Aston Martin (LSE:AML)’s shares have crashed and burnt over the last few years. Laden with debt and bleeding cash, the company should be a smoking wreck in the rearview mirrors of its competitors.

Yet, it is still at the forefront of the automotive world. New models are snapped up by the rich and famous, and its F1 team looks imperious. It enjoys brand visibility and recognition like few others, being the carriage of James Bond.

Potential for investment returns from the firm lies in just how responsive the share price is to good news of any magnitude.  It is almost as if revenue growth excites investors who long for it to retain its former glories. For instance, this year’s favourable earning’s report was greeted by an almost 50% share price rise. And that was when it was still losing more than £100m! However, its fluctuating price as it slumps relative to ill tidings means that high returns are by no means the only outcome of a volatile share price.

If the rise following the earnings report shows how low the benchmark to get Aston Martin punters excited, then breaking even or just treading the verge of equilibrium would arguably deliver handsome returns to those who bought shares during the firm’s slump. Assuming, of course, that commercial performance remains strong and the financials don’t take a turn for the worse.

The performance of the company’s financials is also very responsive to small commercial changes.  This is fortunate for those banking on the Warwickshire-based company as the outlook is very rosy.  Almost 80% of the GT and performance ranges were sold out for 2023. 

Moreover, the new Valkyrie hypercar, one that delivers Formula One type performance to civilians, sold out almost instantly.  With figures like David Coulthard proudly flaunting their new rides, it is a success from commercial and marketing perspectives, as well as showcasing the engineering talent and potential. 

The luxury car market also appears immune to the current cost-of-living crisis and inflationary pressures. Over the last year, sales of cars for more than £100,000 have grown by 6.5%. Meanwhile, conventional car deals have fallen to levels last seen in 2012. This is encouraging for Aston Martin backers as, in the final quarter of 2022, revenues grew by 33% even as wholesale volumes shifted only 3%. Yet, commercial performance does not guarantee a linear rise in returns. It could also fall, which is very important for me to consider when assessing whether to invest in Aston Martin.  

Thus, even marginal gains in profitability should positively affect the company. As demonstrated earlier, this is also quickly reflected in its share price. This suggests a roadmap by which the carmaker is rescued from its financial perils by its name and the quality of its cars.

Furthermore, a host of City analysts are confident that the company will return to profitability within the next three years. This estimation is driven by sales, but also an ability to attract large institutional investment to service debts. This should enable the commercial arm to churn out renowned cars.  For instance, the Saudi Public Investment Fund backed Aston Martin to the tune of £650m, becoming the second largest stakeholder.

Overall, this is a low-barrier-to-entry share that promises long-term returns, and returns on each step it takes out of the red.  That long-term promise is enough for me to weather immediate volatility and consider adding a stake in Aston Martin to my portfolio. I do so with awareness of the risk that the share price could also fall, and have adapted the exposure of my capital accordingly.

The post Are Aston Martin shares a good buy? appeared first on The Motley Fool UK.

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Tom Hennessy 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.

Battered by Apple’s new privacy settings that hampered its key online ad business, and investor scorn at Mark Zuckerberg’s pivot to the untested realm of the Metaverse, Meta Platforms (NASDAQ:META) appeared down and out. By November, the Meta share price shod roughly 60% of its value from its August 2021 peak.

With rivals like TikTok in the ascendancy, and the Metaverse someway off, Meta’s empire looked to be the first casualty of Big Tech’s crisis period. 

However, Meta has begun to claw back ground, and the outlook no longer appears so desolate. It has posted earnings reports and engagement figures that have exceeded the expectations of analysts, boosting the share price by 23% over just two days. Indeed, its share price has risen by 32% over the past month. That Snap reported dismal figures a day prior did much to contextualise Meta’s success. So, what is this recovery attributed to?

Firstly, spiralling costs are being reined in. Zuckerberg promised that the company would be more proactive about cutting underperforming, or necessary projects. That he walks the walk is evident from the 13,000 workers culled from the firm.

The CEO is calling 2023 “The year of efficiency”. This sentiment is catnip to investors who have often perceived Meta’s hallowed “Metaverse” as a white elephant. 

More immediately, the company announced that it would buy back an additional $40bn worth of shares. Just hours later, the state of California threw out a case blocking Meta’s acquisition of Within, a popular virtual-reality fitness app. Both swelled the Meta share price.

With new hardware in the offing, reduced operating costs and platforms like Instagram and WhatsApp managing to hold firm against the onslaught of TikTok, is Meta over the worst? I am inclined to say yes. This turnaround is no flash in the pan: Alphabet and Microsoft are all recovering from equally sharp slumps. As the economy stabilises, and cost discipline has returned, momentum is back with big tech.

This is certainly true with regards to AI, the latest technology to capture the world’s imagination. Research and development for this is led by private firms. And with colossal investment and success in masterminding the Instagram Reels algorithm, Meta is well positioned to make a breakthrough on this frontier. Progress on this front has the potential to reignite the hype around the industry that pushed share prices to dizzying heights throughout 2020-21. 

While Meta remains vulnerable to regulatory issues, these could equally be a blessing in disguise. While privacy and antitrust rulings could clobber the company, moves to ban TikTok — a prospect increasingly mooted in the USA — would make Instagram Reels the West’s next best thing.

Overall, the more favourable economic conditions, Zuckerberg’s renewed commitment to shareholder interests and healthy balance sheets suggest to me that the best is still to potentially come for Meta’s share price. I’m adding the stock to my watch list accordingly.

The post Up 32%: is the best still to come for the Meta share price? 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. 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. Tom Hennessy has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Apple, 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.

Penny stocks are a wildcard investment. Nascent companies offer potentially life-changing returns — imagine investing in Apple in the 1980s! Or they could fizzle out before germinating into a money tree.

As such, they should not encompass a large chunk of a portfolio but, when invested in moderation, the upside can overrule natural caution. This is particularly true as savings accounts offer so little protection against inflation. After all, lack of growth eats into savings by the day.

In such conditions, carefully selected penny stocks may be just what I need to stay ahead of inflation in the long term. Here are three of the hottest penny stock prospects in my opinion.

The passive income stream

ARC Document Solutions (NYSE: ARC) offers an array of document services: printing, management of data, and provision of devices to undertake this function.

What caught my eye was its generous 7.12% dividend yield.  This is consistently paid out in spite of swings in its share price. This represents a great cash flow at value for money.

Moreover, its currently low share most likely represents the effect of economic slowdown on its business.  If the outlook improves throughout 2023, as most analysts and central bankers believe, the share could recoup much of its pre-downturn price between $3.75-$4. For its passive income and stellar price prospects, ARC is one for me to keep an eye on. 

Educated speculation

Given that the Federal Reserve will likely continue raising interest rates until the labour market softens in order to bring down inflation, it may not sound like a great idea at first for me to buy shares in a staffing company like GEE Group (NYSEMKT:JOB).

Nevertheless, currently trading for only 2.6 times earnings, a stat suggestive of being close to minimum value, a likely 2023 labour market cooldown may already be priced into trading.

If a decline in earnings this year isn’t greater than current projections, which are calling for earnings per share to fall from 20 cents to 9 cents, the reporting of ‘less bad’ results could end up providing the shares with an additional boost.

In addition, there’s strong potential for GEE Group to elevate its turnaround, which in recent years has brought it back to consistent profitability. A large cash reserve gives it the ability to make bolt-on acquisitions, or to aggressively buy back shares. Both of which could stimulate share price growth. 

The contrarian

Jerash Holdings (NASDAQ:JRSH) is likely an unknown for many investors.  It produces and exports custom, ready-made sportswear from Jordan. Jerash even underlines the manufacturing of most New Balance products.

Consumer sentiment fell badly in 2022 because of skyrocketing inflation among other financial shocks. Amid such poor conditions, Jerash shed over 40% of its market value.

For conservative investors, that might be the end of the conversation. There is certainly weakness in the consumer economy – notably unprecedented credit card debt.

Nevertheless, as I’m a contrarian, JRSH may be an intriguing idea among penny stocks to buy. Improvements in consumer sentiment could sharply raise the price. A value analysis, the system Warren Buffett made famous, suggests that the only way is up. Jerash shares are priced at 0.35-times sales. Conversely, the underlying industry median is 0.83 times.  This is suggestive of reactionary undervaluing.

Notably, for the one analyst (Mark Argento) who publicly covers Jerash, it enjoys a moderate buy rating. The price target stands at $8, representing upside potential of 104.6% at time of writing. Also, Jerash beat earnings-per-share targets on several occasions in the past two years.  For these reasons, Jerash is very much on my radar as a potential buy. 

The post How I’d aim to beat inflation by investing £500 in these three penny stocks appeared first on The Motley Fool UK.

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Tom Hennessy has no position in any of the shares mentioned. 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.

The share-price growth of some companies is gradual and compounded, but some is rapid after arriving at a tipping point. Sage (LSE:SGE) is a provider of integrated payroll and accounting systems, which appears to have arrived at the hinge between being a dependable UK share and being a wildly profitable part of a portfolio.

In the current climate of double-digit inflation, soaring interest rates and a slowing global economy, many firms have posted modest forecasts for the year ahead. Sage, however, has bucked the trend with its optimism that these trepidatious conditions will result in greater operating profit and margins.

In my mind, this is not just tough talk aiming to pique the interest of bullish investors. Rather, it is a dispassionate assessment of strong financial foundations and a successful transition to a new, more profitable business model.

Previously, Sage operated on a pay-as-you-go basis. Clients paid per task or agreed contracts in advance.  This meant that clients could easily shop around, and that business was sporadic.  As a result, profitability wasn’t at its optimum and cashflow was inconsistent, a factor that made future planning difficult.

Now, however, Sage has shifted to a subscription model.  This has ended its barriers to expansion and profit in one fell swoop. Cashflow is constant and clients have committed to the company.  The bearish climate also aids Sage’s new model as the high switching costs for the many small- to medium-sized firms that make up its clientele result in high retention rates.  It can now rely on a more solid base on which to expand operations from.  Subscriptions also give it greater pricing power in what it charges for its services, in a welcome hedge against inflation. It also ensured greater total takings, with revenue increasing by 12% this year.

This impressive transition is not set within a vacuum.  It has crowned the company’s sound financial position. Its operating margins rose to 19.9% in the 2022 financial year, a feat sped up by strategic acquisitions fuelled by its lofty status quo. In a difficult strait, many bargains are to be had as companies encounter difficulties.

With money in the bank and net interest costs covered 12 times by profit, Sage could cheaply acquire small companies or comfortably leverage further debt to devour meaty entities.  As such, its profitability could come on in leaps and bounds on account of its acquisitions.

From tending my portfolio, I have learnt that investing is not a science where a data-orientated system can faultlessly choose winners.  It is reliant on the perception of companies by human investors, the famous “animal spirits” of Keynes.  Thus, in bull markets awash with easy money, the fundamentals of a successful business are oft overlooked in favour of trendy, hyped industries like tech.

Now, where I believe even a store of wealth against inflation is at a premium, such desirable qualities are less likely to be overlooked.  Indeed, it is possible that a scarcity premium will lift their value. As such, my feeling is that Sage is a stock for the next year on the basis of its balance sheet, but its new model gives it potential to remain in my portfolio for the next decade.

The post One UK share I’d buy in December and hold for 10 years appeared first on The Motley Fool UK.

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Tom Hennessy has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage 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.

Finding myself in a bit of rut with my portfolio, I turned to the old master Warren Buffett for inspiration.

He championed an approach that has since been canonised as ‘value investing’. This is an almost scientific strategy, using financial data to determine undervalued shares. It is logically underpinned by the idea that these shares will eventually have their true value recognised by the markets, potentially making those who discovered them early rich.

Buffett didn’t act blindly on faith in numbers, however. He was careful to select only ‘good businesses’. These characteristics include cash generation, high capital returns, stability of profit but also a winning mentality among its staff. 

Taking these principles that made Warren Buffett incomprehensibly rich, I have selected two shares that meet his winning criteria. 

Don’t just take it from me, investment guru Ronald Baron includes both in his market-beating hedge fund portfolio!

Top of the class

Arch Capital Group (NASDAQ:ACGL) is a specialist insurance company that has become a market leader in a series of regions, primarily through its mortgage arm. 

The stock has rallied by 26% this year, outperforming the insurance industry by 4%. Its return on equity was 13.2% in the last 12 month. It also boasts a mammoth $17.17bn market cap.

When considering Buffett’s ideas, it ticks all the boxes of a ‘good business’: steady cash generation, efficient use of investment and a winning culture that drives a seemingly inexorable rise. 

What’s more is that it is still undervalued. Zacks Investment Research believe that its earnings per share could increase by up to 40% next year. Its profits-to-earnings ratio, that tool beloved by Buffett, shows that it is undervalued amongst the insurance cohort it is outperforming. 

New business opportunities, the prospect of interest rate rises and growth in established jurisdictions suggest that its giddy ascent will continue. As such, I’m a happy shareholder of this stock.

Hidden value

My second Buffett pick is Hyatt Hotels Corporation (NYSE:H). This luxury hotelier has had a golden year as foreign travel has rebounded as the pandemic loosened its grip on our lives.  With hotels in every corner of the globe, it has raked it in as leisure travel recommenced.

Its shares have risen by 14% this year, and 10% of their total value has come from growth this year.  Holders of these shares have rubbed their hands with glee as net income per share has risen by $1.46.  Like Arch Capital, it also outperforms its cohort on this metric. These are indicators of a winning culture as well as favourable return of investment.  Subsequently, it certainly meets the classification of a ‘good business’ under the Warren Buffett definition.    

Its fortunes are also set to rise even further as a surge in ‘revenge tourism’ combines with new hotel openings and acquisitions. Consequently, Zacks Consensus Estimate shows that earnings per share could almost double next year based on how undervalued it is by the market.

All things considered, the stock is on my watchlist as a potential buy in the near future.

The post 2 shares perfect for the Warren Buffett approach to build wealth appeared first on The Motley Fool UK.

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Tom Hennessy has a position in Arch Capital Group. 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 an avid follower of many FTSE 100 shares, I have been closely watching the index’s recovery from the gilt market collapse. However, the green shoots of recovery are far from evenly distributed. Some of Britain’s listed behemoths find themselves underpriced and ripe for me to potentially make moves.

The workman

My first pick is industrial equipment supplier Ashtead Group (LSE:AHT). This entity makes much of its profit Stateside but also has an entrenched presence in the UK. 

Its share price has been rising for the last week (up 5.71% at the time of writing), as is only fair for a company with such impressive financial fundamentals. 

Ashtead has a high operating profit margin (24.11%), meaning that it has passed the bulk of its inflation-induced expenses onto its customers.  This suggests that it will remain fairly insulated from further price rises. Reflecting this nous, its returns on invested capital outperform the majority of its rivals. 

Moreover, its growth potential makes it more than a safe store of wealth. Industrial businesses squeezed by inflation tend to rent new equipment rather than cough up for expensive new machinery. 

Consequently, Ashtead’s clientele is expected to grow, a feat that will undoubtedly be reflected in its share price. 

The aristocrat

Up next is the blue-blooded asset management company Schroders (LSE:SDR). 

Despite its illustrious reputation and more than 200-year-old pedigree, Schroders has fallen into something of hard times.

The whole British financial sector suffered from the recent financial turmoil, but Schroders in particular was exposed as swimming without trunks on when the tide retreated.

It was somewhat overexposed in its pension positions; serious injury was only averted by an emergency intervention by the Bank of England to rescue pension funds. 

Consequently, Schroders shares have declined amid questions of the company’s risk management.

While in the doghouse, I for one am inclined to give the private equity giant a second chance.

Its profitability is not to be scoffed at; indeed, its operating margin and profitability are outperforming half of its industry peers, (20.72% and 19.4% respectively). It is also posting steady earnings and revenue growth to boot.

This suggests that when the dust settles, Schroders will return to its natural position as part of the FTSE 100 furniture, its share price climbing with it.

The wildcard

Hargreaves Lansdown (LSE:HL) is a financial juggernaut, selling funds and shares to retail investors while also managing assets.

Its fortunes have been in freefall, shedding some 45.2% of its shares’ value this year. This has been attributed to the shellacking its reputation took after the Woodford fund collapse. As legal storm clouds gathered, its share price tanked amid uncertainty about its trajectory.  

However, despite the rout, Hargreaves Lansdown has impressive profit margins and revenue that is not reflected by its share price. It is expected to grow by 11.3% over the next year, beating its three-year average by 4.6%. 

Its large cash reserves and low debt means that it will likely weather its legal travails. A big perk of me holding this share is its dividend payments, which are expected to grow to 5.6% next year, above the 3.7% FTSE 100 average. 

Additionally, this dividend has been paid consistently for 15 years. Overall then, this volatile share could be a great source of passive income and financial returns. 

The post 3 undervalued FTSE 100 shares I’d consider buying in November appeared first on The Motley Fool UK.

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Tom Hennessy has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and Schroders (Voting). 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 an investor with a vision for the long term, my buys lean more on the dull and banal than the flashy tech stocks splashed across the FT’s headlines that capture people’s imaginations.  My favourite shares are very much bland, solid entities that deliver good returns without being the next Apple. More Crystal Palace than Manchester City. The FTSE 250 possesses such shares in abundance.

My pick of the bunch very much fits this characterisation. Diploma (LSE:DPLM) is a specialist component manufacturer and distributor with a large UK and overseas presence. It makes and ships implements like valves and pipes across the globe for industries such as life sciences.

Its share price is currently down 1.95% over the past five days, as is the overall FTSE 250 index (-1.05%). Indeed, the fate of the two seem linked. Since Brexit and the current British political instability, investors have turned their noses up at FTSE 250 assets. This is somewhat unfair, as they are far from financially underperforming by and large. Diploma is a glittering source of value amid this shamefully overlooked exchange. 

Hidden value

The company has remarkably strong financial fundamentals, giving me much confidence that it will weather the coming economic storms. Despite supply chain chaos and inflation, it is poised to deliver a low double-digit increase of revenue. That this will swell its coffers is demonstrated by the fact that its operating margins are up by 0.2%. This is because it managed to pass on inflationary costs to its consumers, thus insulating it from the scourge of price increases that frequently eat into businesses’ bottom lines.

It also has a low debt-to-earnings ratio — its borrowing costs are covered 10x by its profits, giving it much financial headspace should it run into trouble. Therefore, at the very least it is a reliable store of value at a time when are savings are eroded by inflation. That in itself is valuable, but that is not why I wrote this article.

In my mind, Diploma will emerge from bitter economic conditions in better shape than it is now. This is because of its aggressive growth strategy. Diploma has achieved this by ruthlessly snapping up competitors or suppliers. It acquired 10 companies last year and three so far this year. Its range of services mean that its list of potential companies to buy is very long.

As competitors wilt, Diploma’s sound finances could enable it to buy them at cut-price deals. Its low debt ratio means that it can afford to borrow in order to swallow even meaty entities. Consequently, it could find itself in a position to capitalise on the next uptick of the economic cycle. 

Risk vs reward

In spite of this rosy outlook in the long term, Diploma is not immune to the wider economic climate. It is likely that its growth will slow as its operating conditions are adversely affected, hurting its revenue stream. Its share price will also likely suffer volatility over the coming months as the energy crisis and the fluctuating pound pummels British assets.

However, its long track record of growth, sound numbers and potential for expansion mean that I am buying for the long run.

The post 1 absurdly undervalued FTSE 250 share that I’m buying for the long run appeared first on The Motley Fool UK.

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Tom Hennessy has no position in any of the shares mentioned. 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.

Up 22% in the last six months to a lofty £414.19 at the time of writing, Biffa (LSE:BIFF) shares are certainly a world apart from the rubbish that is the company’s raison d’etre. Indeed, they are one of the highest risers on Britain’s FTSE 350, as British markets are pummelled by a plummeting sterling and spooked investors. 

To us investors, it is a timely reminder that there is value to be found amid British assets. Even as bonds are discarded faster than the trash that Biffa deals with.

However, should I buy Biffa during its finest hour? Alternatively, perhaps wait for its price to settle into the dependable banality of its service? Or simply give it a pass?

The giddy share-price rise came as Biffa was acquired for a handsome sum of £1.1bn. Albeit, that’s £300m less than the £1.4bn that was mooted in June. This reduction has been attributed to the weakness of sterling in relation to the jacked US dollar and the economic chaos wrought by U-turns made by the British government recently.

Overvalued?

That the takeover was the cause for the soaring share price rather than strong performance data, for instance, suggests to me that the rise will not be repeated tomorrow or any time soon.  Buying now would be acquiring an asset at the crest of a breaking wave driven by human hype rather than giddy business performance, in my opinion.  That rules out purchasing immediately, lest the swell of optimism that propelled it quickly plummets.

The choice for me then, Fools, is whether to buy the company’s shares in the immediate future or pass. 

The long-term vision of ECP (Energy Capital Partners), which bought Biffa, is compelling.  It believes that patient, sustained investment will enable Biffa to thrive in its key markets of waste collection and sustainable disposal.  It is certainly aided by the UK government’s target to increase plastic recycling and eliminate avoidable waste. Future initiatives to do so will likely play into the hands, or wallets, of Biffa shareholders. This is especially true given its entrenched position. It operates from 195 locations nationwide and servicing a diverse range of industries, from construction to retail. 

However, an immediate threat is the wider economic picture of inflation and labour unrest. Biffa is vulnerable to workers striking to prevent their pay being eroded by inflation. Particularly so as their discontent will quickly result in piles of trash on our streets. The subsequent PR crisis would leave Biffa investors sweating, I’d suggest.

My future approach to Biffa shares

Overall, the long-term prospects of this company enable me to gaze beyond the immediate economic gloom and envision an asset that will reliably appreciate.  I’d contemplate buying its shares, but not right now.

The post Up 22%, should I buy Biffa shares now, wait or pass? appeared first on The Motley Fool UK.

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Tom Hennessy 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.