Anyone who bought Vodafone (LSE:VOD) shares 12 months ago is laughing. That’s because the telecommunications giant has been busy executing a remarkable turnaround and has, so far, generated 69.1% total return since April last year.

That means anyone who bought £5,000 worth of shares is now sitting pretty on £8,455. But if Vodafone keeps up its current pace, this might be just a tiny slice of the profits yet to come.

So what needs to happen for Vodafone shares to keep on climbing? And what are the key risks that investors need to keep a careful eye on?

Can the recovery momentum continue?

After a near-decade of near-continuous decline, CEO Margherita Della Valle is delivering the operational turnaround that a host of previous leaders failed to achieve.

With non-core operations divested to raise funds, Vodafone’s balance sheet is slowly being deleveraged, with underlying free cash flow incrementally improving. And just a couple of months ago, management began selling off its stake in VodafoneZiggo Group to raise another €1bn.

But while these divestments provide some short-term financial flexibility, it’s the company’s operations in Germany that are the critical turnaround factor. Due to fierce competition and its own complacency, Vodafone’s core German operations have been in steep decline for years.

However, as per the group’s latest results, this part of the business has finally returned to growth. In fact, it’s now sitting on its second consecutive quarter of improvement, marking a potential inflexion point.

At the same time, its recent merger with Three UK is currently moving ahead of schedule, while its novel fintech payments business in Africa continues to grow at an impressive pace.

With more free cash flow at hand, the balance sheet’s getting steadily repaired and operations are taking back market share, so Vodafone shares seem to have exciting potential.

What could go wrong?

While the group’s progress made so far is encouraging, it’s critical for investors not to get too excited too quickly.

The company still has €51.5bn of debts & equivalents on its books – not something divestments alone will be able to clear. And with Vodafone promising regulators to spend £11bn in infrastructure upgrades within the UK to receive the green light for its Three UK merger, free cash flow flexibility remains constrained.

As for Germany, once again, the business seems to be moving in the right direction. But it’s important to note that the ‘inflexion point’ is so far not guaranteed. Service revenues have indeed returned to growth, but only by a tiny margin. And the competitive pressures that historically chipped away at its market share are still present today.

So where does that leave investors today?

The bottom line

For now, Vodafone’s recovery remains fragile. Sentiment’s rightfully improving, but there are still plenty of weak spots that could derail progress, with Germany being what most institutional analysts are watching closely. Investing early in a recovery story is a risky endeavour. But if management’s strategy continues to succeed, it could prove to be a lucrative move.

Personally, I think there’s enough potential here to merit a closer look at Vodafone shares for long-term (and patient) investors.

The post Is now the time to consider buying Vodafone shares? appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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 last 12 months have been a fantastic time to own Tesco (LSE:TSCO) shares. The UK’s dominant supermarket giant has delivered a 36.5% return for shareholders since April 2025. And for anyone who’s been reinvesting the dividends paid along the way, the total return is closer to 41.6%.

That’s enough to turn a £5,000 initial investment into as much as £7,080. But with so much growth under its belt, is it too late for new investors to buy shares today? Or could the FTSE stock continue to climb higher from here?

More momentum ahead?

Despite already having a lot of growth under its belt, Tesco shares continued to march higher last week on the back of its latest full-year results. And with the group’s performance exceeding analyst expectations across multiple metrics, it isn’t hard to understand why.

The retailer continues to take even more market share from its rivals, with free cash flow reaching £1,957m. That’s up 11.8% compared to a year ago which, for a mature volume-based business facing rising labour costs, is pretty exceptional.

What’s more, it’s prompted management to upgrade its medium-term guidance to deliver between £1.5bn and £2.0bn in free cash flow each year, up from an original target range of £1.4bn to £1.8bn. And with more excess capital being generated, the prospects for store network expansion, higher dividends, and more aggressive buybacks look quite promising.

In other words, Tesco’s growth story looks far from over. But not everything in these results was hunky dory.

What to watch

While Tesco showed confidence in its medium-term trajectory, the near-term outlook was far more cautious.

In the words of management: “Reflecting the increased uncertainty caused by the conflict in the Middle East, we are providing a wider range of guidance than we were previously planning”.

While free cash flow is on track to match the firm’s new medium-term targets, underlying operating profits look like they could be fairly flat, landing between £3.0bn and £3.3bn for the group’s 2027 fiscal year (ending in February). For reference, in its 2026 fiscal year, underlying operating earnings reached £3,152m.

This also suggests that cost pressures might be starting to catch up with the business. Revenue and cash generation continue to grow at a robust pace, but core earnings are proving more sluggish, both from the previously mentioned headwind of rising costs and price undercutting from its competitors such as Asda.

So where does this leave investors today?

What’s the verdict?

Providing Tesco doesn’t start losing its footing against its increasingly competitive rivals, the group’s free cash flow expansion and market share gains suggest the company remains a high-quality compounder even at a more premium valuation.

The threat of potential margin compression might trigger a bit of profit-taking activity, especially if the geopolitical landscape continues to escalate. However, with impressive operational momentum, such dips may simply create ideal entry points for investors looking to add Tesco shares to their portfolio.

With that in mind, I think this business still has much to offer and is worth deeper investigation.

The post Is now the time to consider buying Tesco shares? appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco 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 Aviva (LSE:AV.) share price has been on quite a roll over the last 12 months, climbing by almost 23%. Yet even after this rally, the insurance giant continues to pay an impressive 6.2% dividend yield for income investors.

With that in mind, it isn’t surprising Aviva’s among some of the most popular FTSE 100 stocks to buy right now, according to AJ Bell‘s latest trading data.

But is this all about to come crashing down?

What are the experts worried about?

The upward trajectory of Aviva shares has been largely driven by a genuine and sustained operational transformation at the hands of CEO Amanda Blanc. Having successfully capitalised on the tailwinds created by elevated interest rates, particularly in the annuities market, Aviva’s earnings and margins have all materially improved, triggering a re-rating for Aviva shares in the eyes of institutional analysts and investors.

But this is where things might be starting to get sticky. Following its share price rally, Aviva now trades at a forward price-to-earnings ratio of 12.99 – above its 10-year average of 9.09 by 43%.

Seeing a higher earnings multiple for a business that’s delivered a step change in its financial performance isn’t unusual.

But with the tailwinds of higher interest rates starting to slow, the company’s ability to maintain its current pace seems to lie squarely with the successful integration of Direct Line. And integrating a massive £3.7bn acquisition comes with substantial execution risk.

Aviva’s challenging task

The track record of businesses pulling off large-scale acquisitions is fairly bleak, with most failing to generate any value for shareholders once all the unexpected costs emerge.

To Aviva’s credit, its takeover of Direct Line has so far seemingly been relatively pain-free. Impressive synergies are already emerging, and early regulatory feedback appears to be relatively supportive. Yet the process is far from complete.

Prior to its acquisition, Direct Line built its reputation as a direct-to-consumer, no-broker insurer. A perceived shift away from this approach to doing business could alienate existing loyal customers.

At the same time, management has to shift all of Direct Line’s old claims, underwriting, and policy IT systems onto Aviva’s own infrastructure – a multi-year task that’s notorious for delays and cost overruns.

In other words, while the integration of Direct Line has so far proven relatively smooth, there’s still a risk that might change. And with it, investors may reassess their willingness to attach a premium to Aviva shares.

So is now the time to sell?

It’s important not to ignore the significant integration risk this business currently faces. But at the same time, it’s worth pointing out, under Blanc’s leadership, Aviva has been developing a habit of defying analyst expectations. And with a juicy dividend yield on offer, investors are being compensated for taking on a bit of risk.

It’s important not to ignore the significant integration risk this business currently faces. But at the same time, it’s worth pointing out that, under Blanc’s leadership, Aviva has been developing a habit of defying analyst expectations. And with a juicy dividend yield on offer, investors are being compensated for taking on a bit of risk.

With that in mind, for investors looking to gain exposure to UK insurance, drip feeding some capital into Aviva shares over time, could be a move worth considering.

The post What’s wrong with Aviva and its share price? appeared first on The Motley Fool UK.

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Zaven Boyrazian 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.

Diageo (LSE:DGE) shares have taken quite a big tumble over the last few years, driven by a combination of managerial mistakes and tougher market conditions. But that might be all about to change.

With a new CEO taking over at the start of 2026, turnaround specialist Dave Lewis is now 110 days into his tenure. So if someone had invested £5,000 into the beverage giant on his arrival, how much money would they have today?

Calculating the return so far

Across roughly the first two months of 2026, Diageo shares were on a roll. Strengthening sentiment surrounding Lewis’ impressive track record translated into a 16.6% increase in the stock price, turning an initial £5,000 into £5,830.

Sadly, this recovery momentum didn’t last. The company released its results for the six months ending in December, which was a stark reminder of the challenging situation Diageo is in. And with Lewis not providing a more detailed breakdown of his turnaround plan, shares once again started to tumble.

Consequently, a £5,000 initial investment is now worth closer to £4,595 today.

However, it’s still very much the early days of Diageo’s turnaround. And despite what the current share price performance suggests, Lewis has been busy making some bold moves.

The progress so far

Step one of any business turnaround strategy is to start fixing cash flow leaks. This typically means cutting costs. And on that front, Diageo’s already begun delivering results.

The firms $625m annualised savings programme is already on track to deliver half of its target by June. Operating margins have also seen a modest bump, while dividends have been effectively slashed in half.

Seeing a payout cut is never fun. But the move freed up roughly $1bn of annualised free cash flow, helping to accelerate debt reduction efforts. At the same time, ongoing portfolio optimisation efforts have seen several non-core assets flagged for potential divestment, reconcentrating focus on the best parts of the business.

What comes next?

The next critical milestone is the May trading update. Beyond being the first set of results that reveals the firm’s performance since Lewis took over, the CEO is also expected to unveil far more details about his turnaround strategy.

But beyond repairing the balance sheet, analysts are specifically looking out for signs of volume recovery in the US and Chinese markets.

Combined, North America and the Asia Pacific regions make up 59.9% of Diageo’s operating profits. Yet weaker consumer spending has been dragging down organic growth while inflation drives up costs, resulting in the bottom line moving in the wrong direction.

So where does that leave investors today?

What’s the verdict?

Right now, Diageo’s firmly within the discovery and acknowledgement phase of its turnaround. Based on the moves made so far, it seems like 2026 will be a reset year, with a lot of changes to pricing, volumes, branding, and corporate structure. In my opinion, 2027’s likely going to be the year when investors will find out whether or not Lewis’ strategy is working.

So for those considering adding Diageo shares to their portfolios today, it’s important to recognise that even if the turnaround is a success, it’ll be a multi-year journey. But for patient investors comfortable with some short-term volatility, Diageo could be a stock worth mulling.

The post £5,000 invested in Diageo shares 110 days ago is now worth… appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo 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.

Despite the popularity of gold, now might actually be a terrific time to start looking for top-notch shares to buy instead.

The surge in gold prices over the last few years has been driven by a genuine increase in safe-haven asset demand courtesy of all the geopolitical uncertainty. But there’s also a lot of speculation going on. And it’s why gold prices have become quite volatile in recent weeks, falling by double digits.

And it could be on the verge of falling even further.

If the conflicts in Eastern Europe or the Middle East begin de-escalating, that could be the ultimate catalyst that triggers a commodity sell-off as geopolitical risk drops and investors rush to lock-in their multi-year rally profits.

But that money has to go somewhere. And history shows that the stock market is often the most popular destination. That’s why, with plenty of quality FTSE 100 stocks trading at discounted prices today, I think now’s an excellent time to capitalise on bargains in the pursuit of impressive long-term gains. And with the right moves, it could even pave the way for an earlier retirement.

Why FTSE 100 shares?

In recent years, the UK’s flagship index has delivered far more impressive returns compared to other indices. And a big reason why boils down to the type of companies it contains. Beyond being in primarily defensive sectors, the majority of UK large-cap stocks generate revenue from international markets.

This geographic diversification not only helps reduce risk, but also means that the UK’s notoriously weak economy hasn’t held them back. And this structural advantage is a big reason why the FTSE 100 continues to outpace the FTSE 250 even in 2026.

So which companies should investors be looking at today?

A contrarian April pick

Out of all the FTSE 100 stocks that have taken a tumble recently, RELX (LSE:REL) currently stands out as an interesting potential outlier. Despite the share price getting slashed by almost a third over the last 12 months, the business is actually still delivering impressive results.

AI disruption fears resulted in a lot of panic selling in February. Yet the evidence so far suggests quite the opposite’s happening, with the group’s new AI tools not only attracting new customers, but increasing the spend of existing ones.

Obviously, there’s no guarantee this won’t change. Cheap and cheerful third-party AI data analytics tools are improving. And whether RELX can protect its pricing power against fiercer competition remains to be seen.

Yet with the market shooting first and asking questions later, RELX shares are now trading below even the most pessimistic share price forecasts from institutional analysts.

With that in mind, it’s no surprise that 16 out of 17 analysts now recommend the stock as Buy or Outperform. And it seems even RELX’s management is following this advice with the unveiling of plans to buy back £2.25bn worth of its own shares in 2026 alone.

With the market pricing RELX as if it has already been disrupted despite evidence to the contrary, the risk-to-reward ratio looks quite favourable, in my eyes. And it could even be one of the best shares to buy right now.

So for investors looking for a discounted growth opportunity, RELX could be worth a closer look.

The post I’m ignoring gold and hunting FTSE 100 shares to buy as I aim for an earlier retirement appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. 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.

Earning a high dividend yield is a superb way to generate chunky passive income from an investment portfolio. And when leveraging the power of a Stocks and Shares ISA, all of that income can be enjoyed tax-free.

What’s more, it doesn’t take a huge amount of money to get the ball rolling. A few hundred pounds is all that’s needed. But someone with a £5,000 lump sum has a lot of flexibility. And with the right stocks, it’s enough to unlock upwards of £350+ passive income overnight with a 7%+ yield.

So how can I do this?

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

Earning a 7%+ yield

Right now, there are just shy of 30 companies in the FTSE 350 offering a payout of at least 7%. Some dividend stocks even venture into double-digit territory.

However, it’s important to remember that the higher the yield, the higher the risk… in most cases. It’s the job of an investor to dig deeper, understand the risk and decide whether or not it’s worth taking. And right now, there are definitely some UK shares that the market seems to be underestimating.

One such stock might be Supermarket Income REIT (LSE:SUPR). With a 7.41% dividend yield on the table, if I invest £5,000 today, I’d instantly unlock a £370.50 annual passive income. So is this a buying opportunity? Or is it a trap?

Impressive fundamentals

As the name suggests, Supermarket Income REIT is a commercial real estate landlord that leases properties to supermarkets across the UK and France.

By exclusively dealing with retail giants such as Tesco and Waitrose, the company has had no issues when it comes to rent collection. And as of 2026, all of its properties are currently occupied, generating recurring and reliable rent.

Moreover, the average duration of its leases currently spans 12 years, with 82% including inflation-linked uplifts. This has translated into exceptional cash flow visibility. And it’s how the firm’s been able to continuously hike dividends since its IPO in 2017.

So what’s the catch?

The most immediate issue is debt. Building a real estate empire isn’t cheap. And the company has been borrowing money to help cover the cost. That isn’t unusual, and the generated cash flows are more than sufficient to cover the interest payments.

Until recently, the group had £443.4m of debt maturing before July 2027. In March, this problem was partially resolved by raising capital through a bank loan secured against its joint venture property portfolio with Blue Owl Capital. Essentially, the company borrowed long-term debt to cover short-term maturities.

This has certainly helped reduce near-term refinancing risk. But it’s effectively delaying the problem rather than solving it. And at an interest rate of 5.24%, this new debt isn’t cheap, applying pressure to excess cash flows used to fund dividends.

The bottom line

With new properties recently being acquired, management projects a nice boost to its rental cash flows, helping both improve dividend and interest coverage.

There’s no denying the elevated short-term refinancing risk surrounding this business. But if the company’s successful in restructuring its debt load and continues to collect rent on time and in full, patient investors with a long-time horizon may want to take a closer look at Supermarket Income REIT and its dividend yield.

The post Here’s how to invest £5,000 in an ISA for a 7.41% dividend yield appeared first on The Motley Fool UK.

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Zaven Boyrazian 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.

After losing almost 99% of its market value over the last five years, Synthomer‘s (LSE:SYNT) gone from a high-performing FTSE 250 stock to a dirt cheap penny share.

What on earth’s gone wrong here? And is there any chance of a turnaround for this once-mission-critical chemicals business?

What happened to Synthomer?

It was only around five years ago that Synthomer shares were a popular pick among institutional investors. And it’s not hard to understand why, considering the stock had delivered a 2,078% total return between 2009 and 2021.

That’s the equivalent of a 29.2% average annualised return – enough to beat even billionaire investor Warren Buffett’s exceptional track record. And then suddenly it all came crashing down. Why?

Synthomer’s one of the most dramatic cases of self-inflicted value destruction. And while the stock started imploding in 2021, the problem actually originates from a decision made in 2020.

The pandemic triggered a massive supercycle in NBR latex – the raw material needed to make disposable medical gloves, which hospitals, care homes, and consumers rushed to buy as Covid-19 ravaged the world. And as one of the world’s largest producers of this special material, Synthomer entered into a gold rush with both revenues and profits exploding.

But management made one crucial error. They assumed this momentum would last forever. And proceeded to make two expensive and disastrous acquisitions of Omnova Solutions in 2020 and the adhesives division of Eastman Chemical in 2021.

To fund these deals, management saddled the balance sheet with over £1bn in debt, creating a ticking time bomb. Then in 2022, it happened. Lockdowns were lifted, the pandemic subsided, and demand collapsed overnight.

With earnings imploding, the company was forced to repeatedly renegotiate its debt covenants to avoid a breach, and to this day, the debt problem hasn’t been solved.

What now?

In 2026, most investors have written off this business entirely. Yet despite its deep unpopularity, there may actually be a glimmer of hope. Management’s in the midst of refinancing negotiations with its creditors. And to be fair, Synthomer might have an ace up its sleeve to secure relatively favourable terms.

As it turns out, the group’s self-help initiatives are finally starting to bear fruit. Free cash flow generation has returned to positive territory after years of being in the red. And EBITDA has also returned to growth, driven by cost-cutting margin expansion.

This goes to show that Synthomer isn’t a broken business – merely an overleveraged one. And if the current trends continue and creditors’ patience doesn’t run out, there now appears to be a genuine road to recovery available for this penny share.

The bottom line

Synthomer has until 2027 to deliver more material improvement to secure a new deal with creditors.

While management’s ruled out using an equity raise to solve its debt problem, the company ultimately may not have a choice if progress stagnates. And for shareholders, this worst-case scenario could result in their investment getting utterly obliterated by dilution.

With that in mind, buying shares in Synthomer isn’t for the faint hearted. It’s a high-risk turnaround play that could either leave investors laughing or weeping based on what happens over the next eight to 12 months. For now, it’s not a risk I’m willing to take.

The post Down 98.5%! Is there any hope for penny share Synthomer? appeared first on The Motley Fool UK.

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

The UK stock market’s filled with plenty of high-yield income stock opportunities right now. And while double-digit payouts can be risky, several companies have so far managed to keep on rewarding loyal shareholders with chunky passive income.

With that in mind, let’s explore two such investments. Are these terrific buying opportunities, or should I steer clear?

An under-the-radar energy play

First on the list is the FTSE 250 enterprise, Energean (LSE:ENOG). With operating cash flows remaining stable, the oil & gas producer has continued to maintain dividends for the third year in a row. Yet with the share price slipping, the yield’s been steadily climbing. And right now, investors can lock in a massive 10.28% payout.

What’s going on?

The business continues to be highly cash generative and has even secured exceptional contracted revenues of $20bn, granting management rare long-term visibility. Yet this might be just the tip of the iceberg.

With the company’s second oil train to its flagship floating production storage and offloading (FPSO) vessel already entering commercial operation, the firm’s production capacity is on track to expand considerably.

In other words, operating cash flows could be set to grow even larger, paving the way for even more dividends.But if that’s the case, why aren’t more investors taking advantage of the high yield?

Risk versus reward

Despite what the share price suggests, Energean’s incoming cash flow surge hasn’t gone unnoticed. Institutional analysts are fully aware of this growth catalyst, yet they still refuse to aggressively buy shares for one big reason: systemic geopolitical risk.

The problem is that Energean’s FPSO is operating just off the coast of Israel – essentially next door to the US-Iran conflict. And all it takes is one drone strike to damage or potentially destroy Energean’s most valuable asset.

At the start of March, the Israeli Ministry of Energy and Infrastructure had already ordered the company to temporarily cease production as a result of escalating geopolitical conflict. And while Energean received the green light to restart operations earlier this month, future shutdown orders remain a persistent and recurring threat.

Is it a risk worth taking?

For conservative income stock investors seeking exposure to the oil & gas sector, Energean’s likely a bad fit. There’s no denying the cash-backed 10.3% dividend yield is exceptionally compelling, but it’s also genuinely risky.

If production is forced to shut down again for a prolonged period, future cash flows could disappoint, risking a rapid and substantial dividend cut in the worst-case scenario.

Having said that, if the war comes to an end, the evaporation of geopolitical uncertainty could trigger a sharp upward correction in Energean’s share price, closing the window of opportunity to lock in a double-digit payout. This is a classic high-risk, high-reward scenario. So for investors with the stomach for volatility, Energean could indeed be an income stock worth investigating further.

The post Here’s 1 passive income stock yielding 10%+ today! appeared first on The Motley Fool UK.

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Zaven Boyrazian 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.

It’s never too late to start building wealth with UK shares to strive towards a life of financial freedom. Even someone in their 40s has more than enough time to benefit from the power of compounding and secure a much more comfortable retirement.

But how much money could you make? With £500 invested each month at the stock market’s 8% average long-term return for 20 years is enough to accumulate £294,510.21 when starting from scratch. But for those able to keep investing for another decade, that number jumps all the way to £745,179.72!

Here’s how to get started.

Investing’s never been easier

With a low-cost index tracker fund, investors can instantly diversify their portfolios to have a small piece of every company within a specific index. And here in the UK, the most popular index to track is the FTSE 100.

Consisting largely of defensive sectors, the FTSE 100 has proven to be far less volatile in recent years. And even though it contains mostly industry titans like Rolls-Royce (LSE:RR.), investors have nonetheless enjoyed some robust gains since 2021.

Fun fact: when including dividends, these large-cap UK shares have generated a total return of 82.6% over the last five years – an average of 12.8% a year. Yet this pales in comparison to what some stock pickers have achieved.

Jaw-dropping returns

Building a custom portfolio of top-notch UK stocks can yield far greater returns compared to relying solely on index funds. And anyone who bought shares in Rolls-Royce five years ago knows this first-hand.

Following a change of leadership, a drastic corporate restructuring, a recovery of the travel industry post-pandemic, and the expansion of defence and energy initiatives, Rolls-Royce has gone from a cash-burning business into a cash-printing giant.

The result? Shareholders have earned a staggering 1,170.7% total return, the equivalent of a 66.3% average annualised return. Anyone who’s been drip feeding £500 each month for just the last five years is now already sitting on roughly £218,963.10. And if this trend were to continue for another five years, that number would skyrocket to over £5.7m!

Time to buy Rolls-Royce?

Sadly, with a £100bn market-cap, it’s unlikely Rolls-Royce will deliver another 1,100%+ return by 2031. But that doesn’t mean the growth story’s over.

With leadership unlocking exceptional operating leverage, the company’s bottom line and free cash flow generation continue to improve even with more modest revenue growth. And now that European nations are ramping up their defence spending, Rolls-Royce is already busy capitalising on new near-term tailwinds.

Pairing this with management’s aggressive multi-billion-pound share buyback programme, Rolls-Royce shares seem on track to continue outpacing expectations.

However, no investment is ever without risk. Geopolitical escalations are creating supply chain headaches that could cause new defence and aerospace orders to be delayed.

What’s more, higher fuel costs drive up airline ticket prices. And with many consumers already being economically squeezed, travel demand could suffer, resulting in fewer flying hours for Rolls-Royce to earn maintenance service income.

There’s no denying that Rolls-Royce is a genuinely high-quality business with multiple catalysts for growth. But with expectations now high, the risk-to-reward ratio may not be as compelling today compared to 2021.

That’s why I’m personally more tempted by other UK shares with exciting long-term wealth-building potential.

The post No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce 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.

Even with the FTSE 250 rallying almost 10% since the start of April, there remain plenty of dirt cheap buying opportunities. And one stock that has the pros excited right now is Frasers Group (LSE:FRAS), with one expert predicting the stock could jump 64.2% in the next 12 months alone.

Is that ambitious? Certainly, but with a price-to-earnings ratio of just 6.7 – one of the lowest in the entire FTSE 250 – it’s far from impossible.

Here’s the opportunity

As a quick introduction, Frasers Group is a global retail, real estate, and investment conglomerate. It owns multiple retail brands such as Flannels, Evans Cycles, and most notoriously, Sports Direct, as well as having a stake in others like Hugo Boss, Puma, ASOS, and Mulberry.

Today, the most optimistic share price forecast for the stock is 1,100p issued by the analyst team at Jefferies. And as previously mentioned, if this projection proves accurate, a £1,000 investment today could be worth close to £1,642 by this time next year.

So what’s behind this forecast?

3 catalysts required for success

Jefferies’ bull case stands on three distinct pillars:

1. The group’s ‘Elevation Strategy’ succeeds in transitioning the product range from low-margin to high-margin premium products.
2. Fraser’s portfolio of other brands (Hugo Boss, etc.) is re-rated by investors to reflect their fair value.
3. Buybacks continue to support a structural recovery of Frasers’ share price.

The third pillar is already being fulfilled with Fraser’s currently executing a £70m buyback programme. It’s the first and second pillars that are a bit more challenging.

Pillar number two will require a positive shift in sentiment towards luxury goods – a market that’s currently in the midst of a cyclical downturn due to lower global consumer spending.

As for pillar number one, here management does have control and is actually showing encouraging early signs of progress. Fun fact: in the latest half-year results, retail sales growth remained modest at 5.1%, but retail profits shot up 12.2% thanks to expanding margins.

With underlying pre-tax profits on track to potentially reach as high as £600m in its 2026 fiscal year (ending in April), up from £560.2m, this FTSE 250 stock does indeed look ludicrously cheap compared to the current trajectory of earnings.

So what’s the catch?

Macro and governance concerns

Fraser’s core retail business appears to be chugging along nicely, even with strong consumer spending headwinds. But that resilience could soon be tested with both the UK Minimum Wage and higher Employer National Insurance contributions driving up the cost of labour as the company enters its 2027 fiscal year.

There’s also the question of Frasers’ founder, Mike Ashley. He holds close to 73% of the outstanding shares, giving him ultimate control. But with a history of erratic deal-making, public disputes, and using his shares as collateral for personal loans, it presents a significant governance risk that could hold Frasers’ shares back.

So where does that leave investors? Frasers is genuinely one of the cheapest stocks in the FTSE 250 right now, with the business performing far better than what its valuation implies. But buying shares will demand patience from shareholders who are comfortable tolerating the Ashley wildcard risk factor.

Personally, that’s not my cup of tea. But for other contrarian investors looking for a bargain, Frasers may be worth a closer look.

The post Should I buy this ridiculously cheap FTSE 250 stock today? appeared first on The Motley Fool UK.

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Zaven Boyrazian 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.