A top UK share for income and growth

Redrow (LSE: RDW) is a UK housebuilder. It won’t be everyone’s cup of tea as this industry clearly faces some headwinds. The cladding tax, rising interest rates and the potential impact on mortgage demand and availability, a cost of living crisis, increasing materials costs and a tapered ending of government support to housebuilders. That’s quite a list of things to worry about on top of the dreadful war in Eastern Europe and all the other things dragging markets down so far this year.

Yet from a valuation and income perspective, Redrow has a lot going for it. The P/E is just seven and the price-to-earnings growth ratio – favoured by growth investors like Jim Slater – is 0.26, indicating the housebuilder is potentially very undervalued.

The dividend is covered nearly three times by earnings so has plenty of room to grow further, even though the shares already yield 5.4%.

I already have shares in FTSE 100 housebuilder Persimmon, but even so, Redrow looks compelling and I may buy the shares for the long term. It combines income and a cheap valuation, which could be a platform for strong future share price growth.

Another top share

Norcros (LSE: NXR) is exposed to some of the same risks as a supplier to housebuilders and other property companies. It owns and manufactures a range of household-related brands, such as Triton showers and Johnson Tiles, the leading manufacturer and supplier of ceramic tiles in the UK.

With Norcros there’s the political risk that comes with having significant operation in the South African market. The flip side of that is that if this emerging economy does well, Norcros should benefit.

The group has a 2025 Strategic Vision, with targets including £600m revenue by that year, having 50% of revenues derived from overseas and a sustainable ROCE of more than 15%. All of these indicate the potential for growth and ambition on the part of management. Its current revenue, for context, is £324m.

The shares are undemanding from a valuation perspective. The PEG is 0.13, while the P/E is eight. The dividend yield is just under 3.5% and is covered just under three times by earnings.

I have owned this share before, and as the shares struggle in this current market sell-off, I’m very tempted to buy them again.

A more passive route to getting more exposure to value stocks can be gained by investing in trusts or funds. These pool together investments. In my opinion, the investment trust Merchants Trust or the Fidelity Special Situations fund might be good options for me too. These professionally run investments have a strong bias towards value shares and could do well this year and beyond. All the more so if the rotation to value really takes root.

The post 2 top UK shares that could grow as the rotation to value continues appeared first on The Motley Fool UK.

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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Norcros and Redrow. 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.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Top stocks for a growth focused Stocks & Shares ISA

Small-cap growth stocks have been out of favour, which I think presents opportunities for long-term investors. Cerillion (LSE: CER) strikes me as one potential top growth share for my ISA. Another top option, in my opinion, is Franchise Brands (LSE: FRAN).

Cerillion is a provider of billing, charging, and customer management systems. It was formed in 1999, so is an established company, giving me confidence that it has strong customer relationships and a service that is in demand.

It has shown strong sales and revenue growth. When it comes to the latter, revenue has gone from 8.5m in 2016 to £26.1m in 2021.

Another benefit of the strong financial performance of the group is that the dividend is growing strongly. It has gone from 4.5p in 2018 to 7.1p in 2021.

A current ratio (current assets minus current liabilities) over two indicates there is good balance sheet strength. That potentially protects the downside risk of investing in Cerillion. But, if technology stocks keep falling, Cerillion may just get pulled down along with other stocks.

All in all, Cerillion looks like a high growth stock trading at a reasonable price. The price-to-earnings growth (PEG) ratio, for example, is only 0.8. This indicates the shares are not expensive. That’s why I’m tempted to add the shares when I have next year’s ISA allowance.

Expensive – but worth it?

Franchise Brands is unsurprisingly a franchisor. It owns franchises across a B2B division comprised of Metro Rod, Metro Plumb, and Willow Pumps, and a B2C division that incorporates ChipsAway, Ovenclean, and Barking Mad. In November 2021, it acquired Azura Group, a franchise management software system developer that the group says represents an important step in its digital journey. It could both improve the operations of the group’s franchise businesses, and also be sold as a service to other businesses.

Franchise Brands has seen rapid revenue growth in recent years. It has gone from £4.5m in 2016 to £49m in 2020 (the latest full-year figures).

Like with Cerillion, the strong performance allows management to grow the dividend quickly.

The biggest pause for thought would be that the shares are not cheap. They trade on a P/E of 27, while earnings growth has been a bit volatile and actually declined in 2020, making the shares expensive on a PEG ratio basis. As with all franchisors, a perennial risk is that it falls out with major franchisees, as has been seen with Domino’s Pizza in recent years. 

Nonetheless, with management’s strong track record, good revenue growth, and the potential for big dividend increases, I like the share.

Cerillion and Franchise Brands are, in my opinion, two top UK shares to add share price growth and could therefore be ideal for my new Stocks & Shares ISA allowance. 

The post The top stocks for a growth-focused Stocks & Shares ISA appeared first on The Motley Fool UK.

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

Passive income and compounding

There are four main factors at play when it comes to creating a portfolio of investments that will then pay out income. There’s the starting amount, the monthly contribution, the returns percentage, and time. All are important. It’s easier though to control the monthly contribution and amount of time invested than it is to create a bigger starting amount or increase investment returns. So I’d focus on these. 

Really the main thing is to get started as soon as possible because time in the market is a critical component to allow compounding. It’s why Warren Buffett has made so much of his wealth in recent years. The snowball he started rolling many years ago has gathered pace and got bigger and bigger. This is the power of compounding.

My route to creating £1,000 a month passively

To create £1,000 in an average month I calculate that I’d need an investment portfolio equating to around £300,000. If there’s an average yield of 4%, then that’s £12,000 per year.  This is realistic given the FTSE 100 dividend yield average is only a little below 4%, with many shares yielding in excess of 5%. However, bear in mind dividends are not guaranteed and companies do sometimes cut dividends. 

Nonetheless, getting to this amount of money is achievable. If I start with nothing but add £500 a month and earn a return of 8% (so dividends and share price growth combined, known as total return) then it’ll take 23 years to get to £300,000. Upping the contribution to £650 per month but keeping everything else the same would bring it down to under 20 years. Of course, these variables are not guaranteed and can change as the illustrations prove. 

So my route to generating passive income is to invest every month. I’ll invest in UK shares to try and earn a total return at or above 8% a year.

Particularly to make the investing passive, I’ll focus on higher yielding, high-quality shares. Examples of shares meeting this criterion, in my opinion, are Persimmon, Polar Capital, and CMC Markets. I think the current market sell-off has also created some opportunities for buying great companies at cheaper prices. That includes the three companies just mentioned, which are all on reasonable valuations, but also some AIM-listed companies. Boohoo, GB Group, and Numis are all examples fitting this category.

The crux of my plan to create £1,000 a month passively is to invest in UK shares. The present market volatility potentially creates opportunities for long-term investors and I intend to buy more shares over the coming weeks. This will help me to create passive income for the future and build my investment portfolio up to a value of £300,000, or hopefully even more.

The post My route to creating £1,000 in passive income a month from investing appeared first on The Motley Fool UK.

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Andy Ross owns shares in Persimmon, Polar Capital Holdings and CMC Markets. The Motley Fool UK has recommended Polar Capital Holdings and boohoo 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.

Bad news first

That said, with the difficult economic situation, will interest rates really rise as fast as expected? Some think not and that would likely hit Lloyds shares. Most people had been expecting rates to continue going up just a few weeks ago. Also, a difficult economic backdrop will hit banks, whose health is tied to the economy (Lloyds is more closely linked to the UK economy than its peers too). A booming economy is good for banks. A cost of living crisis, not so much.

City analysts think earnings at the FTSE 100 bank will drop 16% year on year in 2022. These backward steps tend to go down like a lead balloon with investors, even if the shares are arguably cheap already.

With investors seeming in risk-off mode and the markets falling, Lloyds shares are certainly a risky investment proposition at the moment.

That’s the bad news. But all that being said, the recent losses could well be reversed. Lloyds could be a beneficiary of inflation, unlike many other shares.

Why Lloyds shares could rise

The bank is pursuing a refreshed strategy under new(ish) chief Charlie Nunn. It is continuing to move into higher-margin wealth management and other new areas of business like property. It also wants to increase the number of digital customers to more than 20m by 2024, increase its market share of credit card spending and sell more insurance and pensions. If executed well, these activities should help grow profits and earnings and all should be higher-margin than traditional retail banking.

Lloyds has recently announced a £2bn share buyback. This should help support the share price in the short term. And the P/E is six. This is an undemanding valuation to say the least. For comparison, HSBC is nearer 11, although Barclays is only five.

Lloyds shares have fallen sharply recently so there’s arguably a bigger margin of safety if buying the shares now. Another item for the pro column would be that it has tended to be a relatively well run bank, as evidenced by a sector leading cost-to-income ratio. Although its huge PPI bill does show it makes big missteps from time to time.

Nevertheless, Lloyds knows how to make money and has scale, focus and expertise, as a UK retail bank. 

Finally, there are the dividends. the shares come with a whopping 5.9% dividend yield. This beats the 3.6% forward average for the FTSE 100 by a huge margin.

When all is said and done, I think Lloyds shares could very well reverse the recent losses by the end of the year. A rise in interest rates, if it goes as expected, along with the bank’s low valuation and high dividends mean the shares could become an attractive investment. I might buy some shares at some point myself.  

The post Lloyds shares can reverse their recent losses appeared first on The Motley Fool UK.

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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and 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.

Warren Buffett, aka, the Sage of Omaha, is one of the most successful investors of all time and a well-known billionaire. His investing style, though, has changed over time, partly thanks to his business partner, Charlie Munger.

These are my top Warren Buffett stocks – ones that might fit the mould of how the Sage of Omaha would invest, if he was looking at high-quality, undervalued UK shares.

They are the ones I’d be most tempted to buy with my next £250 of cash.

Top Warren Buffett stocks

The search for Warren Buffett stocks is not easy, of course. Yet I think there are two that fit the mould based on a margin of safety and an enduring brand quality.

Shares in the spreadbetter IG Group (LSE: IGG) have been falling, creating a greater safety of margin. Combining that with a price-to-earnings multiple of seven and a price-to-book value of 1.79 shows that the shares have an undemanding valuation. It is a cyclical business with some regulatory risk, so it may not be a perfect Warren Buffett stock, or indeed everyone’s cup of tea, but it does have decent revenue growth. It also has high margins and returns on equity that make me think it meets quite a lot of Buffett’s quality-focused investing criteria. For example, return on equity is 28%. I already own CMC Markets, a competitor, so I wouldn’t buy the shares, even though they seem to be a Warren Buffett-style of stock.

The next Warren Buffett stock is Somero Enterprises (LSE: SOM), which creates machines used in construction. It’s a niche business. There’s a risk a competitor could produce a better quality product, usurping Somero’s USP, which seems to be that its machines are more precise and higher quality than the competition. It does have the potential for global growth – though it has struggled in China, which is a setback. On the value front, its P/E is 19, while the EV to EBITDA, another important value-focused metric comparing the enterprise value to EBITDA, is seven, which is low and indicates good value. The group has a return on equity of 23%, and margins are high, so it has serious signs of being a high-quality share.

The shares have been falling, though, and clearly the P/E is higher than other UK shares. However, on other metrics, it does show value, as the low EV to EBITDA measure shows. Overall I expect the shares to grow as the company does well in the US. I’m seriously considering buying more Somero shares very soon.

The market dip

One last note is just to say that Warren Buffett is unlikely to be concerned by the recent stock market declines. He’s the consummate long-term investor. I have a strong feeling, that like other long-term investors, he’ll see shares falling as more of an opportunity than a disaster – as painful, and potentially scary, as it may feel right now.

The post The best Warren Buffett stocks to buy with £250 right now appeared first on The Motley Fool UK.

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Andy Ross owns shares in Somero Enterprises, Inc and CMC Markets. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Three of my five stocks to buy today

Boohoo and Finncap are two of my picks for top stocks to buy today. The former is well-known to most UK investors. The share price has been in freefall and, of course, could continue to fall. The price-to-earnings multiple has been coming down for much of the last 18 months or so. Yet the business itself is profitable, growing, and has added brands to its roster. It has much better margins than competitors like ASOS. The problem is investors don’t seem to like the sector anymore.

Finncap is a financial services company with solid fundamentals. For example, it has a strong operating margin that has jumped to 18.7% from 4.6%. That’s lower than earlier in the pandemic but the margin now is also higher than in 2019. Return on equity has also improved a lot in the last three years, to 29%. It was 16.4% in 2019.

The problem is, if 2022 sees a slowdown in IPOs and other fundraising activity, demand for finnCap’s services could melt away, which would hit its revenue and profits. This makes me a bit nervous.

Then there is Sosandar, another UK fashion retailer. It has a good level of management shareholding with the co-founder and joint CEO holding 5% of the shares. Sosandar recently said that revenue had soared in the three months ended 31 December, leading the group to a record quarterly performance. Revenues were up 122% year on year in the third quarter at £8.85m. This will move it towards profitability, which I think will make it seem like a much better investment. However, it could be hit by the general market downturn and investors shunning the e-commerce fashion sector. 

And the other two stocks

These two shares are more obvious beneficiaries of the immediate situation, although I do think they potentially also make for good long-term investments. The first is gas producer Serica Energy. The other is Sylvania Platinum. These resources companies both benefit from rising commodity prices. However, the shares could fall sharply if the war in Ukraine ends – although that seems increasingly unlikely. 

All five of these companies I’d be tempted to add to my portfolio. I think they are among the very best stocks to buy today. 

In the end, the current market turmoil is very likely just a blip. Over the long term, by picking great companies trading at reasonable valuations, it should be possible to make money on the stock market. That’s the upside of long-term investing. Hopefully these shares should all help with that and be much higher in five years time.

The post Buy the dip: 5 stocks to buy today and hold for the next 5 years appeared first on The Motley Fool UK.

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Andy Ross owns no share mentioned. The Motley Fool UK has recommended ASOS and boohoo 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.

Why was the Darktrace share price falling before?

First of all though before explaining why huge share price growth could come, it’s worth looking at why the shares have been falling. One is beyond the control of management. That is technology stocks and loss-making companies have been out of favour with investors in recent months as valuations became stretched. Not much Darktrace could do about that.

Another is that backers from its float on the UK stock market sold shares – that’s also quite hard for management to stop. It does create a lot of supply of the shares, though, driving down the price.

The other negative is perhaps more concerning and is something any investor should keep in mind if looking at Darktrace. The shares plummeted in October 2021 after a very critical analyst note. The analysts from Peel Hunt said, among other things, that the group was overvalued, had low barriers to entry, underinvested in research and development (R&D), and that some experts thought the products to be gimmicky.

That’s quite a collection of criticisms and hard to independently verify, although the group spent £15.5m on R&D in the six months to the 21 December 2021, which seems significant. I’m letting the results speak for themselves instead. Also, Shadowfall has accused the group of being aggressively promotional. It clearly has its detractors. One might argue though that high profile market leaders often attract criticism.

Why the shares could keep on rising

While a lack of R&D spend for a technology company is a potential risk as the cybersecurity landscape evolves – it’s clear from the trading update that Darktrace is doing well. Having worked briefly in the industry I know it has a strong brand and a lot of customers.

The results showed that customer numbers grew, while annualised recurring revenue (ARR) rose 45.5% to $427m. It also now expects year-on-year revenue growth of between 44.5% and 46.5%, up from 42%-44%.

The group also moved into a net profit position from a loss the previous year. It looks like the direction of travel is the right one when it comes to the group’s financials.

The group invests a lot on sales and marketing, which should help it in the competitive, high growth market is in. If it loses market share though and competitors do eventually create better products, that would hurt both the company’s finances and the Darktrace share price. So it is an investment that needs to be watched closely.

Overall it’s possible Darktrace shares are still overvalued and that it may lose out to competition over time, especially if it’s not investing sufficiently in R&D. Nonetheless, the move towards becoming profitable and the fact for months the shares have fallen heavily mean I think a recovery could be in the offing. I’m tempted to buy Darktrace shares. There could well be significant share price growth ahead if earnings per share grow. 

The post The Darktrace share price could be set for massive growth appeared first on The Motley Fool UK.

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

These could be among the best shares to buy now on the UK stock market to benefit both from dividend income and the potential for share price appreciation.

One of best shares to buy now

SSE (LSE: SSE) is a value share that seems to combine income with steady future growth potential. A dividend yield of 5.2% is very healthy and well ahead of the average for the FTSE 100, which is 3.6%.

According to the SSE website, it has 4GW of onshore wind, offshore wind, and hydro. It’s currently very focused on the UK and Ireland, but the group says that it’s actively exploring opportunities to extend into new markets. If successful, that could boost growth and help the company keep paying a high level of dividends. 

Investors like companies that can upgrade earnings. In most cases, it leads to share price rises. In February, SSE told investors that it was upgrading its full-year 2021/22 adjusted earnings per share to at least 90p from at least 83p. 

Regarding the dividend, it is expected to be rebased, so it will fall. Nonetheless, that does not affect my perception of SSE as a good income share.

SSE does carry a lot of debt (£9bn at 31 March 2022), which as interest rates increase could put pressure on its profits and the dividend, even if it’s lowered.

The income from SSE is very healthy and currently well above the FTSE 100 average, but it does also offer growth because of its significant involvement in helping the UK reach net zero on emissions and the possibility of international expansion. I’m very tempted to buy SSE shares.

Well out of favour and with poor momentum

Polar Capital (LSE: POLR) is a share that is well out of favour with investors. The shares have very poor momentum, but possibly much better long-term potential. The recent share price slump does mean the shares now yield 7%. The share price fall also provides the opportunity for a recovery – perhaps later on this year once inflation becomes more normal and tech valuations reach a lower level.

To understand why Polar Capital may be poised for share price growth, it’s worth understanding why it’s currently falling. It’s primarily because it has a large tech fund. As tech shares fall, investors fear that fund will shrink with a knock on impact on Polar’s profitability and earnings per share. It seems though like a short-term issue.

Actually, Polar Capital has a very decent track record. It has been expanding organically and by acquisitions and is more than just a tech fund. It has funds across other areas, notably healthcare.

Valuation-wise it seems cheap. The P/E is nine and the EV to EBITDA, which contrasts a company’s enterprise value with its EBITDA, is five. For comparison, Liontrust Asset Management‘s figures are 15 and 10.5 respectively.

Polar Capital shares have poor momentum and sentiment has turned against them. There’s a very real risk the shares could fall further. However, the combination of a high and rising dividend yield, well covered by earnings (cover is about 1.5x), along with a low valuation, make me think it could be a top income and growth share. That’s why I’ll keep adding to my holding.

The post The best shares to buy now to get income and share price growth appeared first on The Motley Fool UK.

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

So, these are the UK shares I’d buy and hold for at least a decade to create and grow a passive income stream.

Two top UK shares

To choose what I think are the best two companies, I’ve looked for those with high dividend cover, a history of dividend and earnings growth and yields above 3%.

Meeting these criteria were UK shares such as MTi Wireless, Belvoir, Hargreaves Services, Domino’s Pizza, and Intermediate Capital, as well as a number of investment trusts.

But two other shares particularly caught my eye – Rio Tinto (LSE: RIO) and Morgan Sindall (LSE: MGNS). The former has an earnings per share (EPS) compound annual growth rate (CAGR) of 44.7% over the last three years. This is very high, and has helped underpin dividend growth. The dividend yield is already very high at around 10%, but it’s covered by earnings. Earnings cover the dividend by more than 1.5 times. Along with a reasonable price-to-earnings ratio (P/E) of six, Rio Tinto looks like a top buy-and-hold passive income share for me.

But mining is an industry with boom and busts and there’s a risk we’re at the top of a cycle right now. Yet with electric cars needing copper and other metals in increasing amounts, there’s going to be demand for Rio’s output for a long time to come.

The company digs for copper, aluminium, silver, gold, bauxite and diamonds, but it’s best known for iron ore. That makes it reliant on steel production and Chinese construction for further growth. This could be a risk, especially in light of the recent debt problems at Chinese developer Evergrande. 

The stock isn’t without risks and has environmental challenges to face up to. Nonetheless, looking from the point of view of creating passive income, it looks like a top share for me to buy right now and then hold for a decade. I’m very tempted to buy the shares.

Investing for passive income

Shares in construction and infrastructure group, Morgan Sindall, yield around 4% and are on a P/E of 10, indicating they could be quite good value. The three-year EPS CAGR is much less than Rio’s, but is still respectable at 12.3%. Also, the dividend – which has been growing well – is covered more than twice by earnings. All in all, it looks like a very promising passive income investment.

The group is doing well operationally and financially, which bodes well for the future. It recently reported record full-year results with double-digit profit growth being driven by a modest increase in revenues and improved operating margins. It had net cash of £358m as of 31 December 2021, which suggests a balance sheet in good shape. Again, I’m tempted to buy.

Rio Tinto and Morgan Sindall are my top picks to buy and hold for a decade to create a passive income from UK shares.

The post These could be the ultimate buy-and-hold stocks for passive income appeared first on The Motley Fool UK.

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

However, with BAE shares up over 25% in just over a month, and most of that in the last few days, there’s a chance that part of this may just be a temporary reaction to the awful events happening in Europe and that further share price upside will be limited. I suspect that even with the dreadful prospect of the war continuing, much of the buying has driven the price up too high too quickly at the moment.

‘Mean reversion’, the theory used in finance that suggests asset price volatility and historical returns eventually will revert to the long-run average (or ‘mean’), seems very likely in this instance. I see investors piling in at present and although I do actually think BAE Systems is both a good company and good long-term investment, now isn’t the time to buy the shares, in my opinion.

BAE Systems shares: a longer-term view

I feel that if the shares do fall soon (and I accept that may not happen) then at a more reasonable valuation, BAE Systems is potentially a good buy-and-hold investment for me. It has ingrained relationships with governments, high barriers to entry, long-term contracts and a healthy 13% return on capital employed (ROCE). These metrics show a steady business that can provide income and growth.

Another steady FTSE 100 growth and income share

Were I looking to invest in a FTSE 100 company, I’d prefer to look at energy giant, SSE (LSE: SSE). A trading announcement is expected soon, which could lift the share price because I see SSE shares as having a number of attractions. One is the ongoing shift to so-called value stocks, which I think should include SSE.

Another is that it has already upgraded its full-year adjusted earnings per share guidance from 83p to 90p, so the business is clearly performing well. Then there’s the 5% or so dividend yield, making SSE potentially a decent income and growth share. Plus there’s its significant involvement in renewable energy projects in the UK and Ireland. And there’s the possibility of international expansion, which the company mentions on its website. 

Only the high levels of debt and the inconsistency of renewable energy would give me pause for thought when it comes to investing in SSE. I’ll research more before deciding whether to buy the shares. 

Its shares are up a much more steady 3% over the last six months, but the shares do have momentum. Taking a longer view, over five years, SSE shares are up 10.6%. This is much better than the FTSE 100’s 1.1% increase over the same period. Remember, dividends would boost the total return to investors. 

BAE Systems shares have risen too much in such a short period of time, on the belief global defence spending will increase long term. While this is likely, I feel the shares have been chased too high and could well plummet to a more ‘normal’ price. As such, SSE is a much better short-term investment for me, and probably also a better long-term one, in my opinion.

The post BAE Systems shares are flying, but could they plummet very soon? appeared first on The Motley Fool UK.

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