The high inflation challenge

But the fact is that all the triggers for the correction are still very much in place. High inflation is really the biggest problem around. At multi-decade highs, price rises are impacting investors’ savings, household incomes, and companies’ profits. We can see this in our everyday living. Just yesterday I paid a significantly higher energy bill, which was expected, of course. 

The extra amount spent here would have otherwise gone into investments or some other form of consumer spending. This in turn, would have added to demand for other companies’ goods or services. Instead, it has added to an energy company’s revenues, with what I imagine would be little or no addition to its profits, since it is just passing on increased costs. No one wins in this situation. 

If we multiply this for every consumer in the economy, we are essentially looking at lower demand coupled with sky high prices. A potentially stagflationary situation, which does not bode well. This is particularly so because inflation is expected to remain high. I expect that as companies’ results increasingly reflect the impact of rising inflation, we should see more panicked stock market corrections. 

Rising interest rates

With rising inflation, we have also seen rising interest rates. In normal times, this can be quite good for banks, and indeed their stock prices. UK’s banks have long had really low interest rates, and the recent months have seen them finally raise the prices for their loans. But these are hardly normal times. We are looking at rising risks of a full-blown recession, which is defined as six months of contraction in the economy. 

Rising interest rates might themselves be contributing to these risks. Debt can be a big fuel for growth. Whether it is households taking on loans to build assets like property or companies raising funds for that next acquisition, the role of credit is vital. And rising interest rates at a time when the economy is already in a challenged place can impact these plans adversely. 

This too, could be one of the factors that could contribute to stock market uncertainty. Less growth in companies gives me less reason to put my money in these stocks for capital growth. 

What I’d do about the stock market correction

But that is no reason to be despondent. I can still think long term. Even though there are plenty of reasons for a stock market correction to continue or even an outright stock market crash, over time stock investing is more likely to pay off than not. I need to be discerning about which stocks to buy, but if I choose correctly, there is definite likelihood of gains.

The post Is the stock market correction really over? appeared first on The Motley Fool UK.

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Manika Premsingh 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.

BP share price rise due to oil 

This is not unexpected, of course. Even before the Russian invasion of Ukraine, oil prices were rising fast. And now they are even more elevated. Crude oil prices have mostly traded north of $100 per barrel since March. In the short-term at least, they are expected to remain firm as well. 

This could be a positive for the BP share price. Of the various analyst forecasts I have looked at, there is a consensus on further increase. I imagine this has a lot to do with the company’s healthy financials. It reported a significant increase in underlying profits in the first quarter of 2022, though its headline numbers were impacted by its exit from its key Russian interests. 

Healthy passive income

It also helps that it has a healthy dividend yield of 4.4%, higher than the 3.9% for FTSE 100 stocks on average. In other words, it appears to be a good investment for now from both the perspective of growth in capital and passive income. 

Windfall tax likely

However, the stock is also carries some very serious risks, in my view. There is the possibility of a windfall tax on oil companies. I think the likelihood is high at the present time when governments around the world are struggling with large debts acquired to support the economy through the pandemic. And more support might be required now as scorching inflation depletes real income and threatens to derail the economy from its course. 

Slowdown could affect BP

Which brings me to the second risk. Growth is already challenged. The UK economy shrank in March from the month before after showing no growth in February. It has made some progress since the pandemic, but is has grown only 1.2%. Considering the amount of time already lost due to Covid-19-driven lockdowns, this is significantly less than desirable. If the economy continues to go in the reverse, even this progress will be lost. And that will eventually impact many companies, including BP. 

Pivot towards renewable energy

Finally, over the long term, the future of big oil is anyway far from bullish. There is increased focus on renewable energy. Recognising this, BP has started pivoting towards investments in these energy sources. As an investor in the stock, I keep getting alerts regularly on its consistent efforts in the direction. For now though, its mainstay is fossil fuels. 

What I’d do

In the medium term, I expect that the BP share price could continue to make strides, provided we do not find ourselves in a prolonged period of low or no growth. But for it to truly retain its status as an energy biggie for the long term, I would like to see more of its revenues from clean energy sources over time. And that is the one key factor I would look for when considering holding it for the next decade. 

The post Will the BP share price keep rising? appeared first on The Motley Fool UK.

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Manika Premsingh has positions in BP. 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.

I bought the stock a while ago based on its fundamentals and the outlook for the company. And for sometime at least it was a winning stock in my portfolio. The question now, though, is whether it can bounce back or will it continue to languish. 

Trading update has strong positives

The FTSE 250 company reported a decent 7% increase in revenue for the four months of 2022 ending April, compared to the same time last year. It is also positive in its outlook for the rest of the year. It expresses confidence in being able to pass on increases in costs, which should bode well for its bottom line. 

Further, it also acquired Marley, a market leader in roof systems. Marshalls mentions it as being “cyclically resilient”, which could be a definite positive at a time when growth is slowing down. The UK just reported a contraction in economic output in March compared to February. 

In fact, the company itself points out in its update that the Construction Products’ Association has reduced its forecast for growth in UK market volumes for 2022 and 2023, because of a “more uncertain trading environment”. This is probably one reason why investors are downbeat about the stock now. 

Also, while its revenues have grown, the growth has slowed down from last year, which could be playing on investor sentiment towards the stock too. The company chalks it up to a strong comparator period, which included “record seasonal sales volumes”, however. 

Healthy FTSE 250 stock

Keeping everything in mind, I definitely do not see a reason to sell Marshalls now. In fact, considering that the company expects its debt levels to remain in check, I will continue to hold on to it even in the event of an economic slowdown, which could impact it. Also, it posted healthy numbers for last year as well, which is encouraging. It is also a dividend stock, with a yield of around 2.7%. This is marginally higher than that for the FTSE 250 as a whole. 

What I’d do about Marshalls

However, I do see why falling growth could be a deterrent for investors. This is especially so as the FTSE 250 stock is not exactly cheap with a price-to-earnings (P/E) ratio of almost 20 times. This is higher than even many financially healthy FTSE 100 companies. Still its outlook looks good to me. And if its earnings rise, its P/E could drop. I might just buy more of it in the coming days. 

The post This FTSE 250 stock just saw a sharp drop. Would I buy it on dip? appeared first on The Motley Fool UK.

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Manika Premsingh has positions in Marshalls. 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 economy recession risk rises

After touching one-year highs in late April, the FTSE 100 index has tumbled fast this week. I do not want to sugarcoat this, it appears that there could be more pain in store. According to analysts, the risks of a full-blown recession are rising. A recession is defined as two quarters of contraction in the economy. 

Stock market resilience

But I continue to be a believer in stock market investing. This is based on my recent experience, if for no other reason. Consider this — just a couple of months ago, in early March, the FTSE 100 index had fallen much lower, to sub-7,000 levels as the Russia-Ukraine war’s full potential impact on inflation and the world economy became clearer. But the markets bounced back soon enough.

An even bigger stock market plunge was seen a couple of years ago, when the pandemic hit the world with full force. The start of the lockdowns in the UK coincided with a full-blown stock market crash, when the FTSE 100 index lost more than 10% of its value in a day. The stock markets have moved so far and so fast from that, it now seems like a distant memory. 

Between these two episodes, a number of other tremors rocked the markets too. So, whatever may happen to the economy right now or in the near future, I firmly believe that good investments can stand the test of time. In fact, now is probably a good time for me to buy more shares. 

How I’d invest now

Many FTSE 100 stocks that have seen a drop in share price in the past week have been around for a really long time. Think more than a century. These companies have seen the world wars, the great depression, and most recently the pandemic. For investors like me, with a long-term mindset, I think these offer really good value right now. 

I am also looking closely at stocks in sectors that are likely to see rapid growth over the next decade or two. Segments like e-commerce and green energy are among my top picks. Financially healthy companies that have proven themselves in these segments in particular look good to me. The risk is relatively limited while the upside can be huge. Even with all the inevitable ups and downs that will quite likely happen along the way, I am confident that these investing decisions will hold me in good stead over time.  

The post UK’s economy shrinks in March! Here how I’d invest if a recession happens appeared first on The Motley Fool UK.

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Manika Premsingh 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.

That said, one month is not an indicator of any stock’s real value. A year ago, the FTSE 100 index was still below the 7,000 mark. And despite the latest stock market weakness, it is still around 3.5% higher over the past year. This shows that there are still constituent stocks that are in a better place than they were in 2021. 

AstraZeneca is a good defensive

It is such FTSE 100 stocks that I would like to buy now. One is the pharmaceuticals company AstraZeneca (LSE: AZN), which is trading at a share price below £100 for the first time in the past month as I write. In the recent past, I have taken the opportunity to buy this otherwise strong stock on dips. And that has held me in good stead. 

It is a pricey stock, to be sure. In absolute terms, it is among the priciest across all FTSE 100 constituents. And even in relative terms, it is far from being cheap. It has a price-to-earnings (P/E) ratio of almost 57 times. But, in all the time that I have tracked it, the stock has never been cheap in either absolute or relative terms.

With rising risks of a recession, I reckon that the premium on it will only increase now. It is a solid defensive stock that is likely to be a go-to for investors at an uncertain time. Its financials look healthy and its outlook is good too. I will add more of it to my portfolio now. 

SSE is among the most promising FTSE 100 stocks

Another FTSE 100 stock I like is the green energy company SSE (LSE: SSE). Since the start of the year, it has risen by 9% and over the past year it is up by more than 25%. This is just a sign of the times we are living in, in my view.

Rising oil and gas prices have raised the overall cost of living, and the inflation situation is only expected to get worse before it gets better. The dependence on Russian energy has put many countries in an uncomfortable position in the recent months, to say the least. Increased focus on renewable energy production is probably a direct result of this.

SSE is the biggest renewable energy producer in the UK, which explains why its share price has rallied in recent months while many financially strong companies’ stock prices have dropped. I expect that it will continue to make gains over time. There could be speed bumps along the way, because a poor economy impacts all sectors, even if utilities are impacted somewhat less than others. Over time, though, I expect this one to come out ahead. Which is why I already hold it in my portfolio. 

The post 2 FTSE 100 stocks I’d buy in the stock market slump appeared first on The Motley Fool UK.

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Manika Premsingh has positions in AstraZeneca and SSE. 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.

Volatility is the name of the game

As an active stock market watcher and commentator, I see an interesting facet of the current times in this. And that is excess volatility. Investors are very reactive to any developments that could impact their investments. It follows that if there are still risks ahead of us, a significant stock market correction could well happen. 

Stagflation could lead to a stock markets’ correction

And indeed, serious risks are visible. Perhaps the most glaring one for me as a top-down macro investor is that of stagflation. This is defined as a situation of runaway prices coupled with low or no growth. It is not terribly far-fetched, come to think of it. Supply chain blockages and increased post-lockdown demand have already driven inflation to multi-decade highs not just in the UK but elsewhere as well. 

High inflation is a growth killer. Fuel and electricity bills are already rising significantly. And considering that these are unavoidable costs for business, it follows that they have a second round impact on other prices as well. FTSE 100 companies have been raising red flags on inflation for over a year now. And while so far it has been somewhat manageable, I reckon price rises could really bite now. 

Slow growth and coronavirus fears

While there is no doubt that the UK economy has come a long way since the pandemic, even without high inflation its growth was a bit underwhelming. Now it is likely to be impacted even more. Poor news on the economy or a spate of poor company results could lead to a stock market correction. 

As could a continued drag because of coronavirus. I have to admit that the Chinese coronavirus situation is making me jittery. The country might have a zero-tolerance policy to the virus now, which is leading to fresh lockdowns. But the fact is that it is impacting the economy. And China is the second-biggest economy in the world. This means that when it sneezes, the rest of the world can well get a cold. 

Think of miners, which have benefited hugely in the last couple of years because of massive demand for commodities from China. Even FTSE 100 China-focused stocks like the banking corporation HSBC and the British luxury label Burberry could be impacted by slower economic activity there.

The upside 

At the same time, I think there is plenty of hope as well. Growth forecasts have been reduced, but the economy is still growing. Plenty of companies are hedged against risks related to fuel inflation, which is saying a lot. And for all my ongoing concerns about coronavirus, the fact is that we have come a long way. Just like any bad news can send the stock markets plunging, the absence of it can help them rise to newer heights. I am, as always, investing in stocks right now. 

The post A stock market correction is coming. Here’s why appeared first on The Motley Fool UK.

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Manika Premsingh has positions in Burberry. The Motley Fool UK has recommended Burberry and HSBC Holdings. 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.

What is a dirt-cheap stock?

But before I get into which UK shares look most attractive to me, I would like to clarify what ‘dirt-cheap’ indicates. It can be viewed in a number of ways. One is absolute price. Penny stocks, for instance, have appeal to investors because of the sheer volume that can be purchased for little money. They are accessible even to investors with limited funds. 

The second is relative price. One way to consider relative price is in relation to where the stock was in the past. There are some UK shares, including even FTSE 100 ones, that are still trading below pre-pandemic levels. And this is despite the fact that their financials look rather robust. 

Another, and more technical, way to consider relative price is by looking at the price-to-earnings (P/E) ratio. The P/E provides a good comparison across stocks, since it correlates stocks with their earnings. I find it particularly instructive to compare a stock’s P/E with that of the index it belongs to.

For instance, if a FTSE 100 stock has a P/E below that of the index average, it is likely undervalued and vice versa. The same is applicable even for a particular industry. Some industries typically have higher or lower P/Es than the index average, so that comparison can prove helpful too.

Lloyds Bank is one of the UK shares to buy

Based on P/E, I think Lloyds Bank stock is pretty close to dirt-cheap right now. It has an earnings ratio of six times, which is significantly lower than the FTSE 100 ratio of 15 times and even below that of some of its industry peers. In fact, even in absolute terms it is the cheapest index constituent with a price of around 45p as I write.

It is more vulnerable to a housing market crash as the UK’s biggest mortgage lender, but as an investor in the stock, I think it is priced quite low, all things considered. 

Loading up on BP

I also believe that the oil biggie BP is undervalued based on the fact that it is still trading at below pre-pandemic levels. I have to admit I am having a hard time wrapping my mind around this considering what a long way oil prices have come ever since. 

The stock has risen ever since, to be sure. And its financials have improved significantly since the worst of the pandemic. Its profits were even bigger in 2021 than in 2019, but its price has not risen to keep up, in my view.

Like Lloyds Bank, I hold BP in my portfolio too. There is a risk that oil prices could calm down during the rest of 2022 and beyond, impacting its profits. But I think there is still a case for me to buy more of it, especially as it pivots towards renewable energy. 

The post 2 dirt-cheap UK shares for me to buy in May appeared first on The Motley Fool UK.

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Manika Premsingh has positions in BP and Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Let me just start out by saying that the Lloyds Bank (LSE: LLOY) share price has been at penny stock levels for a very long time. And by a very long time, I mean since a little after the financial crisis of the late-2000s. But just because it has not broken out of these levels in quite a while, does not mean it cannot rally now. 

Bullish forecasts for the Lloyds share price

Indeed, the most bullish analysts believe so. I just looked at the Financial Times’ compilation of forecasters’ share price targets. At least one of them, if not more, believes that in the next 12 months the stock will rise to 100p. In other words, it will cease to be a penny stock, which is defined as one at sub-100p levels. 

In fact, in a recent article I myself made a case for a potential doubling in the Lloyds share price based on three arguments. One, the house price boom continues in the UK. Lloyds Bank is the biggest mortgage lender, and could benefit from that. 

Robust results

Two, interest rates are on the rise, which is likely to improve the banks’ margins. The two arguments put together say that not only are lending volumes likely to be robust, the price charged for loans will be elevated too. 

It is little wonder then, that the bank reported better-than-expected income in the first quarter of 2022, since the time I wrote the article. And it even expects its net interest margin to rise by 10 basis points (bps) this year to 270 bps. 

Low valuations

My third argument was based on the bank’s ongoing abysmal valuations. At a price-to-earnings (P/E) ratio of six times, it is way below the FTSE 100 P/E of around 15 times. I can buy the argument that banks typically trade at earnings ratios below that for the FTSE 100. Even then, the Lloyds share price appears undervalued, however. Its P/E is still lower than the other UK-focused bank Natwest or even the more Asia-focused HSBC, which are both valued at almost 10 times. 

I have to point out here, that Natwest has reported a really robust set of numbers recently, which makes a case for it. But it did flip into a loss in 2020, which makes it a riskier bet for me at a time when the pandemic is not truly out of the way. The same was not true for Lloyds Bank. Also, HSBC is probably riskier too, given its focus on China, which is facing its own set of issues. 

What I’d do about Lloyds Bank

What I am trying to underline here is that there is clear potential for the Lloyds share price to rise from here. There are risks to the stock too, though. The threat of stagflation is on the rise, which means rising prices and little or no growth. This is bad for all sectors, especially for economy-linked ones like banks. 

On the whole, though, I am bullish on Lloyds Bank. Which is why it is already in my investment portfolio. Whether or not it rises to 100p or not.

The post Is the Lloyds share price ready to break out of penny stock levels? appeared first on The Motley Fool UK.

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Manika Premsingh owns Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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 Rolls-Royce share price keeps falling

Here is the next fact. In the past three months, it has dropped even more, by around 25%. This too has an explanation. Inflation has been on the rise, which could impact the company’s big civil aviation business. Rising prices can impact consumers’ discretionary spending, including for airline tickets.

And finally, over the past six months, the Rolls-Royce share price has dropped even further, by more than 35%! This too has a very good reason. In early November 2021, we had no idea that the Omicron variant was going to rock the markets and create investor uncertainty for the coming months for travel-related stocks. 

Every cloud has a silver lining

But here is where it gets interesting. Over the past year, the stock is still down, but by a far smaller 18%. This demonstrates that, in the interim, it rose much more and then fell back to penny stock levels. It also means that, in good times, the Rolls-Royce share price can indeed rise.

And even with all its ups and downs, the past year has indeed been good times for the FTSE 100 index. It was just below 7,000 levels at this time last year, and has risen by over 8% since. 

Risks ahead

It follows then, that there is some chance that the Rolls-Royce share price could rise again if the larger macro picture stabilises. The question, though, is whether it will or not. From the looks of it, I think the odds do not look particularly good. Growth is expected to be far more muted in 2022, compared to what was forecast even a few months ago. 

The Russia-Ukraine war has exacerbated inflationary pressures. Households across the UK, and I expect around other parts of the world, are experiencing rising bills and the situation as also been called a “cost of living crisis”. This will likely further impact demand, including travel demand. 

And if the coronavirus situation gets worse, I think it is entirely possible that the Rolls-Royce share price could crash, along with the rest of the stock market. Can it fall to 50p, though? I would not rule that out. In October 2020, the stock had crashed to sub-40p levels, when it looked like there was no way out of the pandemic and the company’s business was stalled to a significant extent. 

What I’d do

That is the worst-case scenario, though. More realistically, I think it is likely that the stock will continue to show uneven movement. At best, it remains one for short-term speculative buying and not one for long-term investment, for now. Pity, really, considering how much work it has done to restructure and come back into black. I do not think it is a buy for me for now, but I will continue to watch it.

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Manika Premsingh 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 Russia-Ukraine war led to a stock market plunge, which impacted almost all FTSE 100 stocks, including HSBC. But the banking corporation’s big problem is also the never ending Covid-19 problem in China. The country’s zero-covid policy has led to fresh lockdowns in key cities like Shanghai, and Beijing is expected to go the same route. 

China’s growth slowdown

This is bad news for the bank, which decided to focus on its Asia business as part of its recent restructuring. That Chinese growth is expected to slow down now is likely to tell further on it. According to investment bank Nomura, China’s economy will increase by only 3.9% in 2022. This is not just a reduction from its earlier forecast of 4.3% growth, it is expected to be the lowest since 1990, if we exclude pandemic-ridden 2020 from the picture. 

HSBC share price drops on poor results

HSBC’s latest results have already shown the impact of external events. The Russia-Ukraine situation and high inflation contributed to expected credit losses, as compared to gains in the same quarter last year. Its reported earnings are down by 4% as a consequence. Unsurprisingly, its stock saw a decline earlier this week as investors lost confidence. 

The positives 

I am, however, heartened by the fact that it has started inching up once again. I reckon that this is correlated with the overall pickup in mood, as evident from the fact that the FTSE 100 made gains yesterday. And it continues to do so today as well. But I think the bank’s own health and prospects are also a factor in its increase. 

Even though its results were disappointing, they did beat analysts’ estimates, because of a rise in lending volumes. Also, note that the profits have dipped on expected losses, which might or might not happen. Even during the pandemic, banks reported poor results as provisions were made for bad loans. However, when the situation improved, their numbers improved drastically. 

What about passive income?

Of course there is always the possibility the losses could indeed happen this time around. But still, I think there is room to hold out hope here. Also, the bank’s dividend yields is not too bad at 4.1%. The FTSE 100 dividend yield is at 3.6%, so it compares positively. 

Yet, there is a chance that its dividends will be impacted if the situation continues to worsen. It has already ruled out buybacks this year, which would have been another way to provide shareholders with passive returns. 

What I’d do

I am still fairly positive on the HSBC share price. But given the circumstances, much less so than earlier. I think we will know better how its situation looks as we move further into 2022. Until then, I will keep it on my investing watchlist. I think there could be other, and possibly bigger, dips in the stock, when I can buy it instead. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.