Amazon.com (NASDAQ:AMZN) is one of the biggest investments in my Stocks and Shares ISA. And the reason is simple – I think its long-term strength is incredible.

The key to this is its business model. But there’s a UK firm with a £6.24 share price that I can see doing something similar – and investors haven’t noticed yet.

Amazon

While AWS is often the focus for investors, Amazon’s marketplace is its largest revenue stream. It’s the biggest and the best in the industry by miles.

The trouble is, margins in this part of the business aren’t intrinsically huge. But that misses an important point. 

Amazon uses its marketplace strength to generate other high-margin revenue. Specifically, this comes from its Prime membership.

The company uses this to put its marketplace even further ahead of its rivals, which leads to more subscriptions. And so on.

This is an extremely powerful business model. And I can see a FTSE 250 company that’s looking to make a similar move.

JD Wetherspoon

I’ve been a bit lonely in having a positive view of JD Wetherspoon (LSE:JDW) shares recently. And that’s fair enough.

Investors have been concerned about the impact of cost inflation. That’s been true across the industry, but especially with the FTSE 250 firm.

A focus on customer value seems to limit its ability to offset rising costs with price increases. And management reinforced this view.

In its last update, the company stated that this year’s profits might be lower than expected. And the stock has been faltering as a result.

There’s no way around the fact that higher costs are a risk. But I see the company making a move to replicate Amazon’s business model.

Franchises

Until recently, JD Wetherspoon hasn’t had a source of revenue like Amazon’s high-margin subscriptions. But that’s changing.

The firm has started opening franchised venues run by local operators. And Wetherspoon’s provides the central admin and IT systems.

Importantly, partners also benefit from the company’s buying power. This gives them huge cost savings. 

That’s been the key to JD Wetherspoon’s lower prices. So it’s a huge advantage for these partner venues. 

Early signs are that this has been transformative for the venues, which is great. But it’s the FTSE 250 firm I’m interested in.

A game-changer?

What does JD Wetherspoon get from letting other operators use its supply chain? Three very big, very important advantages.

The first is a franchise fee (as well as a possible percentage of revenues). And this comes at virtually no cost to the company.

The second is that the firm benefits from expansion with none of those rising costs. These are left to local operators. 

The third is that it gets additional scale. And this reinforces the firm’s key strength, which is its ability to buy in bulk.

I think those are some key advantages. Especially with rising costs making things tough for hospitality companies.

A bargain buy?

JD Wetherspoon’s scale has always given it a cost advantage. But it’s starting to turn this into a source of high-margin revenues.

This could be extremely powerful. It both reinforces the firm’s key competitive strength and widens its margins in a time of higher costs.

It’s the model that’s worked for Amazon. And it’s another reason I think investors should take a closer look at £6.24.

The post How this £6.24 UK stock is copying Amazon’s winning tactics appeared first on The Motley Fool UK.

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Stephen Wright has positions in J D Wetherspoon Plc. 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.

UK investors don’t need huge amounts of cash to start building a portfolio of stocks and shares. £100 is more than enough.

Investing this regularly over time can lead to lifelong passive income. But every journey starts with the first step.

Regular investing

If you can find £100 from your monthly salary, you can start investing. And in some ways, it’s best to start small.

Investing part of your monthly salary has some real advantages over making an immediate move. One is diversification.

Having a diversified portfolio helps limit portfolio risk. It reduces the overall impact of an investment going wrong.

The trouble is, not all stocks are cheap at the same time. And that creates a dilemma for investors who want to go big straight away. They either have to buy stocks that are expensive or focus on a limited group of shares. Neither is an attractive option.

Regular investing, however, lets you buy whatever stocks are cheap. And you can build a diversified portfolio over time.

How much can you earn?

What can you achieve by investing £100 a month? It might be more than you think.

Over the last five years, the FTSE 100 has returned 83%. Finding that kind of return elsewhere has been extremely hard. That’s the equivalent of 12.85% a year. And investing £100 a month at that rate can have spectacular results. 

In the first year, the return is £83.52. But by reinvesting the dividends, investors can aim for £2,609 by Year 10, £11,562 by Year 20, and £41,551 by Year 30. 

Not all of that comes back as dividends – some of it is reinvested by the businesses. But the FTSE 100 has some really interesting stocks. For investors with a long-term focus, the question isn’t what they can earn today. It’s what they could be getting in the future.

FTSE 100 stocks

It might seem like a strange time to look at InterContinental Hotels Group (LSE:IHG). Global conflict is a genuine risk for the business. 

Importantly, though, the firm has shown a lot of resilience in the past. Covid-19 was a major disruption, but the company rebounded strongly.

From a dividend perspective, a 1.28% yield doesn’t seem like a lot. But this has grown by an average 6% a year during the last decade.

The company has around 1m rooms and around 33% more in the pipeline. But the real key is its business model. Rather than owning its hotels, it franchises them. That means the cost of growing and maintaining its network is minimal.

This gives the firm unusually strong long-term growth prospects. And it’s also why I think there’s a lot more dividend growth to come.

£100

Earning £41,551 by investing £100 a month for 30 years is a big ask. But I don’t think it’s outside the bounds of possibility. 

What I’m convinced about, though, is that compounding returns over time can lead to great returns. And this means one thing.

Whether it’s £100, £10, or £1,000, the most important force in investing is time. There’s no quick way to get to 30-year returns. The best way to bring forward that long-term return date is to get started. And I think InterContinental Hotels Group is well worth a look.

The post How £100 can start a portfolio of UK stocks appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels 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.

 A Stocks and Shares ISA is great for investors looking to earn a second income. And UK equities are really interesting.

Low valuations can mean high dividend yields. Especially in parts of the stock market where other investors aren’t looking.

Under-the-radar

One name that often goes under investors’ radars is Alternative Income REIT (LSE:AIRE). That’s partly because it’s not a big company.

It’s a real estate investment trust (REIT) with a really interesting portfolio. It includes industrial estates, care homes, and a power station.

The firm doesn’t own as many assets as some larger REITs. And that naturally means a more concentrated tenant base. This can be a risk – its largest tenant accounts for 10% of its rent. That matters for a couple of reasons. 

One is that it means a default would be a big deal. But it also means potential risk when leases expire. 

Investing always involves risk – and that’s the big one with Alternative Income REIT. But there’s also a lot to like. 

Why this stock?

The first point to note is that a mixed asset base offers investors instant diversification. And that can be valuable. It limits the overall impact of a downturn in any given industry. As an example, consider retail warehouses.

The industry has seen a lot of growth recently. But this has led to a lot of building, which creates a risk of oversupply.

For a more specialist operation, that might be a big issue. With Alternative Income REIT, however, the risk is more limited.

The firm’s size also means it can be selective about its portfolio. And this results in terrific occupancy and rent collection metrics. 

The company itself might be small. But for ordinary investors, the income opportunity could be big. 

A 7.64% dividend yield

Shares in Alternative Income REIT currently come with a 7.64% dividend yield. And that can be big for income investors. 

The annual contribution limit in a Stocks and Shares ISA is £20,000. But a lot of investors – like me – put £4,000 into a Lifetime ISA.

That leaves £16,000. And a 7.65% dividend yield is enough to turn that into a £1,224 annual second income. 

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

This isn’t to say investors should go all-in on the stock. Even with the inbuilt diversification, that’s a risky strategy. 

Looking to earn a strong return across a number of investments, however, can be a great idea. And Alternative Income is one to consider.

A high dividend yield is a sign that investors are wary of something. But sometimes, the potential rewards are worth the risks.

Final thoughts

Sometimes the best opportunities are to be found where others aren’t looking. And that might be the case here. A £60m company doesn’t necessarily stand out in a billion-pound world. But it doesn’t need to for most investors. 

The market cap might be small, but the dividend yield is big. And I think it’s well worth considering at today’s prices.

The post How £16,000 can generate a second income in a Stocks and Shares ISA appeared first on The Motley Fool UK.

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Stephen Wright 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 lot of investors focus on either growth stocks or dividends. But a handful of really outstanding shares offer both.

Some businesses can grow while paying out cash to shareholders. And these can be terrific investments.

Growth vs dividends 

In most cases, the trade-off between growth and income is real. And there’s a simple reason why.

Businesses have a choice about what they do with their cash. One option is to use it for growth. 

Companies grow by opening new facilities, hiring more staff, or even buying competitors. That’s great, but there’s a catch.

All of this costs money. And any cash used for doing these things can’t be returned to investors as dividends.

Alternatively, they can distribute their profits to shareholders. This creates income for investors, but it creates zero growth. 

Most businesses do a combination,  but the choice remains. Cash used for dividends doesn’t generate growth.

Warren Buffett 

That’s the reality for most companies. But in a few extremely rare cases, investors don’t have to choose.

Some businesses can grow without using the cash they generate. And in that situation, dividends don’t slow them down.

In his 2022 letter to Berkshire Hathaway shareholders, Warren Buffett identified two of these. They were Coca-Cola and American Express.

Both have managed to grow over time. But they haven’t had to use the cash they’ve generated to do this.

One example in both cases is price increases. This boosts sales, but costs the company nothing.

That means growth isn’t limited by paying dividends. And that’s why they’ve been such great investments for Berkshire.

FTSE 100 

These companies are rare and not easy to find. But UK investors can find a couple in the FTSE 100.

One is Games Workshop (LSE:GAW). The firm consistently returns over 80% of its profits to investors.

Despite this, it’s been one of the fastest-growing FTSE 100 stocks of the last 10 years. And it might only be getting started. 

The company has a lot of scope to expand in the US. And its upcoming Warhammer film could be a big catalyst for that. 

Inflation or a recession could dampen demand for its products. They aren’t cheap and they’re discretionary. 

Investors should therefore expect volatility. But while any year might be challenging, the firm has clear long-term strengths.

Unique strength 

This is why Games Workshop shares have performed so well in the last 10 years. It’s not an accident. 

The question for investors is whether the firm can keep this up. And I think it can.

Nobody else can make Warhammer products. But there’s something that’s even more important, in my view.

There are lots of strong franchises, but they aren’t as successful as Games Workshop. The reason is management.

Unlike some companies, the firm puts its customers ahead of short-term profits. That’s why it’s built such a loyal following.

This principle is deeply embedded in the organisation. And that’s why I’m positive about the stock.

Opportunity?

With most stocks, the choice between growth and dividends is real. That’s because most companies have to invest to grow.

In a few rare situations, though, this isn’t the case. And Games Workshop is one of them.

That’s why I think it’s a stock that every investor should keep a close eye on. Growth or dividends, this company offers both.

The post Growth stocks or dividend shares? You don’t have to choose! appeared first on The Motley Fool UK.

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American Express is an advertising partner of Motley Fool Money. Stephen Wright has positions in Berkshire Hathaway and 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.

I’m planning to use my Stocks and Shares ISA to help fund my retirement. But how much do I need to invest to get there?

According to the Retirement Living Standards for 2025/26, a single person needs at least £13,400 a year. So that’s the first target.

Dividends 

The FTSE 100 has an average dividend yield of around 3.2%. So earning £13,400 a year requires a £418,750 portfolio. Contribution limits mean nobody can put that much in an ISA in one go. But there are ways to get there over time.

Investing £250 a month is one way. At a 9% annual return, that compounds to more than £418,750 in less than 30 years.

It’s worth factoring in the effects of inflation over time. But it’s hard to think of a better strategy for long-term returns. The obvious question is where to find a 9% return opportunity? But I don’t think investors need to look beyond the FTSE 100.

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

9% returns?

One stock I own is Bunzl (LSE:BNZL), the distributor of packaging, cleaning supplies, and safety equipment.

The company has an enterprise value of £9.9bn. And it generated £578m in free cash in 2025 (down from £634m in 2024). As a result, the stock’s fallen 29% since the start of 2025. But I think it looks interesting at today’s prices. 

The Gordon Growth Model helps investors value stocks like Bunzl. On this basis, I think it looks cheap. At today’s prices, a 9% annual return requires 3% growth a year. And I think that’s highly achievable.

Growth prospects 

In general, companies have three ways of growing their free cash flows on a per-share basis:

1. Higher sales.
2. Wider margins.
3. Share buybacks.

I think all three might be realistic for Bunzl over the next few years.

Acquisitions are a big part of the firm’s revenue growth. It has an outstanding record and a lot of future potential.

Margins are less obvious. But Bunzl’s looking to shift customers to its own-branded products with a view to boosting profitability.

Buybacks have been stop-start in the last year. Despite this, the firm reduced its share count by about 1%.

Ultimately, I think Bunzl’s a cheap stock with numerous growth opportunities. But as with any stock, there are risks.

Risks

In terms of revenue growth, the biggest threat recently has been price deflation. This comes from two sources. One is lower input costs, which Bunzl’s obliged to pass on to customers.

And the other is competition. That could offset the effect of some of Bunzl’s acquisitions. So revenue growth won’t be entirely straightforward.

On top of this, the firm has had issues with shifting customers to its own-branded products. This was a challenge in 2025.

All of these are reasons why the stock isn’t too good to be true. But I think it has a good chance of hitting that 3% growth target.

Opportunities 

Bunzl’s free cash flow yield is just under 6%. The question is whether management can turn that into 3% annual growth. I think they can. It’s been a tough 12 months, but the business isn’t in structural decline.

Bunzl’s already a big part of my ISA. But at today’s prices, I find it hard to think of a FTSE 100 stock I’d like more of when I have cash to spare.

The post How much do I need in a Stocks and Shares ISA to target a £13,400 annual income? appeared first on The Motley Fool UK.

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Stephen Wright has positions in Bunzl Plc. The Motley Fool UK has recommended Bunzl 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.

According to AJ Bell, plenty of UK investors have been selling BP (LSE:BP) shares in the last month. And it’s easy enough to see why. 

Oil prices have been soaring, and investors are banking some profits on the assumption the recovery is fragile. Maybe they’re right — those oil prices have reversed on Friday (17 April). So let’s dig deeper.

Oil prices

Over the last three months, Brent crude has climbed by around 37%. And that’s pushed BP shares up 22%. 

Whether or not that’s justified ultimately depends on the impact on the company’s earnings. So what are analysts saying?

Expectations for this year have more than doubled. And the impact is anticipated to continue into 2027 and 2028.

A discounted cash flow (DCF) analysis tells us what this means for the stock. A 9% target return implies an 80p per share increase. 

With the stock up 103p since the start of the year, some of the selling arguably makes sense. But that’s not the only thing that matters.

Intrinsic value

Analysts might be upgrading the stock. But the boosted earnings to 2029 only account for 37% of the firm’s current share price.

In terms of enterprise value (EV) – which includes debt – the impact is smaller still. BP’s EV per share is more like £8.01.

On that basis, what matters most is what happens after 2029. An extra 80p per share in present value isn’t a huge deal. 

In fact, earnings over the next few years matter less than investors might think. Even with the recent analyst upgrades.

Around 75% of the present value has to come from what happens after 2029. And that’s the thing to focus on.

Long term

By my calculations, BP needs to average around 34p in earnings per share over time to generate a 9% return. Is that realistic?

Source: Fiscal.ai

The firm hasn’t managed this in the last 10 years. There are, however, reasons to be more optimistic going forward.

Investments in wind and solar generation have weighed on earnings. On top of this, they’ve left the firm with excess debt.

BP, however, is focusing on strengthening its balance sheet. And the windfall from volatile oil prices should help with this. 

Furthermore, the new CEO is refocusing the company on oil and gas. So the same business mistakes of a few years ago are less likely to be repeated.

Time to sell?

Investors selling BP shares are clearly looking ahead. Oil prices have already started falling and that makes the stock vulnerable.

That’s a risk. But the recent volatility should give earnings a boost that impacts the firm’s intrinsic value.

My estimate of this is that it’s worth around 80p per share. On top of this, there are also lasting consequences to consider.

An improved balance sheet and a better strategic focus should help long-term profits. And these are reasons for positivity.

Investors who have owned the stock since the start of the year have done well. I’m not sure they need to think about selling yet, but I don’t see it as one to consider buying either.

The post Why are some investors rushing to sell BP shares? appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended AJ Bell 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.

Greggs‘ (LSE:GRG) shares have fallen in a big way. But at a price-to-earnings (P/E) ratio of 13, the stock looks cheap. 

A closer look though, reveals a different picture. On a free cash basis, the stock actually looks quite expensive right now.

Cash is king

A company’s cash flow statement tracks how cash moves through a business. It records how it’s generated and where it’s used. In the case of Greggs, its free cash flow for 2025 was around £74m. That’s a lot lower than the £122m it reported in net income. One reason for this is the firm had unusually high capital expenditures. These came in at £287m, which represents a big cost.

Investors however, don’t need to worry too much about this. They’re one-off investments that should be much lower in future years. There is however, something that I think they do need to pay attention to. And it isn’t reflected in the company’s free cash flow.

Lease liabilities

Greggs operates a lot of stores. Many of them are rented and these leases are liabilities that the company pays back each year. In 2025, Greggs spent £63m on lease liabilities. But since that’s classified as a financing cost, it doesn’t show up in free cash flow. 

Source: Greggs 2025 Preliminary Results

The firm does report this clearly in its results. But it means the £288m capital expenditures exceeded its cash from operations.

I don’t expect that £63m figure to fall in future. In fact, I think it’s likely to go up if Greggs keeps opening more stores on a leasehold basis. 

This is something that investors should think about. My own forecast is for around £80m in free cash flows this year and then £110m in 2027. At today’s prices, that implies a multiple of around 15. I think that’s probably reasonable, but those cash flows are still two years away.

Dividends

One good thing about Greggs is that investors do get paid to wait. The stock comes with a 4.3% dividend yield. The company didn’t increase its shareholder returns in 2025. And that shouldn’t be a big surprise from its cash flow statement. 

Maintaining the dividend cost the firm a total of £70m. But that’s far more than the cash it brought in when factoring in lease payments. The firm actually took on £25m in debt during this time. From my perspective, I’d rather they cut the dividend on a temporary basis instead.

The stock market might not have liked it, but the share price has been falling anyway. And at least they wouldn’t be paying interest on the debt. Given my forecast for 2026, I’m not expecting an increase this year. After that however, things do look more manageable.

Too cheap to ignore?

Greggs’ shares look extremely cheap at first sight. But when I take a look at the firm’s leasing costs, I’m not so convinced. Based on my estimates, the stock trades at some multiples that look pretty reasonable to me. So I’m in no hurry to buy it.

There’s a lot more going on than meets the eye. And that’s without thinking about the macroeconomic outlook for the UK.

The post Here’s why Greggs shares might not be as cheap as they look appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs 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.

The UK has a lot of opportunities for passive income investors. But my favourites are real estate investment trusts (REITs).

These are firms that lease properties to tenants and distribute the cash to shareholders. And the returns can be very attractive due to tax advantages they have.

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.

Earning income

Some REITs come with very high dividend yields. But while this can be a warning sign, a few are worth a closer look.

A 7.5% annual return is better than a savings account. And investing at that rate can bring big results over time. In Year One, a £10,000 investment earns £750. But reinvesting the dividends at the same rate means more income next year. 

At the same rate, the return in Year Two reaches £806. And by Year 10, it reaches £1,437 – more than twice the Year One return. After 30 years, this process returns £6,108 in dividends. That’s income that investors don’t have to do any work for. 

The big question is how to find 7.5% opportunities. Fortunately, the UK is an unusually good place to look. 

Primary Health Properties

Primary Health Properties (LSE:PHP) owns GP surgeries and health centres, and it’s a long-term passive income machine.

Its average lease has almost 10 years to run and the bulk of its income comes from the NHS. That’s about as reliable as it gets.

That reliability however, comes at a cost. It means chances to increase rents don’t come around often and negotiating can be tough. There’s also a risk that a change in government policy could affect demand. That’s impossible to rule out. 

The firm has however, recently acquired its biggest competitor. That should strengthen its negotiating position. 

Dividends are never guaranteed, but in terms of a reliable 7.5% yield, Primary Health Properties has to be worth considering.

AEW REIT

AEW REIT (LSE:AEWU) is the opposite of Primary Health Properties. But there’s more than one way to be a great investment.

The firm’s portfolio is a mix of different property types. These include leisure centres, gyms, and car parks.

The average lease is also much shorter, with less than six years to expiry. That obviously creates a risk of vacancies. With risk however, comes opportunity. AEW looks to use expiring leases as a chance to negotiate higher rents.

As a result, the firm focuses on properties with certain feafures. This can be low competition or scope for improvement.

Finding a 7.5% dividend yield with real growth potential is rare. So AEW has to be worth a closer look at today’s prices.

UK REITs

Stable businesses and high yields are an attractive combination. And UK REITs have been attracting attention recently. There are however, still some opportunities that I think are worth considering. These include Primary Health Properties and AEW.

A portfolio of stocks like these could be a valuable asset. And reinvesting dividends could generate real passive income.

The post How to invest £10,000 to aim for a £6,108 annual passive income appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties 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.

The FTSE 100 has lost a number of high-quality companies in recent years. And another might be on the way out.

Some have been acquired and others have moved their listings abroad. But I’m looking at something quite different.

Reshuffle 

The FTSE 100 is meant to be the largest UK-listed companies by market value. But that can change as share prices move. 

To account for this, the index updates every three months. And the next reshuffle is set to be very interesting. 

Two companies have made it into the top 90 stocks. These are Harbour Energy and Ithaca Energy.

If they stay there until the June reshuffle, they’ll be included in the FTSE 100 automatically. And two firms will have to make way.

As things stand, one of the names set to be dropped is Berkeley Group Holdings. But it’s the other one that’s catching my eye.

Rightmove

Rightmove (LSE:RMV) is currently in danger. Its £3.4bn market cap is lower than quite a few FTSE 250 names. 

There’s a lot to like about the business. Its margins are huge, it has no debt, and it dominates the UK property search market. 

Investors, however, don’t seem to care. They’re concerned about artificial intelligence and the threat of disruption. 

Rightmove’s problem is that there’s not much it can say or do to ease these worries. Its latest results, for example, were good.

The trouble is, this fits with the AI disruption narrative. Things are going to be absolutely fine – until they aren’t.

Disruption?

ChatGPT can search estate agent websites to find four-bedroom houses in Oxford. But I don’t think that problem is the main issue even though Rightmove’s key strength isn’t proprietary data. What sets it apart from competitors is its network effect. 

Buyers start their searches there because it offers everything they need. So why would they stop doing this?

One answer is if agents stop listing on Rightmove. But that’s a big risk as long as it’s the first place buyers look.

The still-FTSE-100-for-now firm isn’t – as the saying goes – a potted plant (that is, not a passive observer). Staying on top has it has done for years in this space is harder than it looks. 

Costs

Despite this, Rightmove shares are clearly falling for a reason. AI is set to have a real impact on its business. 

Building out its own AI capacities is going to cost money. And that’s set to weigh on margins for the next few years. As I see it, that’s the real risk for investors. The firm expects these effects to be temporary, but what if they’re not?

Huge margins are a big part of Rightmove’s attraction so this is a threat to take seriously. Margin pressure, in my view, is the big concern with Rightmove.

Opportunity?

Rightmove isn’t my top tech stock right now. I’m looking at names with better proprietary data or regulatory protection. 

That, however, might be about to change. The stock is down around 45% from its highs and if it drops out of the FTSE 100, that could create even more selling pressure.

If that causes the share price to fall further, it could get much more attractive to me. I’ll be watching closely.

The post I sense a potential opportunity if the FTSE 100 loses this quality growth stock… appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove 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.

 The stock market is notorious for going in cycles. Growth and value shares come in and out of fashion at various times. So working out where we are now is key to figuring out where we might go next. And there are some signs for investors.

Growth and value

A classic example of a stock market cycle is the shift from growth to value and back. The core structure’s pretty straightforward. Investors naturally look for growth stocks. But then something happens that reminds them these things are supposed to have valuations.

Rising interest rates are a good candidate. So investors go looking for companies with stronger current cash flows. These are value shares. But sooner or later, investors realise these businesses don’t grow much and go back to growth stocks. And so on… 

The best way to invest is by doing the opposite of what everyone else is up to. And the situation in the US is interesting right now.

Artificial intelligence 

The rise of artificial intelligence (AI) has had a big impact on tech. But while software has faltered, other names have done well. One of these is Micron (NASDAQ:MU). Quarterly sales are up 200% and the share price has climbed 555% in the last year.

Analysts are expecting strong earnings per share (EPS) growth for the next few years. But investors do need to be careful. 

Source: Nasdaq.com

Those earnings are important. But a discounted cash flow (DCF) analysis shows that they’re not the only thing that matters. A DCF calculation shows the present value of those projected earnings. Using a 9% discount rate, they look like this: 

Together, they make up less than half of the current share price. So what happens after the next three years matters much more. 

Long-term investing

Micron’s clearly benefitting from a cyclical boost. But the question is what happens when that changes?

Sales also surged during the pandemic. When things normalised though, profits turned negative. The stock fell more than 50% as a result. And I think there’s a decent chance something similar happens again.

That wouldn’t matter if the short-term earnings boost was enough to justify the current price by itself. But it isn’t. At today’s prices, there needs to be more than just a big cyclical boost coming. Otherwise the stock looks too expensive. 

AI might mean higher long-term demand for memory chips. But, in Micron’s case at least, this is already priced in.

Foolish conclusion 

Micron’s average annual EPS over the last 10 years has been around $7. But that isn’t enough to justify a $456 share price. Assuming a 4% terminal growth rate, that’s $81 in present value. Added to $205 for the next three years, that’s well below the current price.

That means investors need AI to be more than a short-term surge in demand. It needs to be a permanent change.

The current share price implies around $22 in normalised future EPS. That’s a big increase. Given this, I think there are more compelling opportunities right now. But I’m expecting a better chance at Micron when things look less positive.

The post Stock market cycles: where are we now and what’s coming next? appeared first on The Motley Fool UK.

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• £10,000 invested in Micron stock six months ago is now worth…

Stephen Wright 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.