Passive income is a dream of many. However, a substantial second income from my portfolio is only possible if I know the right shares to buy with strong growth prospects and big, sustainable dividend yields.

Oil investing

With conflicts escalating globally, finding ways to mitigate economic risks is essential. Oil remains a crucial resource, and Diamondback Energy (NASDAQ:FANG) could be a solid defensive play. The company operates almost entirely in the Permian Basin in the US, limiting its exposure to global supply chain disruptions. Additionally, geopolitical tensions often drive oil prices higher, potentially boosting Diamondback’s share value in times of conflict.

With a strong 6.35% yield right now, this is potentially an income investor’s dream. Furthermore, since 2012, the share price has risen 865% in price.

_{Orange = price | Green = dividend yield}

While past returns are no guarantee of future results, I’m optimistic about the investment’s near-term future. In 2025, 15 analysts hold the consensus that the company will generate 44% revenue growth. Furthermore, the average 12-month price target from 27 analysts indicates a 31.5% gain. Largely, this is the result of a big merger under way between Diamondback and Endeavor Energy Resources.

However, looking a little further out, I’m expecting price volatility in 2026 and 2027, when analysts reckon the company could see a slight contraction in revenues. This will likely include integration challenges from the merger before more normal, moderate growth in the following years.

Through thick and thin

Warren Buffett famously taught us that the secret to investing success is to choose only a handful of investments throughout a lifetime. By being incredibly selective, we avoid rash decisions and ensure that the investments we make are of the highest quality.

Additionally, at The Motley Fool, we follow a long-term strategy. We’re all about finding companies to invest in and hold for 10 years or more, letting them grow over time.

I believe Diamondback Energy could be a strong long-term holding in a well-diversified portfolio. However, it’s important to note that the stock may face periods of significant price drops. To manage this, I would consider pound-cost averaging — regularly adding to my position, regardless of short-term valuations. This could smooth out market volatility over time. On the other hand, investing a large lump sum right now feels riskier, as Diamondback isn’t a growth stock, and its valuation is relatively high.

_{Five-year price-to-sales ratio}

Stable Texan oil prices

Diamondback Energy’s ability to maintain its dividend is closely tied to oil prices. If geopolitical tensions persist and supply chain disruptions continue, oil prices could stay elevated, enabling the company to generate strong free cash flow and comfortably support its dividend payouts.

Looking ahead, however, analysts predict some softening in oil prices. Currently, Permian Basin crude oil is priced around $71 per barrel, with forecasts suggesting a range of $60 to $79 per barrel by 2025 and 2026. This indicates that while the dividend remains stable for now, investors should keep an eye on potential price shifts. For income-seeking investors, Diamondback’s dividend might still offer a compelling opportunity in the near term.

I’m seriously considering adding Diamondback Energy to my portfolio as a way to hedge against current geopolitical uncertainties. With global instability, this may be a smart move to generate steady income from dividends while protecting my investments.

The post I’m with analysts, this 6.4%-yielding passive income stock could surge 30% in a year appeared first on The Motley Fool UK.

More reading

• How big must an ISA be to aim for a £15,000+ a year second income?
• Down 17% to under £5! Here’s why this overlooked FTSE 250 defence gem looks a bargain anywhere below £6.12
• A 9% dividend yield! 1 dirt-cheap FTSE 100 passive income gem to snap up today?
• What are the best growth shares to try and double your money?
• I asked ChatGPT for the best FTSE 100 stock for total returns in 2026, and guess what it said…

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

The best time to start investing is today.

Whether I have £500 or £50,000, it’s not about the amount but how wisely I allocate it. The key to success is starting early and staying consistent.

Investing £200 a month over 40 years, with an average annual return of 10%, could grow to around £1.3m. A 10% annual return is a reasonable expectation based on the historical performance of the S&P 500, America’s most-tracked index of its largest 500 companies.

Pound-cost averaging

When I started investing, I found pound-cost averaging to be the most effective method for me. I invest a small amount of disposable income from each paycheque into top companies every month, regardless of their current valuation.

As long as these businesses have solid long-term prospects, I keep buying over the years. It’s a simple and reliable approach to building wealth.

One key principle I stick to is diversification. I spread my investments across different businesses to avoid having all my money tied up in just one, reducing the risk of any single company’s downturn.

Getting started

It couldn’t be easier to begin. First of all, I need a Stocks and Shares ISA or a share-dealing account. The provider I’m most fond of is Interactive Investor.

Then, I need a way to source good investments. Thankfully, The Motley Fool UK has this covered, with a range of services and writers identifying top investments every day.

One company I see as a strong long-term investment for pound-cost averaging is Games Workshop (LSE:GAW). This seemingly modest fantasy wargame miniatures developer has grown an impressive 1,600% in price over the last 10 years. On top of that, it offers a healthy 3.5% dividend yield, putting cash in my pocket every year. Bear in mind, though, that management can cut the dividend if market conditions require it.

Analysts expect the company’s earnings growth to slow down over the next few years. But this could actually be a great time to buy, as the current valuation looks reasonable. If its earnings growth picks up again, the stock could see significant gains, and by getting in early, I’d be well-positioned to benefit.

However, every investment comes with risks. Games Workshop has already well-established itself in Western markets, so the company is now looking overseas for growth. Any challenges it faces in expanding into new regions could limit future share price gains over the long term.

Staying the course

I’ve found that one of the best ways to generate strong portfolio profits is by being part of a solid community of investors. That’s one of the main reasons why I appreciate The Motley Fool UK.

More than anything, investing is a lifelong skill. It takes time, patience, and perseverance to build wealth. Developing a successful portfolio is far from a get-rich-quick scheme, and that’s exactly why it works.

As I mentioned, if I invest £200 per month from scratch, I could grow a portfolio worth £1.3m in 40 years, assuming a 10% annual return. Wealth isn’t about luck, it’s about knowledge, preparation, and time spent in the market.

The post How I’d start investing today to aim to build a £1.3m portfolio from scratch appeared first on The Motley Fool UK.

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Oliver Rodzianko has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. 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 rare to find an investment that has a 12-month average price target indicating 45% growth based on reports from 10 analysts. However, that’s exactly the situation right now with one of the top UK stocks I know, Kainos (LSE:KNOS).

The strength of this opportunity largely rests on the company’s lower earnings growth compared to historically. This has opened up a big price decline, which has led to what I think is a significant undervaluation. However, with growth likely to improve in 2025, I think big returns are on the horizon.

Greedy when others are fearful

Investing is a counterintuitive business. When the markets are roaring, that’s often not the best time for me to buy shares. Instead, I want depressed prices in great companies. In other words, as a value investor, I’m looking for a bargain.

The reason why this is so important is that with a lower valuation, my returns are likely to be higher. That’s as long as I buy in at an inflection point, which is when a business’s prospects look like they are about to improve.

Kainos is currently trading at a price-to-earnings (P/E) ratio that’s 41% lower than its 10-year median. Its earnings per share are expected to grow faster, from an annual average of 8.1% over the past three years to 8.9% over the next three years.

When companies show stronger growth like this, investors often buy more shares, which can push the P/E ratio higher. This means I could benefit not just from faster earnings growth but also from a rising valuation.

The perils of downward momentum

Despite the opportunity here, value investing isn’t always a straight path to riches. Instead, once I buy cheap shares at an inflection point, I often have to weather some losses before (and if) my future gains begin.

It’s incredibly hard to time the market. The greatest value investors don’t try to bet on when a company’s share price will stop falling. Instead, they invest in the financials of a company and make sure it is selling for less than what it’s likely worth.

Kainos shares are down 55% over the past three years. While I don’t think they will fall much further in price, I can’t guarantee that. Instead, I’ve assessed the company’s future growth prospects, and I believe now makes the most sense for me to invest in it.

The rewards outweigh the risks

I always work to actively diversify my portfolio to protect myself from any drawbacks of a single investment. By holding 10 to 15 undervalued businesses from varying geographies and industries, I’m well protected from risks.

However, I still actively look for the best shares I can find. Based on my research, Kainos is certainly one of the top UK technology investments on the market. Even with rising AI and automation capabilities potentially threatening its long-term market position, I’m bullish on the company for now.

It’s significantly undervalued, primed for changing sentiment from investors based on better growth rates in 2025, and my outlook is supported by a strong consensus analyst price target of 45% growth in just 12 months.

What more can a Foolish investor want? I’m likely buying Kainos shares with the next disposable cash I get my hands on.

The post Experts reckon this UK stock could surge 45% by September 2025 appeared first on The Motley Fool UK.

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• What are the best growth shares to try and double your money?
• I asked ChatGPT for the best FTSE 100 stock for total returns in 2026, and guess what it said…

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos Group Plc. 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.

To build wealth, I believe the best way is to start buying shares today. Whether it’s a bull, bear, or flat market, there’s money to be made if I approach it with the right long-term mindset.

Finding value in any market

While some money managers tout the benefits of index funds, as a Fool, I’m certain individual stocks can do better. After opening a Stocks and Shares ISA on Interactive Investor, I now have a wealth of investments to choose from. The key to my portfolio’s prosperity has always been looking for companies with a potentially profitable valuation.

For example, one hidden gem I’ve recently found is Alpha Group International (LSE:ALPH). With a price-to-earnings ratio of just 10.5 and a forecast of three-year average annual earnings growth of 44% by analysts, I don’t know many better investments on the market right now.

The business is a dynamic financial solutions provider helping corporates and institutions manage financial transactions. Recently, the company has acquired Cobase, a multi-bank trading platform, which is one of the significant catalysts driving the strong growth forecasts.

The two professional bankers covering Alpha Group International think that this is a stellar investment right now. Their average 12-month price target currently indicates a 35.5% return.

However, the company does work in multiple jurisdictions, which opens up operational risks. With a smaller business like this that’s only been listed on the public market since 2017, I’d need to be careful not to have too much of my money invested in it.

High-growth, well-valued opportunities like I think this is are rare. Yet in all my years of investing, I’ve learned that I can always find ways to make money from shares whatever the condition of the broader economy. In fact, in a bull market, I buy growth shares while in a bear market, I buy value shares. Both strategies can help me to take home big profits in the long run. The important point is to keep adding money to my portfolio regularly.

Tricks of the trade

One of the most famous risk-mitigation tools is called diversification. The aim here is to own 10 or so different, high-quality investments across geographies and industries. That protects me from anything going wrong in one area.

Another great strategy for building wealth over time, especially for beginner investors, is pound-cost averaging. This approach involves starting with as little as £5k (or less) and adding part of my disposable income to my portfolio each month after payday.

Starting with £5k and investing an additional £177 each month over 30 years could grow my portfolio to £500k, assuming an average annual return of 10%. According to Standard & Poor’s, the S&P 500 has delivered an average annual return of around 10% from 1926 to 2022. So, by simply matching this, I’d still build a substantial portfolio. Of course, those returns aren’t guaranteed and I could also lose money.

It’s never too late

The earlier we start investing, the more money we can make. That’s because of the power of compound returns growing exponentially over time. However, it’s always better late than never.

If I was starting over today, Alpha Group International might be one of the first investments I’d make. It’s currently on my watchlist, and it’s potentially going into my portfolio in October.

The post Under £5k in savings? I’d start buying shares and aim to turn that into £500k appeared first on The Motley Fool UK.

More reading

• How big must an ISA be to aim for a £15,000+ a year second income?
• Down 17% to under £5! Here’s why this overlooked FTSE 250 defence gem looks a bargain anywhere below £6.12
• A 9% dividend yield! 1 dirt-cheap FTSE 100 passive income gem to snap up today?
• What are the best growth shares to try and double your money?
• I asked ChatGPT for the best FTSE 100 stock for total returns in 2026, and guess what it said…

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Alpha Group International. 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.

Finding the top investments in the FTSE 100 often requires a combination of good value and stellar growth. In my opinion, JD Sports Fashion (LSE:JD) offers both of these elements in abundance. Here’s why I think it could deliver stellar returns in 2025. But will I buy?

Bargain prices for exceptional growth

I almost bought the shares in early September when it was 15.5% cheaper than it is today. At the time, I noticed that the market had significantly undervalued the company. I thought it could deliver a 35% growth in its market cap in 18 months.

While there’s slightly less of a value opportunity right now than at the beginning of the month, the investment is still well-positioned for top long-term returns, I feel. It still has a bargain price-to-earnings (P/E) ratio of just 14.5. This is way lower than its 10-year median of 23.

However, growth is slowing for the company. This is a big reason why the market has valued it more cheaply right now.

While I can expect good growth moving forward due to its robust international expansion strategy (especially in North America), I can’t expect the same stellar 744% price growth the shares have delivered over the past 10 years for the next decade.

Analysts are bullish

I’m more bullish than analysts on this one, but 14 analysts have an average 12-month price target of 10.3% growth.

In my opinion, the investment could deliver higher returns than this because it’s potentially undervalued. If its P/E ratio expands by 5% over the next 12 months and it hits the consensus earnings per share estimate of £0.14 for January 2026, the shares could be worth £2.14 in late 2025. That’s if the market prices in the future earnings into the company’s valuation early.

But I’m not the most optimistic person out there. The highest 12-month price target for JD Sports shares of the 14 bankers I studied is currently £2.50.

Focusing on the long term

While a 40% return from the present price of £1.52 sounds appealing, it’s not enough for the business to earn a place in my portfolio. Instead, I need to know that this company has a high likelihood of continuing to grow over the long term.

Analysts are expecting three-year average annual earnings per share growth rate of 16%. Management has managed to attract these estimates through a lean operational strategy in which it’s sold non-core businesses to focus on its best-performing assets.

However, as the company is so heavily invested in Western markets, it’s very vulnerable to a potential recession in this region, which I believe could occur soon. With high inflation and huge Federal debt piling up in the US, I’m making sure I don’t own too many Western-focused companies right now.

Worth a small allocation?

So will I buy JD Sports? Getting great portfolio returns is all about diversifying well. I only need to own stakes in 10 or so stellar companies. However, it’s vital to make sure these vary across global regions and industries. That helps to protect me from the unique risks in different markets.

I’m still thinking about buying these shares but haven’t made my decision yet. I don’t want to make the mistake of waiting too long though — the undervaluation is unlikely to last much longer!

The post I reckon this FTSE 100 stock could deliver a massive 40% 12-month return appeared first on The Motley Fool UK.

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

The palm oil business

MP Evans focuses on producing sustainable crude palm oil in five provinces across Indonesia. It also has a stake in a property company in Malaysia. The company’s shares trade on the AIM market of the London Stock Exchange.

As a cyclical business, it experiences fluctuations in output due to crop maturity and weather conditions, among other factors. This can lead to share price volatility. For example, after strong expansion from 2020 to 2023, the company faced a dip from 2023 to 2024. Now, it’s entering a new phase of moderate growth.

Cheap, growing, and cash flow generating

Here are two core highlights of why I think this investment is worth my cash:

1. It has a three-year average annual earnings per share (EPS) growth rate of 41%.
2. It has a low price-to-earnings (P/E) ratio of 9.5, which is much lower than the industry median of nearly 18.

However, that high historical growth isn’t likely to last. In fact, analysts predict that the company will generate just a 6.2% average annual EPS growth rate over the next three to five years. This is a big reason why the shares have fallen in price recently.

Low prices mean bargain opportunities

Just because a price has fallen doesn’t mean that it’s bad for investors. Instead, a lower price can open up a better valuation. There’s a lot of merit in Warren Buffett’s saying: “Be greedy when others are fearful”.

In the case of MP Evans, its leading valuation ratios, namely the P/E and the price-to-sales (P/S) ratio, are near the lowest they’ve been since January 2020.

This opens up a big opportunity for me. It gives me a margin of safety in the price, meaning that any operational failures are unlikely to hit the shares as severely as if they were richly valued.

Also, my returns are likely to be higher. The fact that the valuation is so low and analysts are expecting better earnings growth over the next few years is likely a big reason why bankers have such high price targets for the stock right now.

What could go wrong?

In my opinion, this is a low-risk investment. However, there is one big issue that stands out to me.

While the shares have seen a long-term uptrend in price since 1988, as I mentioned earlier, they’ve also shown considerable volatility. With its price going up and down over time, its even more important I buy at an appropriate valuation.

Furthermore, its dividend payouts are not usually as high as right now. I suspect such a substantial 5% yield will be transitory, so I can’t rely on this investment for cash flow stability.

It’s a Buy for me

I consider this one of the best hidden gems on the UK stock market right now. It’s at the top of my watchlist, and it’s a likely addition to my portfolio at the beginning of October.

The post Analysts say this 5%-yielding passive income stock could surge 32% in a year appeared first on The Motley Fool UK.

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

The growth stock I’m looking at today is Judges Scientific (LSE:JDG). It’s a UK company that buys and builds businesses in the scientific instrument industry.

While it currently has a rich valuation, analysts have strong earnings growth forecasts for the company for the next three years. Based on its rapid rates of expansion, the average analysts’ 12-month price target for the shares is a 23% return.

High growth comes at a price

Starting with the weakest element first (because there’s a lot of strength to come), Judges Scientific has rising price-to-earnings (P/E) and price-to-sales (P/S) ratios. This is cause for concern to me because it means there’s no margin of safety in the share price. If there are any issues with new acquisitions or failures in its current subsidiaries, the valuation is more prone to volatility.

That said, it’s worth remembering that the best companies in the world always trade at rich valuations. I think it’s a price likely worth me paying. However, I have to bear in mind that with slightly slower revenue increases on the horizon than previously, it might not be a straight path to success for me as a shareholder.

Expanding revenues mean strong returns

The biggest driver of Judges Scientific’s long-term growth is its acquisition strategy. By buying up smaller businesses that have cornered niches in the scientific manufacturing industry, the conglomerate could potentially continue to rise in prominence.

The company boasts a three-year average annual revenue growth of 18%. After a lagging performance in 2024, growth looks set to resume confidently in 2025 and 2026.

It’s no surprise then, that the average analyst price target for Judges Scientific indicates such momentous near-term growth.

A Foolish long-term investment?

As a Fool, I only but stocks for the long term. One of the key elements I look for in the companies I invest in is an exceptional management team.

Thankfully, Judges Scientific is well-run. Founder David Cicurel has been CEO since 2002. With nearly 22 years at the firm and a background as a turnaround specialist and value investor, I think the company is in safe hands.

Mark Lavelle is also in the ranks as COO. He joined in 2017, bringing a wealth of experience from FTSE 100 darling Halma.

The reason I value a strong management team is that buying shares successfully over the long term is all about investing in well-structured, profitable, and well-led businesses. That’s a famous tenet from the great Warren Buffett.

Smaller companies, bigger gains

The great thing about investing in smaller companies is that they don’t attract much attention from big players. These can include banks, university funds, or corporate investors. With Judges Scientific’s relatively low market cap of £671m, it’s a great opportunity for individual investors like me. Less competition in the market helps keep its valuation more stable.

Warren Buffett famously began his career by focusing on smaller companies. He invested in those he believed had the necessary elements for world-class returns. This included focusing on competitive advantages, unique market positions, solid management teams, good growth potential, and fair prices.

I think Judges Scientific has many of these elements, and so it’s a Buy in my book. I’ll likely look at purchasing some of its shares in October.

The post Analysts say this hidden UK growth stock could soar 23% in the next 12 months appeared first on The Motley Fool UK.

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Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc and Judges Scientific Plc. 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 has figured out a slow, stable path to riches. By compounding his portfolio’s returns over many years, his company is now worth nearly $1trn. Following in his footsteps, I want to see if it’s possible to build a passive income of £140,000 starting from zero.

A lifelong journey

It’s worth remembering that the earlier I start and commit to my goal of investing with discipline, the larger my final portfolio value will be.

50 years might seem like a long time, but starting with just £200 and adding just as much every month could give me a total interest earned of nearly £3.4m if I achieve a 10% annual return. I consider that annual growth to be achievable because that’s the average annual total return of the S&P 500 from 1926 through 2022.

My strategy requires me to reinvest all of my dividends. Only when I hit my goal of £3.5m will I start spending these payouts. After all, it’s worth the wait for an annual 4% retirement dividend yield of £140k.

However, investments can rise and fall, and I have to be careful which shares I choose. A failure to build a well-diversified portfolio or to choose companies that appreciate over time could leave me with much lower returns than I forecast.

How I choose investments

One of my top-performing picks of recent years has been Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG). Since I first bought the shares just a year-and-a-half ago, they’ve returned approximately 35%.

This investment is perfect for the earlier growth stage of my portfolio. However, with a dividend yield of just 0.25%, the company isn’t going to provide the lion’s share of my residual income in retirement. Instead, it’s the type of business I think will help me get to £3.5m faster.

Of course, I have to be careful that I don’t open myself up to excessive volatility risk by chasing growth. The market commonly overvalues technology companies. This is especially true at the moment when there’s excessive enthusiasm surrounding AI.

However, Alphabet is known as one of the more stable technology companies in the magnificent seven. The company is a core holding of mine due to its more consistent results compared to its peers like Tesla and Amazon:

When I get older, I’ll get slower

As I age, I expect I’ll focus less on growth opportunities and more on reliable income. The best place to seek this is often in real estate investment trusts (REITs), which offer rental income to shareholders.

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.

One of the top REITs I know of is Realty Income. Investors famously call it the ‘monthly dividend company’ for its regular payouts. It has an annual dividend yield of 5%. Furthermore, over the past 10 years, the share price has increased by a healthy 53%.

A mixed and evolving strategy

By mixing a heavy emphasis on growth in my earlier years and prioritising income in my later years, I think I can succeed with my dream of an abundant retirement.

It may take some time, but I have plenty of that. While I’ll be careful of the risks, I’m committed to investing well. Right now, I’m focusing on companies like Alphabet rather than Realty Income.

The post How I’d invest £200 a month to aim for a passive income of £140,000 a year appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Oliver Rodzianko has positions in Alphabet, Amazon, and Tesla. The Motley Fool UK has recommended Alphabet, Amazon, 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.

Warren Buffett taught us not to try to time the market when looking for stocks to buy. However, it’s important that I value companies carefully before investing in them.

Part of this requires a close look at any business’s future earnings growth potential. One company I’m keen on at the moment, ASML (NASDAQ:ASML), has positioned itself well for what I think will be explosive returns next year.

Flat 2024, dynamic 2025?

After the chipmaker showed a minor contraction over the past 12 months, its outlook for next year is much more favourable. Management is targeting revenue of between €30bn and €40bn for 2025, indicating potential growth of 45% from previous levels.

A lot of this massive increase in demand is going to be related to AI. The firm’s monopoly in producing smaller, more powerful chips is also supporting this growth. Its proficiency in extreme ultraviolet lithography, a process used to print intricate patterns on semiconductor materials, is fundamental to this.

ASML forecasts that the semiconductor market is going to grow at an annual rate of approximately 9% from 2020 to 2030. Therefore, the company’s potential short-term gains aren’t all I’m bullish about. I think this investment is a worthy long-term holding to consider.

Expensive, but worth it

The market has valued the business highly. However, I believe the risks here are low. The high future growth analysts and management have forecast means a rich valuation is likely to be sustained for now.

At the moment, the shares trade at a forward price-to-earnings ratio of over 24. That’s high if I compare it to the industry median of nearly 19. That being said, a company with exceptional three-year annual earnings per share growth of 33% is always going to be more expensive than companies performing more moderately.

The current average 12-month analyst price target on ASML indicates a 38.5% price increase. That’s an extremely good reason to invest, and it’s a foundational reason why I’ll be buying these shares as soon as I can.

What could go wrong?

No investment is risk-free. One of the major concerns I have with this opportunity is that after a boost to revenue growth in 2025, I think market sentiment could wane. That’s because the company and analysts are expecting much more moderate results in 2026.

That contraction in rates of expansion affects the valuation multiples of a company, including the price-to-earnings ratio and the price-to-sales ratio. Therefore, I do expect some volatility in the share price around the end of 2025.

In terms of broader long-term risks, I also believe there could be an issue geopolitically. Already, the US government has restricted ASML from selling its advanced lithography machines to China.

Any escalations in Taiwan, which is where ASML’s key customer, Taiwan Semiconductor Manufacturing Company, is based, could further complicate matters. This could cause a significant potential impact on ASML’s medium-term revenues.

This is a world-class buy for me

There are very few investments that I consider perfectly positioned for massive future gains. However, I think this is one of them.

Despite any issues ahead, I’m comfortable with the risk-to-reward profile here. I’ll be buying ASML shares as soon as possible.

The post Is this a world-class stock to buy for explosive growth in 2025? appeared first on The Motley Fool UK.

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Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML and Taiwan Semiconductor Manufacturing. 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 Bank of England has recently cut interest rates by 0.25%. After a long period of high costs of borrowing, this could signal the beginning of a big change. Lower interest rates tend to support the stock market by stimulating economic activity. Therefore, is right now the time for me to load up on growth stocks?

The near-term future

Inflation has been troubling for the UK market in recent years. The cost of living crisis following the pandemic has been on everybody’s mind. However, the economy is showing signs of recovery from a shallow recession as inflation edges closer to the Bank of England’s target.

Despite the interest rate cuts that are expected in 2025 being positive for economic growth, this could cause further inflation. The reason for this is that as more money enters the economy from loans, demand increases, and companies raise their prices as a result.

Britain isn’t alone in this predicament. Markets are also feeling this tension in the US. Much of how the UK’s economy recovers will depend on how the Federal Reserve deals with interest rates and inflation in America. That’s because many of Britain’s top companies depend on the US economy for trade.

I expect a short-term rally

Even if the market reacts favourably to lower interest rates in 2025, I think this is only going to be a short-term gain. Given the past inflationary environment and potential future inflation, prices are likely to continue rising and reduce demand more severely than what’s currently being felt with high interest rates. Therefore, I think we could be on the precipice of a recession.

As a long-term investor, I’m being very careful about the shares I buy right now. It’s extremely important that I choose companies that offer good value. That will help to protect me from any severe downward momentum in a ‘bear’ market.

Looking for recession-resistance

One company that has been on my radar for a long time that I believe would continue to perform relatively well in a recession is Safestore (LSE:SAFE). This real estate investment trust offers storage units. People usually vacate these less than housing during severe economic downturns.

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The main metric I use to measure a real estate company’s valuation is the price-to-funds-from-operations ratio. In 2017, Safestore’s was at nearly 24. In 2021, it got as high as 45. Today, it’s a much more reasonable 20.5. Therefore, I think I’d be investing at a decent price. This is also true due to the fact that the company has a three-year-average annual revenue growth rate of 10%, compared to 7.6% as a 10-year median.

However, the company faces competition risks, including from its main rival Big Yellow Group. Depending on how the economy evolves, a future period of interest rate hikes from the Bank of England to curb long-term inflation means the company could be tested in how it manages expansion strategies and financing.

I’m holding off for now

Safestore looks well-positioned to me in the current uncertain economic environment. However, I reckon there are better places to invest my savings today. I’m looking to emerging markets for big growth opportunities. These are more protected from the macroeconomic risks currently building in the West.

The post Will the UK stock market soar in 2025 if interest rates are cut? appeared first on The Motley Fool UK.

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Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Safestore Plc. 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.