Since mid-October, Rolls-Royce (LSE:RR) shares have jumped over 30%. I have been tracking the beaten-down engineering giant for signs of a trend reversal. The aviation industry is recovering steadily, which has triggered a host of new contracts for the firm. Some of its more recent ventures are also witnessing steady growth. 

Here, I will look at the finances, share price, and recent developments at the firm to judge if the shares hold enough value to earn a place on my growth portfolio moving forward.

Return of flight care contracts 

A vast majority of Rolls-Royce’s pre-pandemic revenue came from flight engine upkeep contracts. With flights grounded for over 24 months, most TotalCare packages were cancelled. But this year, the firm has seen a marked increase in new service agreements. 

Last week, the FTSE 100 company signed a five-year TotalCare contract with China Eastern Airlines for 10 Trent 700 engines. The firm also secured similar contracts with Malaysian Aviation Group and Air China in September. While this is still not close to pre-pandemic numbers, I see it as a definitive sign of a rebounding airline industry. 

In a recent update, Rolls-Royce stated that, as of 30 October, large engine flying hours hit 65% of 2019 levels and rose 36% since October 2021. If this recovery is sustained, the company expects revenue growth next year through these upkeep contracts. 

Power and defence

The energy crisis has accelerated renewables development. Rolls-Royce has been identified as a key provider of nuclear power in the UK and is also helping industries transition to better electricity storage units. 

The firm’s line of mtu engines, power packs, and generators is seeing wide adoption across industries worldwide. Rolls-Royce recently secured a contract to power the largest supercomputer facility in the Middle East. The company has also provided 200 mtu generators to become the UK’s leading provider of critical power solutions. The 3.5 gigawatts output powers data centres, telecom, and healthcare industries in the UK.

On the defence side, Rolls-Royce has signed a deal with the U.S. military valued at US$1.8bn to service engines for U.S. Navy aircrafts. Rolls-Royce will also provide 500 mtu engines for the UK’s Boxer armoured vehicle and 16 gensets for the German navy. 

Concerns and verdict

All these positives make me bullish on the Rolls-Royce share price at 84p, given that its pre-pandemic high was close to 350p. But I have to look at how the company can navigate some of the concerns as well.

Rolls-Royce acquired significant debt during the pandemic period. However, the board managed to complete the sale of its ITP Aero division to help the firm repay a £2bn floating rate loan by 2025. The remaining £3bn debt will continue to eat into future revenue but the recent positive development is encouraging.

Sky-high energy prices could increase flight ticket prices, further pushing back recovery. And this could prove to be a strong blow for the firm. I will be tracking this over the coming months closely.

But I do see value in Rolls-Royce shares at the moment as all its target markets are recovering. I think it has the order book and market share to navigate some turbulence. Barring any huge negative developments, I would consider a £10,000 lump sum investment in Rolls-Royce shares when I expand my portfolio next. 

The post Contracts galore! Should I buy surging Rolls-Royce shares for growth?  appeared first on The Motley Fool UK.

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• A stock market crash this summer? Here’s how it could help
• Could Rolls-Royce shares still be a bargain even now?
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Suraj Radhakrishnan 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.

Investors are aware of the devastation the pandemic caused to the aviation industry. With flights grounded for nearly two years, airline earnings fell dramatically. As a result, International Airlines Group (LSE: IAG) shares fell over 73% in the three months between February 2020 and May 2020. 

However, thanks to excellent third-quarter results this year and improving airline traffic, I think IAG shares could be a bargain option for my portfolio. Investor interest has surged over the last month, causing it to jump over 26%. Here I will look at its pros and cons to see if it would be wise for me to invest in the firm before 2023.

Excellent results

Looking at the Q3 report, it is easy to see the reasons behind IAG shares’ positive momentum. The company saw year-on-year revenue growth skyrocket 367% to €1.2bn compared to Q3 2021 when the company lost €452m.  

In the first nine months of 2022, revenue from passenger ticket sales jumped nearly 350% to €14bn compared to the same period in 2021. This points to a healthier airline sector that is inching close to pre-pandemic traffic levels. 

In fact, the board said in the report that the recovery in Q3 puts the industry ahead of 2019 levels in terms of leisure travel. IAG is on target to hit 87% of 2019’s passenger capacity in Q4 and 78% across 2022. 

Can IAG shares handle big fluctuations?

While the recovery has been strong, there are also growing concerns the company will have to address in the coming months. Rising fuel prices and mounting debt are two areas most travel and transport companies are grappling with at the moment. 

IAG’s total net debt currently stands at €11.05bn, down 5% from the same period in 2021. While it is positive that the company is reducing this figure, it is still sizable. 

However, travel and tourism are expected to recover further as more Asian tourism markets open up. Most travel analysts expect flying hours in 2023 to be substantially better than in 2022. While this could further boost earnings and offset the debt, another big concern is the cost of fuel. 

Throughout 2022, oil prices have remained high. But this trend could be reversing already, according to a recent World Bank report. After surging 60% this year, analysts expect oil barrel prices to drop at least 11% in 2023. While this is significantly higher than 2019’s average of $60, large companies will figure out ways to offset costs. 

Also, this FTSE 100 firm currently has a sizable cash reserve valued at €9.3bn. I think this will help the firm navigate fuel price fluctuations better and also price out competitors in negotiations, provided travel continues to recover. 

This is why I think IAG shares have the potential to continue this run if external factors remain favourable. I am bullish on the firm but the uncertainty surrounding fuel prices makes me slightly vary. The aviation firm is now on top of my watchlist and I will look to make an investment if Q4 results maintain current growth trends.

The post Up 26% in a month! Here’s why I think IAG shares could still be a bargain appeared first on The Motley Fool UK.

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Suraj Radhakrishnan 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 FTSE 100 has made a strong move forward, jumping nearly 4% in a week. Since the second week of October, the Footsie has gone up a whopping 7.4%. This strong month of trading is the trend reversal I have been looking for before looking for bargains. Right now, some blue-chip FTSE 100 shares look very cheap and ready for liftoff. Here are two names from my watchlist that look ripe for picking before 2023. 

Dirt-cheap energy share

SSE (LSE:SSE) is an energy company that operates wind farms and hydroelectricity units. It has become a key part of the UK’s push to make renewable energy more affordable and accessible. 

The energy industry has undergone a drastic shift over the last two years. Oil prices have remained close to the $100-mark throughout 2022. This has increased the demand for renewables and I am keen on investing in an FTSE 100 green energy share.

SSE has been growing its wind energy reserves recently. In the first quarter (Q1) of 2022, the company was 5% ahead of energy generation targets. Compared to Q1 2021, output increased by 24% year on year.

SSE also expects adjusted earnings per share of at least 120p this year factoring in expenditures and investments in excess of £2.5bn. This shows me that the company is healthy financially despite sizable acquisitions.

SSE shares are currently trading at 1,592p at a price-to-earnings (P/E) ratio of just 6.6 times. The FTSE 100 stock also comes with a sizable dividend yield of 5.3% making it a growth option for my portfolio that also offers a lot of value. 

The energy sector is expected to undergo a major shake-up given skyrocketing profits. The recently announced de-facto windfall tax on renewables will cut earnings significantly.  But this is not a permanent move. 

While revenue will drop momentarily, the industry will continue to gain prominence. I think this is the best period for me to invest in renewable energy in the UK. Once the taxes are lifted, earnings will grow, attracting more investor interest. And I am looking to capitalise before this happens. 

Telecom giant with growth potential

Airtel Africa (LSE:AAF) shares have been on my watchlist for a while. Owned by Indian giant Bharati Airtel, this FTSE 100 company offers mobile connectivity and digital payment software in 14 major countries across Africa. 

In fact, Africa is a global leader in digital payments and Airtel Money offers comprehensive digital fund transfer solutions, empowering low-income communities. The company is growing its offering by securing more 4G licences and is well positioned to be a 5G giant in the continent. 

Despite a 20% jump in earnings this year, its shares are down 13% this year. It is trading at a P/E ratio of 8.1 times with a dividend yield of 3.6%. To put this context, Airtel Africa shares are up over 240% since the first pandemic crash.

Expansion and the switch to 5G will prove to be cash-intensive. This could drop earnings over the coming months and years depending on when frequency bands are offered to private firms. 

However, I am bullish on the firm’s tested business model and steady recent revenue growth. It currently looks attractive but I am waiting to see price action towards the end of the year before making an investment. 

The post FTSE 100 recovery: 2 cheap shares I’d buy on their way up  appeared first on The Motley Fool UK.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa 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 just made a comeback to 7,000 levels, but the recent crash has left me with some incredible bargains. And I’m looking to capitalise on this drop before the market rebounds fully.

The global business environment has changed considerably since 2020. While some previously prominent industries are looking at a decade of laboured recovery, several new and exciting areas have emerged. 

I’m looking for a firm operating in a growing sector with a global footprint, stable business model and steady growth. And only one share from my FTSE 100 watchlist looks like a solid option to me. 

A big FTSE 100 bet? 

Flutter Entertainment (LSE: FLTR) is a sports betting and online gambling company that operates famous brands like Sky Betting & Gaming, PokerStars and Sportsbet. The firm was formed by merging two British giants — Paddy Power and Betfair.

After recently released first-quarter results, its share price has jumped over 42%. Here’s why I’m still considering an investment at its higher price. 

During the pandemic, there was a boom in online betting activity. In the US, the monthly average sports betting amount across the country was $310m. Across 2021, the value was estimated at over $7bn a month. This 20x increase was because several states in the US legalised sports betting after 2018.

Another big factor has been the rise of mobile payments. In fact, mobile sports betting account for 84% of all transactions in the region. 

Flutter Entertainment benefited as a result. In 2021, group revenue grew 37% to £6.03bn. Across its brands, average monthly players exceeded 7m for the first time. The FTSE 100 firm also acquired several smaller betting brands across the globe.

The UK and Ireland remain Flutter’s biggest markets, accounting for 33% of total revenue. While mobile phone betting figures are lower here, offline stores still receive a lot of foot traffic. And Flutter Entertainment remains the biggest betting firm in the region. 

My concerns

There’s no doubt that online sports betting and gambling are fast-growing industries. But this also raises a few ethical concerns, especially online. The age checks are fragile on some newer websites, leading to higher instances of minors gambling. This has led to calls for tighter regulations worldwide, including an upcoming Gambling Act Review White Paper from the UK government. This could cut revenue through taxation overnight, which poses a risk.

In fact, Flutter Entertainment’s online revenue for Q1 2022 dropped 20% year on year as the company launched changes to make gambling safer. While this was offset by a 45% jump in overall revenue from the US, it’s a sign that even big FTSE 100 companies in this highly regulated sector can suffer from new regulations. 

However, I’m still bullish on this company given the popularity and global appeal of its brands. It’s already an established powerhouse in the growing US market. Its primary strategy now is to grow its player base in the region while also focusing on high-volume markets like India, Brazil and Australia.

The industry is expected to be valued at $140bn by 2028. And I expect Flutter Entertainment to play a vital role in this growth. This is why I’m considering an investment in it if the upcoming full-year results are favourable. 

The post Up 42% in 3 months! This is the only FTSE 100 stock I’d buy now appeared first on The Motley Fool UK.

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Suraj Radhakrishnan 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.

Abrdn (LSE:ABDN) shares have had a difficult year. The asset manager began 2022 buoyed by improving financials only to be hit by sky-high inflation and the worsening economic outlook of the UK. 

In the first half (H1) of 2022, the firm recorded a total pre-tax loss of £320m. Fee-based revenue dropped 8% to £696m and adjusted operating profits fell 28% to £115m. 

As a result, Abrdn shares are down 47% in 12 months and 42% so far in 2022.

This prompted a demotion from the FTSE 100 in September and the investment firm is now a part of the mid-cap FTSE 250 index. 

But things could be changing. Abrdn shares are up 8% in the last week. Could this beaten-down stock present a mixture of growth and value, factoring in this historic decline and the 10.7% dividend yield? Let’s find out. 

Cheap or a value trap?

Most shares that fall nearly 50% in a year will appear cheap on paper. Looking at the performance of Abrdn shares performance over time, it is clear that the firm has declined steadily since hitting an all-time high of 571p in 2015.

The company has undergone many changes over the last decade, including a merger and subsequent sale of the Standard Life business, several high-profile boardroom changes, and a rebranding effort.

Most investment firms are struggling at the moment. The larger economic collapse in the UK has caused trading volumes to drop. 

This marketwide pullback caused Abrdn’s assets under management (AUM) to fall £34bn in H1 2022. Despite this, the company has managed to hold on to its position as one of the largest asset managers in the UK. 

And I think the latest collapse in Abrdn shares is primarily due to current market conditions rather than a failing business model. This is why I still hold on to my opinion that it is a bargain right now.  

Positives and verdict

Abrdn has been a consistent dividend payer for over 15 years now. In July 2022, the company managed to roll out a share buyback worth £300m. The board also announced its plans to return £500m to shareholders after the firm was removed from the FTSE 100 last month. 

The firm has also changed how it uses excess cash. While many analysts questioned the acquisition of Interactive Investor for £1.5bn, the firm has also been shedding excesses to generate more cash. 

Heading into H2 2022, the investment firm sold two of its stakes in HDFC for about £500m. The company also sold £300m worth of Phoenix Group shares to fund the aforementioned share buyback program.  

This makes me optimistic that the company plans on maintaining a decent dividend going forward. While the current yield of 10% might be unsustainable given falling profits, I think the annual yield will remain higher than the FTSE 100 average of 3.5%. 

When the economy recovers, I expect large asset managers to recover quickly. Given its current sky-high yield and history of shareholder returns, I think Abrdn shares currently offer a nice mix of growth potential and value. I am wary of further economic turmoil in the UK, which is why I am looking at a £1,000 lump sum investment when conditions stabilise. 

The post Up 8% in a week! Can beaten-down Abrdn shares make a comeback?  appeared first on The Motley Fool UK.

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Suraj Radhakrishnan 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 FTSE 100 is falling fast and is at its lowest level in over 15 months. However, share buybacks by top Footsie companies are at all-time highs. Several industries are seeing record profits and will come out of this slump in a better financial position. 

I see this as the perfect opportunity to load up on some quality stock at great prices. And one firm looks like a good value pick to me.

DS Smith (LSE:SMDS) shares are currently trading at 267p. They have a price-to-earnings (P/E) ratio of 13.1 times and offer a dividend yield of 5.6%. This looks like a great bargain to me, and the company’s latest financial update has made investors very happy.

DS Smith shares could take off

Dividends stocks are under the spotlight right now. Chancellor Kwasi Kwarteng’s latest plans will see the tax on dividends lowered by 1.25%. This comes after share buybacks by UK firms hit a record of £16.2bn in the second quarter (Q2) of 2022. 

This shows that despite the turbulence in the market right now, investors who buy and hold quality shares will be rewarded. Returns from share price movements are low right now. But if I make smart decisions today and grow my passive income portfolio, I could benefit from higher payouts for decades.

This is where DS Smith shares look like a good option to me. The global packaging firm released a strong trading update this week. For the first half (H1) of 2022 (ended 31 October) operating profits are expected to be at least £400m, beating all previous estimates. To put this in perspective, total operating profits in FY2021 were £616m. 

This is great news for DH Smith’s dividend moving forward. The already sizeable yield could grow in the coming months if H2 performance meets expectations. Current full-year earnings projections will put year-on-year earnings growth at 10.9%.

After the update was released, DS Smith shares jumped over 12% in a day. But it is still trading 42% below its post-pandemic highs of 461p set in September 2021.

Concerns and verdict

With the FTSE 100 struggling to find stability, it is hard to say if this update alone could trigger a share price rise. In fact, the company posted decent results in line with expectations last year. However, its share price continued to fall. DS Smith shares are down over 30% in the last 12 months and 32% in 2022. 

Also, paper prices have remained high after the pandemic and are projected to rise over 2.5% annually for the next five years. DS Smith already has razor-thin margins. The e-commerce surge over the last 24 months has triggered a huge demand for packaging materials like cardboard. And rising paper pulp prices could put a strain on future revenue. 

However, I am optimistic that DS Smith can hit its new targets this year, which would increase investor interest. Given its size and global presence, I think the firm is well-placed to navigate rising raw material costs. I think DS Smith could offer a good mix of value and growth for my portfolio, which is why I am willing to invest if signs of recovery grow stronger. 

The post Are DS Smith shares the FTSE 100’s best bargain right now?  appeared first on The Motley Fool UK.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. 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.

After a torrid pandemic period, many analysts, including myself, expected Rolls-Royce (LSE:RR) shares to recover in 2022. However, the engineering firm’s stock is down over 52% in the last 12 months and is amongst the five worst performing FTSE 100 shares for this period.

I have been looking for a quality business to invest £1,000 in before 2023. My criteria are that it must be cheap, offer value, and operate in exciting areas. 

While Rolls-Royce shares look really cheap on paper at current levels, is it the best option for my growth portfolio at the moment? Let’s find out. 

The positives

Rolls-Royce’s balance sheet is improving. Increasing orders from its civil aviation wing for aircraft engines and maintenance is a positive. While international air travel hasn’t recovered as expected, it is still 52% higher than 2021 levels. This could benefit Rolls-Royce shares over the coming months, especially since the pandemic’s fear has died substantially. 

The growth of Rolls-Royce’s new power systems wing is promising. Defence contracts are improving too, fuelled by the Russian invasion of Ukraine. 

The company will play a vital role in the US Department of Defense nuclear microreactor program alongside BWX Technologies. This promising development comes after a long line of orders for Rolls-Royce’s nuclear reactor program, including from the UK government. 

However, the big question for me here is how will the UK’s struggling economy affect this recovery? 

Will the Rolls-Royce share price stagnate? 

Firstly, it is not just one stock that is suffering. The Footsie is down 8.5% in the last six months, pointing to a market-wide pullback. However, Rolls-Royce’s struggles are unique in some ways. The blue-chip firm operates in tough sectors like defence, aviation, and energy. It is constantly among the highest-traded stocks in the UK. Despite these factors, investors are exiting fast. 

One of the perks of investing when the market is down is that stable businesses often rebound quickly, giving smart investors solid returns in a shorter span. However, I do not see this happening with Rolls-Royce shares. Mounting debt has weighed this business down this year. Net debt currently stands at £5.14bn. 

While the £1.4bn sale of ITP Aero will be factored in at the end of this year, debt will still be a concern in 2023. The business returned to profitability in 2021. But due to the high R&D budget, interest payments will continue to chip away at profits for the foreseeable future.

The order book of £6.5bn will help maintain a positive cash flow moving forward. But I have to factor in spendings too. Increasing pressure on renewable power sources means all nuclear projects will be accelerated. This means higher wages and faster turnarounds which will deplete its profits. 

New Prime Minister Liz Truss has also stressed the importance of the UK boosting its own oil and gas reserves. Right now, the energy sector looks fractured with the push for renewable energy proving too expensive. How the new leadership chooses to address this will vastly impact industry profits going forward, especially for firms like Rolls-Royce that have invested heavily in renewables. 

All this adds to the uncertainty around Rolls-Royce shares which is why I am choosing to keep away at the moment, despite the latest crash. 

The post At 69p, are Rolls-Royce shares too cheap to miss?  appeared first on The Motley Fool UK.

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• I asked ChatGPT for the best FTSE 100 stock for total returns in 2026, and guess what it said…
• A stock market crash this summer? Here’s how it could help
• Could Rolls-Royce shares still be a bargain even now?
• No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom

Suraj Radhakrishnan 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 UK economy looks fragile at the moment. With the energy crisis driving inflation to historic highs and the pound falling, analysts expect the recovery to be sluggish and difficult. UK shares have been widely affected too, putting investors on high alert. 

Conversely, few sectors are currently witnessing a boom. But those companies that have continued to show strong growth are now receiving investor interest. I think this is the perfect time for me to diversify and pick up quality stocks on the way up. 

Shares that are defying trends

While the FTSE 100 is down over 6% this year, two overlooked gems on my watchlist have risen over 40% in three months. But looking at the fundamentals, they still look cheap. Let’s dive in. 

The energy sector is red hot right now. Despite the renewable energy push, oil is expected to power a majority of our industries for the foreseeable future. 

UK’s largest independent oil and gas business is Harbour Energy (LSE:HBR) and it has benefited greatly from this. Its shares are up over 41% in the last three months thanks to surging profits. 

In the first half (H1) of 2022, the company saw a 12-fold increase in pre-tax profits to US$1.49bn compared to $120m in H1 2021. The company cut down its net debt by 50% to $1.1bn and increased its 2022 shareholder payouts to $500m. 

Harbour Energy shares are trading at 448p with a price-to-earnings (P/E) ratio of 4.5 times. Given the current yield of 2.13%, which is expected to increase moving forward, this looks to me like a bargain. 

The next UK share on my list has jumped 47% over the last three months. 4imprint Group (LSE: FOUR) is a merchandise manufacturer that operates primarily in the US and controls 4% of the $23.6bn promotional products market.

The firm specialises in designing and manufacturing products that are functional adverts for large companies. 

In H1 2022, operating revenue was $515.54m, up 58% from H1 2021. Operating profits jumped a whopping 1124% to $43.98m primarily because of streamlined marketing and better pricing. 

4imprint doubled its new customer acquisitions and its order book grew 44% to 886,000 in 2022. The board is confident that the revenue target of $1bn will be achieved in 2022.

Its shares are currently trading at 3,645p at a P/E ratio of 20.9 times. Although this is not cheap on paper, I think its revenue growth in 2022 makes it a bargain. Many blue-chip businesses have struggled over the last few months, but 4imprint has shown considerable growth in a highly contested US market. 

Concerns and verdict

Tax cuts will plague oil companies moving forward. The world’s five biggest oil companies saw profits increasing by £50bn between April and June. This prompted a 25% energy profits levy in the UK that will bring the total tax on oil companies to 65%. 

Also, many US businesses are freezing hiring to improve margins. This is indicative of a slowing economy that could affect marketing spend. 

However, both businesses discussed here have reinvested smartly and have stronger balance sheets heading towards 2023. While there could be a slowdown, I think these shares have a lot of growth potential right now. I’ll probably make a lump sum investment in both shares when signs of market recovery become stronger. 

The post Up 40%+ in 3 months! These 2 fast-growing UK shares still look cheap appeared first on The Motley Fool UK.

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Suraj Radhakrishnan 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.

But it isn’t all gloomy skies. The Office of National Statistics found that the UK economy grew by 0.2% in the second quarter of 2022, dispelling fears of a recession. 

I think quality FTSE 100 shares are still the best option for my growth portfolio. Looking at the charts, top UK shares have been rather elastic, rising strongly after recent crashes. While there is no guarantee that this will happen again, investing during mini crashes has historically been a great way to buy/add growth stocks. This is why I think it is the perfect time to invest in two FTSE 100 shares from my watchlist. 

Pandemic superstars 

Croda International (LSE:CRDA) and Ashtead Group (LSE:AHT) are two companies that I have been tracking closely since the pandemic. Between March 2020 and November 2021, these two FTSE 100 shares went up 152% and 342% respectively.

But since then, market corrections have put these top performers in bargain territory.

Industrial equipment rental firm Ashtead is down 34% since its all-time high and is currently trading at 4,000p, at a price-to-earnings (P/E) ratio of 14.6 times.

Across the financial year (FY) 2022, a period when most businesses struggled with inflation, Ashtead’s revenue jumped nearly 20% to £7.96bn, while net income grew of 36% to £1.25bn. In fact, Ashtead’s revenue has increased every year since 2018.

The company has a strong presence in the US, UK, and Canada, trading under the name Sunbelt Rentals. Its industry was recently boosted by US President Joe Biden’s public works stimulus bill. As a result, rental revenue from the US jumped 29% in the first quarter of FY2023. 

Similarly, chemical giant Croda has fallen 38% since its all-time high in November 2021. It is currently trading at 6,370p at a P/E ratio of 12.5 times. 

In FY2021 (ended 31 December 2021), Croda’s revenue jumped 35.9% to £1.89bn with net income growth of 59% to £320.8m. The company has also seen significant growth across the first half (H1) of 2022. Sales rose 21% compared to the same period in 2021. 

The British manufacturer is currently transitioning into a life sciences business, with a focus on cosmetics and pharmaceuticals. The board expects this to streamline the business with stronger margins and higher returns. 

Concerns and verdict

Both businesses have a global presence and the falling pound could affect profits moving forward. Given the volatility in global markets, this could cause these FTSE 100 shares to fall further. 

Also, a recession in the US could halt development projects, causing Ashtead’s sales to drop. Croda is still seeing proceeds from its Covid test kit chemicals, which is expected to slow down completely moving forward.

Despite these concerns, I think both businesses are well placed to navigate choppy waters. These businesses have demonstrated significant growth in recent times and have established strong markets and steady sales. Given the balance sheets, these FTSE 100 shares look dirt-cheap to me at current levels.

The post 2 beaten-down FTSE 100 shares I’d buy before the market recovers appeared first on The Motley Fool UK.

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

ITM Power (LSE:ITM) shares have had a rough 2022. Just today, its shares fell a whopping 26% after its full-year results were released.

Also, the news of CEO Dr. Graham Cooley stepping down after 13 years in charge and a new €140bn EU windfall tax on renewable energy firms’ profits contributed to the decline.

Looking at the ITM Power share price action, this fall is not sudden. The stock has plummeted 54.5% in a month and 71% in a year. Considering the amazing year energy stocks have had, this does not look good.

Here I will look at the results, what to expect moving forward and if I will make an investment in ITM Power shares after this historic collapse.

Is net zero just a dream?

The UK’s 2050 net-zero ambitions are lofty, considering how powerful fuel companies are today. The oil lobby is still extremely influential and holds the resources and infrastructure needed to make the transition possible.

But with the larger global economy in an uncertain position, the green energy transition is proving too expensive, causing a huge spike in bills for most people.

Any positives for ITM Power shares?  

Firstly, hydrogen fuel is the only net-zero energy source we know. Its by-products are reusable. It doesn’t remove oxygen from the atmosphere or add more water vapour, creating a balance.

ITM Power manufactures electrolyser systems and develops plants that generate this clean hydrogen fuel. It also operates seven hydrogen refuelling stations and a 1GW-capacity factory in the UK.

In 2022, the company saw its contract backlogs increase by 79% to 755 MW. As a result, revenue jumped over 30% to £5.6m, coupled with a significant increase in assets and inventory.

But the company recorded a gross loss of £23.5m in FY 2022. The board expects this figure to increase to £45m-£50m next year given the company’s high R&D budget.

Also, to complete current contracts, ITM Power would have to significantly increase production capacity. The company raised £250m to expand energy output to 5GW by December 2024. But the board stated in the release that achieving this target after the current energy crisis will be very tough.

Due to mounting expenses, the company’s plans to set up a new factory were scrapped. Now, ITM Power is working on improving output from its Bessemer Park factory to 1.5GW. But this could be too little given the growing demand.

Should I buy ITM Power shares right now?

As a potential investor, I see a lot of green energy stocks still carrying significant risks given the demand to accelerate development. ITM Power has this issue too. Yes, a lot of government grants and private contracts are being signed by the firm. But scaling up in the current economic and political climate will cost billions.

With the demand for cheap energy at an all-time high, I think green energy explorations will take a back seat over the coming months.

ITM Power shares are currently crashing and I never try to catch a falling knife. Once signs of a turnaround are clear, I would re-evaluate my position. But right now, I wouldn’t touch it with a 10-foot pole.

The post Down 26% in a day! ITM Power shares are falling fast. Here’s what I’d do appeared first on The Motley Fool UK.

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• £5,000 invested in red-hot UK growth stock ITM Power 5 days ago is now worth…

Suraj Radhakrishnan 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.