If there’s one stock that Warren Buffett loves, it’s Apple (NASDAQ:AAPL). Buffett has been one of the biggest champions of the technology giant in the last decade, and he’s put his money where his mouth is.

As of its most recent filing, 38.9% of his holding company Berkshire Hathaway‘s portfolio is accounted for by Apple stock. It’s far and away the biggest single investment in the Berkshire pot, with second place Chevron coming in at 11.19%.

The Apple share price has been increasing enormously for years, so Warren Buffett being a fan is understandable. However, I think its biggest growth years could still lie ahead.

The next iPhone

When looking at Apple, there’s a clear before and after — before the iPhone and after the iPhone. The growth of its shares since 2007 has come almost entirely on the back of its popular device.

Even the products that came after the iPhone have benefited from its success. The Apple Watch needs an iPhone, AirPods are designed to work best with iPhones, and even Macs now use iPhone technology.

The device’s success has been so great that the term ‘iPhone moment’ has been used to describe a breakthrough leap. Most recently, ChatGPT has been described as an iPhone moment for AI.

But in the realm of consumer goods, Apple could well have its own new iPhone moment. It’s currently readying an augmented reality/virtual reality (AR/VR) device for release in 2023. The company jumping into AR/VR could signal a seismic shift in an industry that has struggled to gain traction.

Currently, Meta is leading the VR space with its Quest line of headsets. However, it’s arguably the only company that has targeted a wide audience with a variety of use cases for its devices.

Meta hopes that people will use its headsets like we use smartphones today to socialise, work, and play. Whereas others, like Sony, have targeted the video game market with higher-priced devices that cater to a small niche.

Apple has one of the best track records of any company for developing products that achieve massive mainstream success. It’s very rare that the company invents something completely new. Touchscreen phones existed before the iPhone, tablets existed before the iPad, and wireless headphones were around long before AirPods arrived.

What the company does best is taking technology and packaging it in a way that appeals to as many people as possible… and charging a premium price for it.

A breakthrough for VR

A new AR/VR headset could be the best opportunity yet for the VR industry to garner a mainstream audience. The VR market was worth $21.83bn in 2021 and is expected to grow at a compound annual growth rate (CAGR) of around 15% to 2030. The arrival of Apple into this arena should fuel that growth.

There’s massive potential for AR/VR to be a big part of the future of human communication. I believe that AR and VR will eventually replace smartphones as we know them today. If that happens, the growth potential for the companies leading the market will be massive.

Given its track record, I believe Apple could be one of the companies to lead the charge. That’s why I’m buying shares regularly in 2023, hoping that doing so is akin to buying Apple shares in 2007.

The post I’m buying this Warren Buffett stock with huge potential for growth appeared first on The Motley Fool UK.

More reading

• 2 world-class S&P 500 stocks down 11% and 32% to consider buying
• How much do you need in a Stocks and Shares ISA to aim for an annual income of £39,477?
• Wise: a hidden gem in the UK stock market
• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next

Matt Cook has positions in Apple. The Motley Fool UK has recommended Apple. 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.

American communications giant Verizon (NYSE:VZ) is one of the top dividend stocks in the US. At its current price, I think it could be an excellent investment for me to generate consistent passive income.

The stock price is currently down over 18% in the past five years, and at around $39 a share, it’s trading well below its 2019 peak of $62.

The drop is primarily attributed to weak subscriber growth in 2022 and, to me, seems exaggerated. As a result of the price drop, the company now has an attractive price-to-earnings (P/E) ratio of 7.76. That suggests it’s a good value stock for me to buy now.

Rising dividends

Despite the Verizon share price dropping over the last few years, dividends have been consistently rising. The company has increased its payouts every year since 2007.

At the current price, the forward dividend yield for 2023 is an attractive 6.7%. That represents a significant percentage increase compared to recent years.

In 2011, the dividend payout per share was $1.97. That’s also the last year, until now, when Verizon was regularly priced under $39. The dividend total for 2023 is projected to be $2.61, based on the first quarter payment of $0.6525.

Therefore, for the same outlay as in 2011, I can expect an extra 1.7% return from their dividends.

Furthermore, in March, CEO Hans Vestberg committed the company to “delivering long term shareholder value“. So I’m not expecting the company’s dividends to break the 16-year increase streak any time soon.

How much would I need to invest?

If I were to buy Verizon shares now, I’d want to target a level of passive income that would help me long term.

Currently, 1,924 shares would generate just over $5,000 — or over £4,000 — of passive income. Paid out quarterly, that works out to a nice sum of £1,000 every three months.

Of course, while now may be a good time to buy, 1,924 shares at $39 would cost $75,036 (£60,426). That’s quite a significant amount for me to invest all at once.

That’s why, if I were to buy Verizon shares today, I would begin by purchasing in multiples of 15 or 60. That’s how many shares I would need to own, at today’s price, to use the dividends to purchase more.

At the current yield, 15 shares would give me a $39 dividend and allow me to add a new share yearly. Alternatively, 60 shares would give me the same $39 payout every quarter, which would enable me to reinvest for a new share every three months.

As I’m around 20 years from retirement, I’d have time to build towards a goal of £4,000 in passive income, or even more. I don’t need passive income right now, so if I were to buy shares, I’d want to reinvest the dividend every quarter.

That would help me grow my passive income earnings until retirement, even if I didn’t buy more shares. However, I’d still have to invest regular amounts to reach my goal.

As we are moving into the new tax year for Stocks and Shares ISAs, I have other investing priorities right now. However, I’ll be revisiting Verizon in the future if the price-to-dividend ratio is still attractive when I have some spare cash.

The post I’d buy 1,924 shares of this US stock for £4,000 in passive income appeared first on The Motley Fool UK.

More reading

• I think UK investors are missing out on this overlooked Dow Jones stock

Matt Cook 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.

Aston Martin (LSE:AML) shares have had a torrid few years, with the price dropping by over 90% since its 2018 IPO. The British car company’s stock has failed to meet investors’ lofty expectations since it went public.

Yet, that could be about to change, and the luxury car maker may have its Formula 1 team to thank. Here’s why the Formula 1 team’s recent successes led me to buy Aston Martin shares.

The pinnacle of motorsport

Formula 1 is widely regarded as the pinnacle of world motorsport. Over the years, 171 constructors have competed in Formula 1, and 161 no longer exist.

It’s understandable then that there was scepticism when Lawrence Stroll and investors purchased the Force India team.

In 2021, the team was rebranded to Aston Martin following Stroll’s investment in the British car company. Despite the racing pedigree that came with the new name, the team’s results were poor, placing seventh in 2021 and 2022.

Things looked bleak for the constructor. However, behind-the-scenes moves were being made to build a future world championship contender. Stroll poached top talent from Mercedes, Red Bull, and Ferrari and invested heavily in team facilities.

The 2023 Aston Martin F1 car is the first to benefit from the technical leadership of Dan Fallows, who was coaxed away from Red Bull. Still, as facilities are under construction, the goal for the Silverstone outfit to be a top competitor was supposed to be a few years away.

Then, in 2023, Aston Martin unexpectedly established itself as a top player, jumping the midfield cars completely and establishing itself as arguably the second-fastest car after two races.

The team has already achieved podiums in both races with driver Fernando Alonso. In the previous two years combined, they only celebrated a single podium position.

Why this relates to Aston Martin shares

Now, success in Formula 1 doesn’t equate to financial success. Teams often spend as much, or more, than they bring in.

So why have I bought Aston Martin shares?

I believe that the success of the Formula 1 team can be directly attributed to the stewardship of its chairman, Lawrence Stroll.

As chairman, Stroll has made the right investments, brought in the right people, and, as of this season, achieved the unthinkable of catching up to the top three teams. Established teams and companies like McLaren and Renault/Alpine have failed to do that for over a decade.

It’s my belief that the F1 team can be viewed as a case study for how the car manufacturer may be turned around. As executive chairman, Stoll is overseeing the car company. Like with the racing team, his leadership might be the key differentiator between the company’s success and failure.

That’s not to say my recent investment in Aston Martin shares isn’t without risk. Financially, Aston Martin doesn’t look like a value share. It has reported losses for the last three years, although revenue has more than doubled in that same period.

I’ve invested in Aston Martin because I think if Lawrence Stroll can turn the Formula 1 team into a top competitor, he can do the same with the car brand.

The post Why I bought Aston Martin shares because of Formula 1 appeared first on The Motley Fool UK.

More reading

• These FTSE 250 stocks are tipped to rise 46% (or more) in the next year!
• Down 95%, what might it take for the Aston Martin share price to rise 2,000%?
• My personal warning for anyone tempted by the plunging Aston Martin share price
• £5,000 invested in Aston Martin shares at the start of 2026 is now worth…
• The Aston Martin share price destruction helps illustrate 5 common investing mistakes!

Matt Cook has positions in Aston Martin. 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.

As a long-term investor, I’m always looking for stocks that can provide me with a passive income. In particular, I like to set five-to-10-year goals for the income I’d like to receive. One that I have had my eye on lately is Johnson & Johnson (NYSE:JNJ). It pays a reasonable dividend of 2.57%, which worked out to $4.52 a share last year.

I like to have a balanced combination of growth and dividend stocks in my portfolio. I’ve recently added quite a few new growth stocks to my portfolio, so I think it’s time to add a dividend one into the mix. Here’s why I think Johnson & Johnson will be that stock.

Stability is the name of the game

The key reason why I’m considering Johnson & Johnson, which doesn’t have the biggest payout among dividend stocks, is that it has a remarkably stable share price.

The last year has been challenging for a wide variety of shares. Yet while some companies saw double-digit price drops, Johnson & Johnson is down just 5.7% over the last 12 months.

Since I want to add it to my portfolio for dividends, I’m very conscious of the share price.

Dividends pay out a percentage based on the price of each share. Currently, to hit my goal of £1,000 in passive income, I would need 272 shares. If the share price drops significantly, the number of shares required to meet my £1,000 goal will increase.

Johnson & Johnson’s share price has been steadily rising for decades. Even during tough economic times, like the 2008 recession, the share price came through relatively unscathed.

Of course, past performance isn’t indicative of what will happen in the future. However, my hope is that the wide variety of essentials the company sells will keep it stable during these uncertain times.

Reaching 272 shares

At the current price of $162 (roughly £131), I’ll need a lot of capital to buy 272 shares, $44,064 (£35,668), to be exact. Unfortunately, I don’t have that kind of money sitting in my account to pour into a single stock.

Therefore, I plan to make regular purchases of the shares going forward. I could invest around $1,000 (£809) a month into the stock to hit my 272 share target in a little over three years. Assuming the price doesn’t increase too much in that time.

Since I’m investing for passive retirement income and plan to retire in 20-30 years, I have a little more time than that.

To begin with, I plan to start by buying three or more shares. At the current price, that would be around $486 (£393). I’ll then regularly add to my position to eventually reach that magic 272 number.

In the meantime, the key for me will be reinvesting my dividends back into more shares. That will help me to reach 272 shares without taking away from my other investments. I hope to have at least my target number by the time I’m 40 in 10 years’ time.

The post I’m buying 272 shares of this top stock for £1,000 in passive income appeared first on The Motley Fool UK.

More reading

• US stocks are sliding, but I’m not worried

Matt Cook 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.

Last year, Warren Buffett announced that he’d purchased 9.5% of Activision Blizzard (NASDAQ:ATVI) through Berkshire Hathaway. The Wall Street mogul bought masses of shares after Microsoft announced that it would acquire the gaming specialist.

Buffett has bet nearly $5bn on the acquisition going ahead. Should I do the same with the smaller amount of cash I have available?

Microsoft’s monopoly

To the shock of the entire video game industry, tech specialist Microsoft announced that it would acquire Activision Blizzard in January 2022. The all-cash purchase is set to cost the Xbox maker $68.7bn at a price of $95 per share.

On the announcement, the stock price jumped nearly 40% before falling slightly to $72-$80 a share for much of last year.

The share price hasn’t reached the valuation Microsoft plans to pay because of regulatory concerns.

Activision Blizzard is a giant video games publisher. The company is so big that no other independent companies come close to its output and impact on the console gaming market. Its biggest competitor Electronic Arts‘ market cap ($35.65bn) is around half of the proposed value that Activision Blizzard commands.

The purchase would instantly make Microsoft the third-largest gaming company in the world. However, Sony (the second-largest) has been fighting hard against the acquisition.

Regulators worldwide have reviewed the acquisition rigorously to see if it violates antitrust laws. But Microsoft claims that because it would only be the third-biggest player by revenue, that’s not a monopoly. However, regulators don’t necessarily agree.

Buffett’s bet

Warren Buffett’s big buys of Activision Blizzard shares show him putting his money where his mouth is. He believes the deal will pass regulatory scrutiny, so in his opinion, there’s potential for easy money to be made.

Currently, the share price is around $75. If the acquisition goes ahead, there’s a profit of around $20 per share to be had from buying now. Buffett stands to make north of $1bn if the deal goes through.

So should I follow him and invest some of my own money in Activision Blizzard shares? Well, I’d actually bought shares in the company a week before the acquisition news for $62.35 a share. I sold my position on the day of the announcement for $84.95 each. That’s a fast turnaround for me as I’m generally a long-term investor.

I had no prior inclination that the company would be acquired, but I was happy to take the quick profit.

Early last year, I was pretty confident the deal would go through, as was Warren Buffett. However, now I’m not so sure. Microsoft has been trying hard to convince regulators in Europe and the US that the deal is good for the industry. Yet, as mentioned, they don’t seem to agree.

The US Federal Trade Commission is attempting to block the acquisition, though Microsoft intends to fight that in court. In short, the deal is getting messy.

I think it’s still likely to go through and I’ve been mulling whether to buy some shares again since the price fell to around $72. However, I’m not quite as confident as Warren Buffett, and I think investing now, it would be a pure gamble. I’m glad I sold my shares on the announcement day. I think I’ll quit while I’m ahead on this one.

The post Warren Buffett bought 9.5% of this company in 2022. Should I buy in now? appeared first on The Motley Fool UK.

More reading

• 2 world-class S&P 500 stocks down 11% and 32% to consider buying
• How much do you need in a Stocks and Shares ISA to aim for an annual income of £39,477?
• Wise: a hidden gem in the UK stock market
• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next

Matt Cook 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.

Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) shares are down just over 32% in the last year, with a slight rebound of close to 3% over the last month. 

I bought Alphabet stock at the end of last year in the hope that the price had hit the bottom. Here’s why I’m going to increase my investment throughout 2023.

Cutting costs

The last couple of months have been rough for companies in the technology sector. Nearly every major tech corporation has been cutting jobs and finding other ways to reduce expenditure. 

Microsoft just cut 10,000 jobs, Meta laid off 11,000 workers in November, and Amazon increased its layoffs to 18,000, up from an initial 10,000. 

So far, workers at Google have been spared from this kind of mass forced exodus. Instead, the company has been cutting costs in other ways. One cost-cutting measure was to kill off its cloud gaming service, Google Stadia. 

Support for it ended on 18 January, after three years of thoroughly underwhelming performance. It’s unclear exactly how much money the closure of Stadia will save Alphabet. Still, it has been reported that the company spent up to $20m per game for developers to put their titles on the service.

Alphabet dropping Stadia is unfortunate, but it’s positive that the company won’t be bogged down in the expensive gaming market. The company would have needed to invest billions more into Stadia to be competitive with the likes of Sony and Microsoft. That wouldn’t have been a reasonable proposition in this challenging economic climate.

Short or long term

In the short term, Alphabet cutting costs will help to minimize the revenue damage that could stem from companies reducing their advertising budgets. 

During a recession, advertising budgets are among the first to be slashed. Over 80% of Alphabet’s revenue comes from its Google ads business. That could put the company in quite a predicament.

However, the company has had massive revenue growth over the last few years. For example, revenue in 2021 ($257bn) was nearly double that of 2018 ($136bn). That increase led to the company’s net profit more than doubling at the same time from $30bn in 2018 to $76bn in 2021.

To me, that looks like a lot of room for Alphabet to withstand a prolonged reduction in advertising expenditure. Reducing costs, as the company has been, is one way of doing that.

If next month’s earnings report beats expectations, there could be a short-term gain to my buying Alphabet shares now. That’s why I will add to my current Alphabet position before the earnings report is released. I plan to hold onto the shares until retirement, but if I can maximize my monthly investments now, I will. 

Should the earnings report disappoint and the share price drops further, I will be buying more shares then too. For the long term, I don’t think there has been a better time for me to buy Alphabet than over the last few months. I want to take advantage of the low price-to-earnings ratio of 18-19 that the company has maintained recently, one of its lowest points in the last decade. 

The post Alphabet shares: why I’m buying more in 2023 appeared first on The Motley Fool UK.

More reading

• I’m getting ready for a dramatic stock market crash

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Cook has positions in Alphabet. The Motley Fool UK has recommended Alphabet, Meta Platforms, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tesla (NASDAQ:TSLA) stock has, in my opinion, been overvalued for years now. However, with the shares dropping 70% in 2022, has the price finally reached a realistic valuation for the company?

Despite the massive price drop, I think it could still be too early for me to jump on the Tesla train. Here’s why!

Tech company or car company?

There have been two schools of thought on Tesla as a company in the last few years. One is that the electric car maker is a big tech company that makes cars. The other is that Tesla is a car company with a technological lead compared to the competition.

The distinction might not matter to owners of Tesla cars, but I think it’s one of the reasons for the massive valuation that the company achieved.

In 2021, Tesla surpassed a $1trn market cap, making it more valuable than Toyota, Volkswagen, Daimler, BMW, Ford, and General Motors combined. It achieved that valuation despite selling around 500k cars in 2020, compared to those competitors shifting a combined 30m units.

Tesla’s share price has always seemed to follow the trends of tech stocks like Apple and Alphabet instead of the car companies with which it is competing.

In recent years, I could justify the high share price if I were to look at Tesla as a tech company. However, it seems overvalued when considering it, first and foremost, as a car company.

I believe the Tesla stock price was based more on speculation than anything concrete, like earnings. At one point, the company’s price-to-earnings (P/E) ratio was stratospheric at 359. Today, the P/E ratio sits at a more reasonable 35.

Free falling

A year or two ago, $110 for a share of Tesla with a P/E of 35 would have been an instant buy for me. However, the car market isn’t the same as it was just a couple of years ago.

Tesla is no longer the king of electric vehicles (EVs). Gone are the days when it was the only good electric option or even the best EV.

The big manufacturers gave Tesla a massive lead when they were collectively slow to enter the EV market with anything as compelling as what Tesla had to offer.

Now that the EV market has matured, there are signs that demand for Tesla vehicles is slowing.

In the last quarter of 2022, the company delivered around 6% fewer vehicles than estimated. It’s one of the first clear signs that Tesla’s production ability isn’t limited but that demand is dropping.

The increased competition from big manufacturers looks to have finally caught up with Musk’s company.

If I were to buy Tesla shares now, I would need to see that demand is still trending upward. I think that’s the only way the company could justify its 35 P/E ratio. As demand is beginning to wane, I don’t think we’re at the bottom for Tesla.

Therefore, I won’t buy any Tesla stock, but I will keep an eye on the company and its P/E ratio.

The post Down 70% last year, is it still too early to buy Tesla stock? appeared first on The Motley Fool UK.

More reading

• Prediction: by 2029, £5,000 invested in Tesla stock could be worth…
• Is NIO stock the next Tesla?
• Could AI bring on the mother of all stock market crashes?
• Tesla stock just got a little cheaper, but why? And should anyone care?
• £5,000 invested in Tesla stock on Christmas Eve is now worth…

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Cook has positions in Alphabet. The Motley Fool UK has recommended Alphabet, Apple, and Tesla. 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.

As one of the biggest companies in the world, Apple (NASDAQ:AAPL) stock is always on my radar. Unfortunately, I missed the boat on buying shares prior to the massive increase from 2020 onwards.

However, with the share price down 31% last year and its lowest price since mid-2021, I think now could be the time for me to add Apple to my portfolio. Here’s why!

The king of resilience

Despite Apple’s share price dropping by almost a third, the company has fared quite well over the past year. In a year where nearly every company had massive share price drops, Apple’s decrease has been rather tame.

Meta is down 63%, Amazon 50%, Alphabet 38%, and the list continues. Compared to its contemporaries, Apple’s price has held relatively steady.

The company faces the same economic uncertainty and risks as other tech behemoths. However, Apple has spent the last several years aggressively diversifying its revenue.

In the mid-2010s, iPhone revenue grew so quickly that a drop in sales would significantly impact the bottom line. From 2015-2018, nearly 70% of the company’s revenue came from iPhone sales in any given quarter.

Tim Cook saw the writing on the wall, and Apple has grown its revenue in two key areas since: services and wearables. The company’s services segment is the fastest growing. It has gone from just 6% of revenue per quarter in 2015 to nearly 24% this year. Apple’s services include the App Store, Apple Music, iCloud, and Apple TV+.

Similarly, wearables have gone from less than 3% of revenue in 2015 to as high as 12% in recent years.

The company has been aggressively expanding its offerings to cater to users who don’t upgrade their iPhones yearly. That could be because there’s no need to upgrade or because people are tightening their belts, but it doesn’t matter to Apple.

In the most recent quarter, just 49% of its revenue came from iPhone sales. Services, wearables, iPad, and Mac made up the other 51%.

In 2023, Apple doesn’t need to sell users an iPhone. It will happily sell them subscriptions, AirPods, Apple Watches, iPads, and Macs to accompany the device they already have. That’s why I’m confident Apple can weather the storm of an economic downturn better than some of its peers.

Good value

Since the price of Apple stock has gone down, so too has the price-to-earnings (P/E) ratio. Currently, Apple’s P/E sits at an attractive 21. At its 2020 peak, Apple’s P/E hit 35. To me, that makes the current Apple share price of $125 very enticing.

Apple also has a 12-month average price target of around $171 per share. I think that’s reasonable based on the company’s sustained revenue and profit growth. Since 2019, net profit has nearly doubled from $55bn to $99bn.

After considering the current share price, and the broader economic factors, I think Apple is a must for my portfolio. I plan to begin buying shares in the business now that we have entered the new year. I think it’s a company that could be a staple of my portfolio for years to come.

The post Down 31% last year, is it time to buy Apple stock? appeared first on The Motley Fool UK.

More reading

• 2 world-class S&P 500 stocks down 11% and 32% to consider buying
• How much do you need in a Stocks and Shares ISA to aim for an annual income of £39,477?
• Wise: a hidden gem in the UK stock market
• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Cook has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The stock price of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has slid over 34% year to date. The company’s shares have suffered alongside other tech giants like Apple, Microsoft, and Amazon.

However, I think Alphabet could be a better buy for my portfolio compared to those companies.

It’s all in the numbers

Alphabet has had massive revenue growth since 2018. Its revenue from 2021 was up 41% to $257bn, which is close to double its 2018 revenue of $136bn.

The company’s net profit has grown by more than double in that time, from $30bn in 2018 to $76bn in 2021.

That means, with the recent share price drop, Alphabet now has a price-to-earnings (P/E) ratio of 19. Compared to other tech companies, Alphabet appears to be relatively undervalued. Apple’s P/E is 23, Microsoft’s is 27, and Amazon’s is an eye-watering 85.

To me, that makes Alphabet one of the better buys of the top US tech companies. There are risks: revenue and profit could fall if economic conditions cause advertising spending to drop. However, I don’t see the value of Alphabet getting much better than it is right now.

I think the share-price drop of Alphabet over the last year has been excessive compared to some of its peers. When considering the numbers alone, Alphabet shares look to me to be on sale.

Playing the long game

If I do buy some shares of Alphabet, it wouldn’t be a one-off investment. The company currently has a 12-month target price average of $126.

I would want to invest regular amounts into Alphabet to increase my holding. If the price goes down due to the larger economic climate affecting revenue, then I will buy more to bring my average purchase price down.

However, if the target price is accurate, I would be happy to invest a regular amount in Alphabet stock on a monthly basis.

I’m comfortable with the risk that Alphabet shares could be unstable if the economic outlook worsens. The share price hasn’t been this low since January 2021, and I see a lot of upwards potential for the company. 

If global advertising spending does drop, Alphabet is strong enough to weather the storm. It has strong revenue streams from other areas and over $116bn of cash on hand. It would take a truly monumental drop in advertising spending to really damage Alphabet’s bottom line.

However, I’m not too worried about the next couple of years for Alphabet because I wouldn’t be selling my shares.

Ideally, I would like to hold shares in Alphabet until my retirement. I see it as a growth stock with nearly unlimited potential to grow as advertising increasingly moves online.

Heading into the new year, if I have spare cash to invest, I’ll be sending a portion of it toward Alphabet shares.

The post Down 34% this year, is it time to buy Alphabet stock? appeared first on The Motley Fool UK.

More reading

• I’m getting ready for a dramatic stock market crash

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Cook has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon.com, Apple, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m always on the lookout for cheap UK shares that I can add to my portfolio. As 2022 draws to a close, there are two in particular that I have my eye on.

ITV

Shares of ITV (LSE:ITV) have fallen by around 30% in the last year. The broadcaster’s share price currently sits at just under 74p.

The bulk of ITV’s price drop since last year happened in a single day. The price dropped 30p on 3 March. However, this wasn’t due to worrying financial results.

The price dropped based on speculation that ITV won’t be able to compete in the streaming space. In the last year, the company spent more on content for its digital services than previously forecasted. This investment was part of an effort to “supercharge” ITV’s streaming service, which culminated in the launch of its new ITVX platform this quarter.

ITV will continue to invest more in its digital content, but this doesn’t concern me. ITV’s core business has always been in traditional television. However, TV viewership is rapidly declining as people move towards on-demand streaming subscriptions.

Deloitte estimates that traditional TV’s share of viewing hours in the UK will drop to below 50% for the first time in 2023. I’m only now looking at buying ITV shares because the company is investing heavily in streaming.

Financially, ITV is in great shape. The price-to-earnings (P/E) ratio is a very attractive 6.2, revenue is up 24%, and net profit is up 32%. ITV shares also have an average 12-month target price of 91p.

It sure looks undervalued to me.

International Distribution Services

Shares in International Distribution Services (LSE:IDS), the owner of Royal Mail, are trading at less than half what they were a year ago. The company’s share price has steadily declined over the last 12 months.

That decline has intensified since the start of this month as Royal Mail bosses failed to stop workers from going on strike.

I’m looking at IDS shares now precisely because the strikes are bringing down the share price. Sooner or later, the strikes will end with an agreement that brings employees back to work.

Once that happens, the share price could stabilise or continue to fall. My hope is that the price will stabilise and maybe even begin to increase again.

Financially, IDS should be able to meet the striking workers’ demands. Net profit is up around 285% since 2020; in fact, the net profit for 2021 and 2022 is more than the combined net profit from 2016-2020.

The current chaos surrounding the strikes is terrible for Royal Mail’s short term business. However, I don’t see it having a significant long term impact.

IDS currently has a P/E ratio of 7.9 and dividend yield in the 8% range. That makes me comfortable with investing in the company, even if I’m wrong about the turnaround timeline for the share price.

In summary, if I find myself with the spare cash in December to afford shares in these two British institutions, I’ll be snapping them up without hesitation!

The post 2 cheap UK shares I’d buy before the end of 2022 appeared first on The Motley Fool UK.

More reading

• Here’s how a 35-year-old putting £15 a day into an ISA could end up earning £18k+ of passive income annually!
• With its 6.5% dividend yield, is ITV a buy for my Stocks and Shares ISA?
• £20,000 in savings? Here’s how it could realistically be used to target £633 of passive income each month
• 2 bargain-basement income stocks to consider in an ISA
• A 6.5% forecast dividend yield! 1 FTSE 250 income stock to buy today?

Matt Cook has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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.