In fact, the shares are down 20% over one year, a considerable underperformance against the FTSE 100 that’s up 7% over this time. The share price chart shows a downward spiral since October last year.

I see a number of reasons to be concerned. Any further weakness in the airline industry will have a knock-on impact at Rolls-Royce’s engines business. And we could be looking at a recession later this year, so the market could be pricing this into the shares. China’s continued Covid-related lockdowns don’t help either.

But I’m going to dig a bit deeper first and then decide if there’s good value for me here.

Rolls-Royce’s investment case

It’s worth recognising that Rolls-Royce has a diverse business model. So, although the company’s Civil Aerospace division has suffered because of travel restrictions over the pandemic, Defence and Power Systems remained profitable.

Defence has a strong order backlog, and governments are increasing defence budgets at present. This should support Rolls-Royce’s business, at least in the near term.

Power Systems has also seen very strong order intake recently. I think the drive towards sustainable energy generation and electrification are growth catalysts for this division. Rolls-Royce has had its engines using sustainable fuels already approved for use, and hydrogen-based engine development is ongoing. Sounds promising.

Looking further ahead, Rolls-Royce could get a real boost from the UK’s nuclear energy plans. It will begin manufacture of small modular reactors to offer alternative solutions to fossil fuel-based energy generation.

Are Rolls-Royce shares unbelievably cheap?

Analysts are expecting pre-tax profit to grow almost 28% in 2022, to £240m. This would mean the shares trade on a price-to-earnings ratio of 21. I don’t consider this exactly cheap.

But I’d want to buy and hold the shares over the long term. Therefore, I’m looking further out to see what Rolls-Royce is expected to earn from 2023 onwards.

This is where Rolls-Royce shares begin to look like an attractive buy. In 2023 the company’s free cash flow (the spare cash used to pay for things like dividends) is expected to be £657m. Free cash flow is expected to grow to an even bigger £890m in 2024.

On today’s share price of 87p, the free cash flow yield in 2024 is a huge 12%. This does look like unbelievable value to me.

Having said this, Rolls-Royce shares still come with risk. There’s almost £7.5bn in debt on the balance sheet, which could be problematic if interest rates continue to rise. And any continued weakness in the aviation market will drag on the company’s profitability.

But taking everything into account, I think the 87p share price represents a good entry point into Rolls-Royce shares. The risks appear to be fully priced in, and if the company can generate the free cash flow that analysts expect, there could be unbelievable value here too. I’d buy.

The post Are Rolls-Royce shares unbelievable value at 87p? appeared first on The Motley Fool UK.

More reading

• Up 1,119% in 65 months, is there anything left to say about Rolls-Royce shares?
• Could this cheap FTSE 100 stock be the next Rolls-Royce?
• Should investors snap up Rolls-Royce shares on the dips?
• Are Rolls-Royce shares’ best days behind them?
• Here’s what £5,000 invested in Rolls-Royce shares at the start of 2023 is worth 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.

Passive income is almost money for nothing. Almost, in that I need to invest some cash and take some steps before I start earning it. There are numerous ways to do this, but my favoured method is buying dividend shares. This is where I invest in companies that pay a dividend. But there’s always a risk that I’d lose some of my initial investment because share prices can be volatile.

But as long as I thoroughly research each company before I buy, and take a long-term approach, then I’ve got a good chance of earning passive income. Here’s my three-step process starting with £10 a day.

1. Starting early and saving regularly

£10 a day isn’t a lot to begin with. This is why I wanted to start saving as soon as I could. That way, I’m giving myself the best chance to build a bigger pot of money.

To do this I set up a direct debit so my savings plan is automatic. Then, each week I’m able to save £70, which I let build up over time.

Just as important is to choose the right share dealing account. The Motley Fool has a great guide on different accounts here. I picked one from this list, so now my £10 gets paid directly into my account ready for me to start buying dividend shares.

The most important thing is to be consistent in my savings plan and my direct debit helps with this.

2. Searching for dividend shares

Now the fun part – researching dividend shares to buy. And once I’ve built up around £500 in my dealing account, I can start buying shares.

It would be easy for me to simply search for the highest-yielding dividend shares and buy those companies. There are many other things to look for though, and I want to avoid the mistakes that are easy to make when starting to invest.

For example, Glencore has a mighty dividend yield forecast of 10% right now. That’s way more than the interest I’d earn in a savings account. But Glencore operates in the cyclical commodity sector, so profits, and therefore dividends, can be volatile. There’s a fair chance that demand for commodities will reduce in the short term if we see a recession, or if China’s Covid lockdowns persist. If so, Glencore’s dividend may reduce, and so would my passive income.

It always depends on risk-to-reward. I do consider Glencore’s dividend yield as highly attractive, but I wouldn’t want to put all my hard-earned savings into this one company. Diversification always helps, so this way, if one company does cut its dividend, my other investments should offer some shelter.

3. Increasing my passive income

After I’ve built my savings pot up to £500 and researched my investments, I can buy my first dividend share. I’d follow this same process a number of times to buy shares across different sectors.

Saving £10 each day for a year means I’d have £3,650. Then, an average dividend yield of 5% would generate £182.50 in passive income. It’s not a lot to start, but I’m playing the long game. My next step is to increase my £10 daily saving to £20 to really help boost my passive income stream over time.

The post 3 steps to passive income starting with £10 a day appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

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.

Anybody who’s watching stock markets right now will know it’s been a difficult year so far. But in times like these, there could be some attractive investment opportunities for me to snap up. So here, I’m going to narrow down the stock market using a stock screen. This way, I can shortlist the best shares to buy for me.

Let’s take a look to see what opportunities there are today.

Setting up my screen

I’ve started by looking for companies that are growing their earnings as this is the primary factor that drives share prices higher. To do this, I set my screen to rank companies with earnings per share (EPS) growth forecasts of at least 10%.

Next, I want to consider valuation. It’s great if EPS is growing by 10%, but I don’t want to pay too much for this growth. So, my screen also removed companies with forward price-to-earnings (P/E) ratios greater than 20. Ideally, the lower the P/E, the better, all else being equal.

After setting up my screen, I’m left with 239 shares to choose from. One thing to keep in mind is the cyclical companies that were showing up at the top of the list with huge EPS growth forecasts. For example, Shell is expected to grow EPS by 139% this year. This isn’t surprising given the rallying crude oil price. But for today, I’m going to avoid these cyclical sectors.

Analysing the results

I want to make sure my portfolio is diversified. With this in mind, I’m going to look for three companies in different sectors.

The first share that looks attractive is CentralNic, the internet domain and services company. EPS is expected to grow an impressive 30% this year, and the forward P/E is only 11. The recent three-month trading update to 31 March was positive, in my view, with the directors saying CentralNic is trading comfortably in line with expectations. It’s been acquisitive over the years though, so this does come with increased integration risk.

Asset management businesses can be really profitable once they reach scale. So, on my screen, I see Liontrust Asset Management as a potential investment. The forward P/E ratio is only 10, and the forecast for EPS growth is 41%. This is a highly profitable business with an operating margin of almost 40%. The issue recently has been a weak stock market, which reduces Liontrust’s assets under management, and therefore fee potential. So there’s a chance that EPS might not grow at 41% this year. Nevertheless, I think this risk is priced into the shares.

Lastly, Bloomsbury Publishing also ranks highly in my stock screen and it’s one I already own. It’s a publisher of books and other media, and the original publisher of the Harry Potter series. There’s always a risk that future book publications aren’t successful as it’s a competitive industry. However, Bloomsbury has been diversifying its offerings recently in the online academic sector.

The UK shares I’m buying

Here’s my final 3-stock shortlist:

There are certainly still risks to consider. Inflation and a cost-of-living crisis are major macroeconomic factors. But these three shares offer attractive growth forecasts and reasonable valuations. So I’m taking a long-term view and buying them for my portfolio.

The post 3 of the best shares to buy today appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Dan Appleby owns shares of Bloomsbury Publishing. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

In good times and bad, there are always opportunities to find top shares to buy. That’s because there are so many different companies operating in various different sectors to choose from. But screening for growth stocks is my favourite style of investing. And when I’m looking for such companies, investing in tech shares is a great place to start.

But can I buy cheap growth stocks? And in which tech shares would I invest £1k right now? Let’s take a look some stocks I’m considering today.

Screening for growth stocks

It’s quite easy to find ‘cheap’ stocks by looking at the price-to-earnings ratio, or P/E. This measures a company’s valuation by comparing its earnings to the share price. The lower this ratio is, the cheaper the shares are.

I first rank all stocks by P/E and then scroll down the list. It’s a good way to start generating ideas for companies to invest in. Adding each company’s sector to the list also means I can look out for cheap tech stocks specifically.

Typically, anything over a P/E of 30 could be overvalued, but it’ll heavily depend on expected earnings growth. This is where screening for tech stocks should help. There are many opportunities within this sector to find companies with explosive growth potential.

The cheapest tech stock I’ve found based on P/E is Micro Focus. The forward P/E is only 4, which looks dirt-cheap. However, earnings are expected to decline by 13% this year, and there’s over £4bn of debt on the balance sheet. I can see why the P/E is low because this looks risky. Indeed, the share price has crashed 25% over one year, even though the stock has been trading on such a low P/E.

CentralNic looks a better opportunity to me. It’s another tech stock providing internet domain services. The forward P/E is higher at 11.6, but I still view this as cheap. Particularly as the company recently said it grew profits by 51% in the 12 months to March.

Higher-valued stocks

I’d still consider buying higher-valued stocks. Say, with a P/E over 30. But only if I think earnings will grow significantly.

One company I’ve been researching is tinyBuild, a video games developer and publisher. The current P/E is a lofty 43, but earnings are expected to grow by 55% this year. If achieved, then the P/E would fall to a more reasonable 28. There could be excellent value here if tinyBuild carries on growing fast.

Investing in high-growth stocks can be riskier due to more demanding earnings forecasts. If a company misses estimates, then the share price can crash hard. Nevertheless, finding fast-growing companies can lead to spectacular returns.

Diversifying my portfolio

Once my company research is complete and I’m confident in my selection’s prospects, I’d make my £1k investment. However, it’s risky to only hold one stock.

I’m bullish about the video games industry in general. Therefore, I’ve also been looking at Devolver Digital, a publisher-focused video games company. This could diversify my portfolio from my position in tinyBuild. CentralNic operates in a different area of the tech sector, so this should also help to diversify my holdings.

The result should be a smoother return profile. I’d then take a buy-and-hold approach so my investments have enough time to grow.

The post Here are my top growth stocks to buy with £1k appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.

Buying bonds can be a good option too. For one, they’re typically less volatile than stocks. And they can form a key part of a diversified portfolio. But today the interest rates on offer are quite low. A 10-year UK government bond only yields 1.98% right now.

There could be higher returns for me on offer elsewhere. Let’s take a closer look.

The FTSE 100 today

I think I can earn a higher return investing in the FTSE 100. I do need to take on higher risk though. Indeed, just looking at how much some share prices have fallen shows me that I could lose the money that I put in.

Investors have had to deal with a multitude of macroeconomic risks this year. From rising inflation, the awful events in Eastern Europe, and Covid lockdowns in China that may disrupt supply chains even more. These risks can lead to depressed share prices, which in turn lowers company valuations.

However, lower share prices can throw up some bargain investments. And over enough time, the stock market does generally rise – just not in a straight line!

One strategy I’d consider is simply investing in the FTSE 100 using an exchange traded fund (ETF). I’ve used the iShares FTSE 100 ETF (LSE: ISF) before, which means I’d have a small exposure to every company in the index. The dividend yield is a respectable 3.5% today, so higher than the yield on a 10-year UK government bond.

But my preferred investing strategy is buying good-quality companies. If the valuations have become cheaper, and the companies themselves aren’t affected, I could find a bargain.

Buy-and-hold

Risks aside, there’s good potential for gains in the stock market taking a long term buy-and-hold approach. I look for quality companies that have high profit margins, with attractive returns on capital. Over time, I’d view these investments as giving me the best chance of generating significant returns.

I’d focus my research on companies such as Halma, Rightmove and Ashtead Group. All three have depressed share prices this year but achieve double-digit profit margins and returns on capital.

There are some mighty dividend-yielding stocks in the FTSE 100 too. Persimmon and Rio Tinto have double-digit yield forecasts right now. They operate in different sectors, so if I bought the shares, I’d be more diversified.

Companies such as ITV and Royal Mail also look dirt-cheap on a price-to-earnings basis, so I would look at recent company accounts to see if there are bargain investments here.

Investing is all about a balance of risk and reward. And then, most crucially, whether each investment is suitable for my risk profile. But as history shows, the stock market does generally rise over time. For me, these potential investments are worth further research and could very well be bargain shares to buy today.

The post I’m forgetting bonds and searching for bargain FTSE 100 shares to buy appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Dan Appleby owns shares of Rightmove, ITV and Rio Tinto. The Motley Fool UK has recommended Halma, ITV, and Rightmove. 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.

Investing in dividend shares can be a great option to earn some extra income. If I buy the right companies, the dividends should keep rolling in. It’s my favoured method of generating passive income – no side hustle required! So, here’s how I’d invest in UK dividend shares today.

Assessing the market  

Before buying a stock I always research the market to see what’s out there. After all, there are many dividend shares to choose from.

Some companies aim to pay out almost all of their net income as dividends. Usually these are mature companies with little growth prospects, so instead they pay out earnings to shareholders.

There are also companies that operate in cyclical sectors, when a business goes through booms and then sharp declines in trading. Commodity companies are good examples. In fact, there’s a boom right now in many commodity markets, such as crude oil, so I’d expect companies like Shell could pay high dividends this year.

Some smaller companies may also pay dividends, just with lower yields than more mature firms. These businesses will be investing most of their cash for growth purposes, so may not have much left over to pay a dividend. But over time, the dividend may rise significantly if the business does grow.

Planning my portfolio

The next step is knowing how much I have to invest. I’d want enough to buy a few different shares at once. Then, my portfolio would be more diversified as there’s always a risk of a dividend being cut. This is certainly one risk to investing in dividend shares, but share prices can also decline. I could even lose more than I invested if this happens.

I like to buy a mix of high-yielding stocks, but also companies that have good dividend growth prospects (although they usually have lower yields).

For example, Auto Trader has a reasonable dividend yield of 1.3%, but the dividend is expected to grow by a huge 67% this year. On the other hand, Abrdn’s dividend yield is 7.4% but with no expected growth.

Selecting the best dividend payers

Now that I’ve assessed the market and know how much I want to invest, I can choose my stocks. Today, I want to add companies that are paying chunky dividend yields. I’d look to buy at least five stocks with high dividend yields to diversify my portfolio.

For example, I’d buy Rio Tinto as it has a double-digit dividend yield of 10.7%. It operates in the cyclical commodity sector though, so there are certainly risks here.

I’d also buy M&G, the financial services company. The dividend yield is a mighty 9.3%, and it would diversify my commodity exposure after buying Rio Tinto.

How I’m buying UK dividend shares

After I’ve chosen my stocks, I need to select a good broker account. Luckily there’s a great guide on The Motley Fool here. I selected one of these accounts so I could start buying my UK dividend shares. Once I’ve researched my companies, I’d invest a lump sum equally across my chosen dividend shares. Then, with my long-term view, I can hopefully watch my dividend income roll in.

The post How I’m investing in top UK dividend shares paying 9%+ yields today appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Dan Appleby owns shares of Auto Trader and Rio Tinto. The Motley Fool UK has recommended Auto Trader. 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.

Dividend shares are my favoured method of generating passive income. Certain side hustles are good options too, but often they’re not truly passive. This is where a portfolio of dividend shares can really work. I can start with as little as £5 each day, and build a portfolio of stocks for the long term. Here’s how I’d start today.

Little and often

£5 each day might not sound like a lot. But it really can build with a consistent savings plan. After all, I spend more than this each day on my coffee!

If I keep adding to my pot with £5 each day, then over one year I’d have saved £1,825. This would be the start of my portfolio so I could begin buying dividend shares. Then, if my portfolio achieved a 5% dividend yield, I’d earn an extra £91 each year. It might not be a huge amount to begin with, but it’s the start of a long-term plan.

To make sure I always stick to my savings plan, I’d set up a direct debit via my broker account. The Motley Fool has a great guide on the best accounts to choose from here.

Dividend shares

This was the savings part of my plan. It’s certainly important, but I’m not going to make much in the way of passive income by just saving £5 each day. Instead, I need to buy reliable dividend shares too.

One thing I need to account for is share dealing costs. Brokers charge fees to buy shares, so I’d need to save up for a little while before I invested. I’m aiming for £1,000 before I buy any shares, so that’d take me just over six months. In reaching £1,000, I could add a few stocks to my portfolio at once so it’s more diversified. I could follow this process roughly every six months.

Now comes the fun part. Researching companies to buy in my portfolio to suit my risk profile. I like to aim for a 5% dividend yield. The FTSE 100 is a great place to look for companies that pay high dividends. It’s not just about high dividend yields though. It’s just as important to check how reliable the companies have been in paying dividends over the years. And finally, what the dividend coverage is – or now much net income a company earns relative to the dividend it pays. The higher this is, the better.

Dividend investing can be risky, so I like to add different sector exposures to my portfolio. For example, Persimmon paid bumper dividends in the years leading into the financial crisis of 2008. Then, of course, the housing market crashed and Persimmon cancelled all dividend payments. The company is paying a sky-high dividend again, but I certainly wouldn’t rely only on this company for my passive income.

Long-term passive income

Investing is always going to come with risk. This is where portfolio diversification helps a lot.

But, taking a long-term approach gives me a great chance of investing success. Then, if I can increase my £5 per day savings to, say, £10 each day, I could double my passive income from £91 to £182. Being consistent with this plan means I should be on my way to earning passive income for life.

The post How I’m aiming for lifelong passive income with only £5 a day appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

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.

Warren Buffett is one of the richest people in the world. Often called the Oracle of Omaha, Buffett made his billions by investing in quality companies and holding for the very long term. He certainly didn’t make his fortune overnight. Indeed, Buffett was in his 50s when he first hit the billion-dollar milestone. Since then though, his wealth has ballooned to many hundreds of billions of dollars.

Buffett once said: “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” This might sound overly confident, but he loves investing and has spent his life mastering his craft. The best thing is, I can follow his same methods and aim to be rich too.

Two things to learn

Warren Buffett bought his first stock at a young age – only 11 years old. But it took him time to learn how to research and value businesses, which made him the investor he is today. So like him, it’s important for me to understand businesses before I start buying stocks.

If I didn’t want to learn about businesses, I could always invest in a fund. This way, a fund manager will make the investment decisions for me – for a fee, of course!

The next key thing I’ve learnt from Buffett is the power of compounding. This is where I earn interest on my interest. In terms of the stock market, if my shares go up 10% one year, and another 10% the next, I’m compounding my returns.

Let’s put some numbers on it. If a £100 stock price goes up 10% in the first year I’d make £10. If the same stock price goes up 10% the next, from £110 to £121, I’ve made £11. I get an extra £1 in the second year, just because of compounding.

A 10% return on top of the previous 10% return is a powerful force if I do this over many years in a row.

Compounding is why it took Buffett over 50 years to amass $1bn, but only a couple more years to make $2bn.

Buying businesses like Warren Buffett

Buffett really only became a billionaire because of compounding. And generating compound interest only becomes very powerful with enough time. That’s why, even without savings at 30, I can start building up my portfolio to earn compound interest and still have time to make some significant gains.

It all still depends heavily on investment performance. A UK government gilt only earns 1.9% in annual interest right now, so it would take a very, very long time to generate significant wealth.

This is where the stock market can be a good choice. It’s higher-risk (after all, companies can struggle or go bankrupt), but I could also earn higher returns.

Warren Buffett has generated his wealth by investing in quality companies listed on the stock market. Once he’s researched the businesses, he aims to hold them in his portfolio for the very long term. This allows compounding to work its magic. He even once said: “Our favourite holding period is forever.”

So I aim to follow his method of buying quality companies and holding them, if not forever, at least for a very long time.

The post No savings at 30? I’m using the Warren Buffett method as I aim to get rich appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

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.

A potential recovery  

It wasn’t that long ago when the Rolls-Royce share price was over 300p. This was back in 2019, so pre-Covid. However, the stock was crushed when the pandemic unfolded and the airline industry was pretty much shut down. If the share price rose back to that 300p level though, I’d triple my money if I bought the shares today.

Tripling my money does sound appealing. But for this to happen, a company really does have to perform exceptionally well. So, before I buy any shares, I’d have to be confident that Rolls-Royce really can go on a post-Covid recovery boom.

However, I’m a Foolish buy-and-hold investor. I want to own shares of companies that I’m happy to hold for the very long term. Therefore, I also need to be confident that Rolls-Royce is the best place to invest my hard-earned money beyond the recovery period. That’s especially so as there are many other companies to choose from.

Risks ahead

I do see some risks ahead for Rolls-Royce that make me doubt a quick recovery is on the cards. For a start, Covid is still around — particularly in in China — and this may limit demand for flying. International business travel isn’t expected to fully recover until 2024 either.

There’s also been churn in the management team recently. The CEO is stepping down, and the president of the Power Systems division is also departing. This brings some uncertainty into the business.

Rolls-Royce is also carrying a lot of debt on its balance sheet, which was £7.5bn at the end of 2021. This could be a drag on any potential dividend payments for shareholders going forward.

Growth drivers

There are always risks with any investment, so Rolls-Royce is no different. On the other hand, I do see international travel improving. In turn, demand for Rolls-Royce’s leading engines should increase as well.

The UK’s recent plans to boost nuclear power could also be a huge growth driver for Rolls-Royce’s reactor business.

Should I buy?

Yet while I do see some potential upside, I’m still not keen on buying Rolls-Royce shares today.

For one, the forward price-to-earnings multiple is steep at 19. I don’t mind paying higher multiples for quality growth shares. However, Rolls-Royce has a wafer-thin operating margin of 3.7%, and return on capital employed is almost non-existent at only 2.6%.

There’s also no dividend forecast for this year. There are plenty of FTSE 100 stocks paying big dividends today, which makes Rolls-Royce shares less appealing.

I think there could be a recovery in the Rolls-Royce share price, given enough time. But today, I see better risk-reward trade-offs elsewhere. Therefore, I think my money would be better used to buy other FTSE 100 stocks.

The post After the crash in the Rolls-Royce share price, is it a buy? appeared first on The Motley Fool UK.

More reading

• Up 1,119% in 65 months, is there anything left to say about Rolls-Royce shares?
• Could this cheap FTSE 100 stock be the next Rolls-Royce?
• Should investors snap up Rolls-Royce shares on the dips?
• Are Rolls-Royce shares’ best days behind them?
• Here’s what £5,000 invested in Rolls-Royce shares at the start of 2023 is worth 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.

It’s been a tricky time for investors so far this year. I’ve seen this first hand with my own portfolio. Watching the value of my investments fall is always tough, but this is the risk I take as a long-term investor in the stock market. Yet one piece of advice always comes back to me in times like these. Of course, this is from the Oracle of Omaha himself, Warren Buffett. He said back in 1986: “Be fearful when others are greedy and be greedy only when others are fearful.”

Let’s take a look at how this is still important, even today.

A multitude of risks to consider

As an investor in the stock market, there are always numerous risks to think about that may mean I lose my money. Investing is about trying to predict the future, so by its very nature, I’m never going to get everything right.

So far this year, we’re experiencing soaring inflation, which is bad for company profit margins and consumer spending. Then, the awful events in Ukraine have weighed on investor sentiment across the world. And remember Covid? Well, China has been struggling with another big wave of infections that has disrupted business activity.

When I consider all of these factors, it would be easy for me to become fearful of what’s to come. Why would I want to invest at times like these?

This is certainly what major stock market indices were seeing recently. For example, the US technology index, the Nasdaq 100, is down almost 10% so far this year. But over 12 months? The index is up 16%. To me, this shows the benefit of longer-term investing.

So I think back to Warren Buffett’s advice, and try to work out if fear is creeping into my investment decision-making. There’s a good chance that if I’m feeling fearful, then others might be too. And if I’m right about this, then it could be a good time to be greedy.

Being greedy, just as Warren Buffett suggested

I like to set up a watchlist of stocks so I can be greedy when the time is right. These are businesses that I like, and consider to be high quality. But the valuations of these companies might be too high for me to want to buy the shares. Yet if I sense that fear is taking over the stock market, then these high-quality companies could become much cheaper.

I’ve been looking at Microsoft and Segro for some time. I’d certainly be greedy with these stocks if their share prices became beaten up.

Nobody knows how the situation in Ukraine will develop. Nor do I know what China will do next to try to stop Covid from spreading. And inflation? I do try to diversify my portfolio with stocks that have pricing power. But the world has experienced high inflation before, and stock markets withstood it.

So if stock prices do continue to fall, I’m planning on being greedy with the shares on my watchlist. Warren Buffett might just be thinking the same for his portfolio.

The post Why this is the perfect time to follow Warren Buffett’s key advice appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.