylor Wimpey has continued hiking its profits forecasts in recent months in light of this bright industry outlook.Demand for homes in the UK continues to outstrip supply by a wide margin, a phenomenon I think will take many years and much hard work by government to solve.

City analysts think Taylor Wimpey’s earnings will rise 7% next year. This leaves the builder trading on a P/E ratio of just 8.5 times. Furthermore, at current prices of 162p Taylor Wimpey carries a mighty 6.4% dividend yield. 

There are risks. Concerns over the strength of the housing market have grown following the full restoration of Stamp Duty. Shocking HMRC data, for example, showed home sales more than halved month-on-month in October as people’s tax liabilities rose. But I feel Taylor Wimpey’s value is hard to ignore. It’s why I’m thinking of increasing my holdings in the business today.

Royston Wild owns shares of Barratt Developments and Taylor Wimpey. 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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