July saw the inflation rate in the UK dropping. Yet, as it’s still sitting at nearly 8%, August seems like a smart time for investors to begin generating some passive income to help put their money to work.

It’s often believed that a large amount of cash is needed to generate healthy returns. But this isn’t the case. And in fact, over the long term, investing small amounts can see these funds build.

With that said, here’s how I’d use August to create passive income streams that could serve me in the times ahead.

How I’d start

To start, I’d pinpoint my focus on the FTSE 100. The index experienced a revival in July. However, the last decade has proved to be a torrid time for the UK stock market. In this period, the Footsie has returned a dire 17%. By comparison, the S&P 500 has risen by nearly 170%.

However, I’m not complaining. As a Fool, I see this as an opportunity. And I see value in UK stocks.

The index also has a variety of companies that pay investors meaty dividend yields. As I write, there are 15 offering yields of 6% or more!

Its average payout is nearly double that of its American counterpart. This year alone, it’s predicted to reward investors with over £80bn in dividends.

The execution

So I’ve targeted the FTSE 100. But where do I go from here? Well, to put my plan into action, I’d target a variety of industries within the UK lead index. By doing so, I ensure my investments aren’t reliant on one company or industry.

The highest yielding stocks are spread across industries such as investment, insurance, housebuilding and tobacco. So I’d focus on these and I like the look of Legal & General and British American Tobacco.

Elsewhere, there are stocks that offer slightly lower yields but still sit above the FTSE 100 average (around 4%).

Stocks in my portfolio that fit this criteria include the likes of Lloyds, which has a yield of 5.6%. And more widely, I like the look of the banking sector, so stocks such as HSBC, which offers a 4.7% yield, are firmly on my radar.

Boosting my returns

There are also a couple of other methods I could adopt to enhance my returns.

Firstly, I’d reinvest my dividends. Over time, this will help me buy more shares, in turn reaping greater rewards and building wealth. Sometimes companies also offer investors incentives to do this, such as discounted stock prices.

Secondly, I’d look to top up my investments with a small monthly payment. By doing this on a consistent basis, I could benefit from compounding.

Next steps

Of course, there are risks when targeting dividend stocks. Mainly, payments can be reduced or cut altogether should unforeseen circumstances arise. We saw this with the pandemic. And the business can do this at any moment.

However, by adopting the methods above I’m pretty confident I could begin to build solid streams of passive income. And I see August a great time to start.

The post I’d use August to take advantage of a once-in-a-decade passive income opportunity! appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Legal & General Group Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., HSBC Holdings, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett is one of the most successful investors ever. And like many, the ‘Oracle of Omaha’ started investing with a small amount.

With his fortune being over $100bn, it’s unlikely I’ll be able to emulate his success. However, I think this shows that even without savings, building wealth is possible.

If I had to start today, here are the methods I’d copy from Buffett to do it.

Invest regularly

With no savings, I don’t have a lump sum of cash to kickstart my investing journey. Therefore, putting money aside and investing it on a consistent basis is key to helping my savings pot grow.

By doing this, I can reap the benefits of compounding. Buffett has alluded to the power of this method, stating how he’s generated his wealth from “a combination of living in America, some lucky genes, and compound interest”, Ignoring the first two (as neither applies to me), placing an emphasis on compounding is a strategy I can adopt to aid me in the long run.

Long-term approach

With that, Buffett doesn’t invest for a quick payday.

Building wealth isn’t going to happen overnight, it’s a process. And as has been proven time and time again, adopting a long-term approach is the best way to reap the rewards.

Volatility in the stock market is inevitable. And we’ve most certainly seen this in the past few years. However, these short-term peaks and troughs are ironed out in the long run.

Take the S&P 500 as an example. 2022 saw the index fall by 18%. Yet in the last decade, it’s risen around 16% a year on average.

With no savings, I may often feel inclined to sell when I see the value of my investments dwindling. However, by viewing them over a timeframe of five to 10 years minimum, I can ignore short-term volatility in favour of long-term growth.

On top of this, by investing on a regular basis and with a long-term approach, I’d also benefit from ‘pound cost averaging’, which essentially balances out the price that I buy at. 

Be alert

I’d also have to be alert. Buffett has stated on multiple occasions to “be greedy when others are fearful”. And this means that when opportunities arise in the stock market to buy quality companies cheaply, I must be ready to act.

Buffett did this in the global financial crash of 2008 when he bought a host of stocks at slashed prices.

What to buy?

So, with all that, what sort of companies should I be buying?

Well, Buffett’s portfolio includes the likes of Apple, Coca-Cola, and Bank of America. And it’s quality companies in which I see long-term growth potential (such as Buffett did with these) that I should be targeting.

Of course, replicating the methods of Buffett is easier said than done. However, by copying him and despite a lack of savings, I’m fairly confident I could build wealth in the long run.

The post No savings? I’d copy these Warren Buffett methods to build wealth appeared first on The Motley Fool UK.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Apple. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’ve long been an advocate of investment trusts. I think they’re a great way for retail investors to gain exposure to a variety of stocks in a simple way. There’s also the bonus of, hopefully, some meaty long-term gains.

There are many trusts available to invest in. And many specialise in different areas. However, right now I have my eye on F&C Investment Trust (LSE: FCIT). Here’s why.

The lowdown

So, what exactly does this trust do? And how has it performed across this difficult year?

F&C invests in over 400 companies in 35 countries with the aim “to secure long-term growth in capital and income through a policy of investing primarily in an internationally diversified portfolio of publicly listed equities, as well as unlisted securities and private equity.”

The trust is run by fund manager Paul Niven, who’s been at the helm since 2014. Overall, it manages around £5bn worth of assets.

It’s been a tough year for the stock as it’s fallen around 9% year to date. This is largely due to the bleak economic environment. And with inflation on the charge across the globe, investor sentiment has been dented. The FTSE 100 is down 3% year to date. And in the US, the S&P 500 has plummeted by 18%.

Why I’d buy

With all of this, why would I buy the trust?

My main attraction is the diversification mentioned above. It holds hundreds of companies, including names like Microsoft, Amazon, and AstraZeneca.

By owning the stock, what I essentially do is offset my risk. This is because with a single investment I own a small slither of all of these companies. In the volatile times we’re experiencing, this is important for me.

What’s also an added bonus is the fact that its investment strategy aligns with mine. By this, I mean it buys for the long term. And as a Fool, I believe this is the best way to invest. While past returns are no indication of future performance, the last decade has seen the trust return 170% to its shareholders.

I also like the stock due to its stable nature. The trust is the oldest in the world, meanings it’s survived multiple crises. On top of this, it has increased its dividend payment for the last 51 years, highlighting its consistency.

The risks

With this said, there are risks with F&C.

They largely exist through its exposure to emerging markets, which make up 7.6% of its asset allocation. While these markets can offer great opportunities, they can also be volatile. And given the current economic conditions, these markets could suffer in the near future.

However, as mentioned above, this short-term volatility is of little concern to me. With a long-term approach, issues should be ironed out. In the long run, I back the trust to discover the opportunities that exist within emerging markets. I also like the diversification it could provide my portfolio with. While I don’t have the spare cash right now, if I did, I’d happily buy its shares today.

The post I’d buy this top investment trust today! appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In his many years of investing, Warren Buffett has amassed a net worth comfortably into the billions.

During his time as CEO of Berkshire Hathaway, the Oracle of Omaha has produced mouth-watering returns – double that of the S&P 500.

Along the way, Buffett has dropped nuggets of advice that I believe all investors should seriously consider when stock picking. Here are three pieces I’d use for my portfolio.

Buy the business

A lot of people judge their decisions based on the share price of a company. However, Buffett has stated in the past that it’s more important to focus on the strength of the business itself.

What this means is that he doesn’t necessarily buy stocks solely because they have a low valuation, for example. Instead, he looks more widely at whether he deems a stock attractive due to its core business features.

If this is the case, Buffett can then assess whether the share price offers value. This again doesn’t mean it’s just ‘cheap’ – but that he sees potential for growth.

Long-term outlook

As well as this, he also buys stocks for the long run. As he once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

Investments will undoubtedly go through volatile periods. But with a long-term perspective, these short-term headwinds are almost irrelevant.

Be greedy

Finally, Buffett has also talked of the ability to “be greedy when others are fearful” as a powerful tool to maximise returns.

The declines we’ve seen in global markets this year are obviously an issue. However, with Buffett’s advice, these declines also become an opportunity.

With many attractive businesses taking hits, now could be the perfect time for me to pile in.

These in action

With these in mind, it makes sense why Apple (NASDAQ: AAPL) is Berkshire’s top holding. The majority of people could tell you the value of Apple’s products and services, showing the strength of the business. And with the stock down 4% in 2022, this may be an opportunity to grab some shares.

On top of this, while past performance is no indication of future returns, the last five years have seen Apple stock rising 343%. For its long-term investors, these are some hefty returns.

Buffett deems Apple as one of his ‘four giants’. And in the second quarter, Berkshire topped up its holdings with an additional 4 billion shares.

The tech giant also posted some strong results in its latest update to shareholders, where net sales jumped 2% compared to H1 2021.

Within the results, CEO Tim Cook talked of Apple’s ability to “enrich the lives” of customers.

The business may see a slowdown in demand in the upcoming months as the cost of living continues to rise. Higher costs for materials and supply chain issues may also prove headwinds for the firm.

However, like Buffett, I deem Apple a strong addition to my portfolio. Its core business features are more than attractive. And if it carries on with its impressive growth, I think I could see some healthy long-term returns.

The post I’d follow this Warren Buffett advice when buying stocks appeared first on The Motley Fool UK.

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

Untold amounts have been wiped off global markets this year. And while the FTSE 100 and S&P 500 have made small recoveries in the last month or so, investors will still be anxiously waiting to see what else 2022 can throw their way. With these falls, I’m on the lookout for beatdown stocks that I can buy for a bargain price. So Rolls-Royce (LSE:RR) shares spring to mind.

The business has been dealt a bad hand as far as the last few years are concerned. Hopping from the Covid-19 pandemic to the tragic war in Ukraine has seen the firm’s operations seriously hindered (and at times halted).

Rolls-Royce is down over 30% this year. So, should I be snapping up some shares?

Latest results

A good place to start is by looking at the half-year results released last week.

The update revealed that compared to the same period last year, Rolls-Royce managed to increase revenues slightly to £5.3bn.

Despite this, investors still dumped the stock as underlying operating profits declined from £307m last year to just £125m this half. The business pinned this drop-off on the issues it currently faces from rising inflation and the Ukraine conflict, citing that “the external environment remains challenging.”

One positive was the minimal increase seen in net debt. Compared to H1 2021, it had risen only £20m to £5.16bn, which is encouraging.

However, even though the small jump does provide some optimism, the debt itself remains a large issue. A debt pile of this magnitude could hinder the business going forward. And with interest rates on the rise, this is a further stumbling block.

Rolls-Royce has taken strides to eradicate some of this debt, such as the sale of ITP Aero to an American private equity firm. Yet for me, this is still a deterrent.

Is it time to buy?

So, is it time to snap up some shares?

Its latest update reveals the harsh reality of the current economic conditions. And the firm is also feeling this in other ways.

For example, the company is currently locked in a pay dispute with labour union Unite. Its previous offer of a £2,000 cash lump sum was rejected. And now members are balloting on a new offer of a 6.5% base pay increase. Taking place from 3 August to 17 August, the outcome of this could have implications for the Rolls-Royce share price.

But while the outlook is murky for the business, a reviving aviation sector could save the firm. Despite the issues currently being seen at airports, the travel sector has made some decent strides to pre-pandemic levels. Investors will be hoping this can continue.

With this said, I won’t be adding Rolls-Royce to my portfolio right now. Its situation is a representation of the tough times we face. And with supply chain issues potentially worsening due to poor China-Taiwan relations, this could see the stock suffer further. I’ll be keeping Rolls-Royce on my watchlist for now.

The post Is now the time to be snapping up Rolls-Royce shares? appeared first on The Motley Fool UK.

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Charlie Keough 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.

However, stock market returns don’t always have to be this flashy. In fact, a mere 8% per year gain, with dividends reinvested, compounded over 30 years, can leave investors with a healthy figure. At 21 years old, this is a strategy I am currently employing to build wealth for later in life. Let’s take a closer look at three key ways I plan to do this.  

Compound interest and high dividends

So, where did I start? I currently invest a minimum of £200 per month into a Stocks and Shares ISA. I also invest in index funds, which mimic indexes like the FTSE 100 or S&P 500. Over the past 30 years, with dividends reinvested, these indexes have averaged returns of 7% and 10%, respectively. If I had started investing in the FTSE 100 with £1,000 to start and a £200 per month top-up 30 years ago – granted I wasn’t born yet – my investment would be worth over £250,000 today. Using the S&P 500’s healthier returns, I would have made over £470,000 from the same 30-year period of investing.

Another tactic I could use would be to focus on building a high-yielding dividend portfolio and reinvesting the cash generated. If my portfolio was generating 8% a year, with a 5% dividend reinvested, then my £1,000 would be worth over £920,000 when I was 50. Using this passive income hack is another way I can build a healthy retirement fund by benefitting from compounding.

Investing regularly

The key strategy here is to drip feed small amounts regularly. This investment style isn’t about generating big returns straight away, so there is no need to dump thousands into my portfolio at the start. This also helps to ease the pressure on my personal finances.

By investing small but consistent amounts, I also benefit from a phenomenon called dollar-cost averaging (or pound cost averaging in my case). Dollar-cost averaging works by investing fixed amounts consistently and benefitting from the overall upward trend of an asset, regardless of the price of each entry. This helps develop financial discipline as well as reduce the stress of investing.

Focussing on quality

The final way that I am looking to build a strong retirement fund is by making high-quality, long-term investment decisions. Whether this entails investing in index funds or choosing individual high dividend companies, I am going to take the long-term outlook. That is, investing in stable growth companies with a 30-year outlook, as opposed to high-growth stocks that could give me a quick return now.

Overall, by investing small amounts regularly, into index funds and high-quality dividend stocks, I think I can build myself a comfortable retirement fund over the next 30 years. There are always risks in investing in the stock market, but by taking this slow growth, consistent approach, I think I can make my money work in my favour for the future.  

The post Here’s how I’m using £200 a month to retire at 50 appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

Warren Buffet is renowned as one of the greatest investors of all time. Since he took the helm at Berkshire Hathaway in 1965, his investments have generated an average annual return of 20% – double that of the S&P 500.

While not all the Oracle of Omaha’s stock picks have delivered blockbuster returns, there’s certainly plenty of valuable advice he has offered along the way. Here are two pieces I’m using when buying stocks today.

Seize opportunities

It’s no secret that global markets have taken a beating this year. Inflation has spiked globally. And with it reaching near 10% in the UK and US, investor confidence has been knocked.

However, I don’t think Buffett would be concerned about this. As he once said: “Be greedy when others are fearful.” And, as such, I think the large fall we’ve seen in some good companies presents an opportunity to get in cheap.

Long-term vision

As with all stocks I invest in, I like to think long term.

As the man says himself: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

It’s more than likely that investments may hit a bump in the road at some point. But a long-term outlook nullifies any near-term headwinds.

With market volatility running rife at the moment, this is a great reminder that picking stocks for fundamental long-term growth is key.

What I’d buy

So, what stocks are out there for me right now that fit these criteria?

Well, I like the look of Unilever.

The stock is down nearly 10% over the past 12 months, showing investor confidence may have taken a hit as wider pressures continue to mount. And as a long-term investor, I think it would be a solid addition to my portfolio.

I like Unilever because of its strong brand name. The business owns over 400 household brands, including companies such as Sure and Dove. And with a third of the world using its products daily, this shows its strength.

I think because of this, it may fare well against rising inflation. Although rising rates will see consumers cut back on spending, it’s unlikely to be on the everyday essential items Unilever brands sell. Its strong market position also gives it, to some degree, more pricing power — which the firm proved in Q1.

The business is also building strong foundations for the long run as it commences a €3bn buyback scheme. It bought €750m worth of its shares back in March. And this should see the stock’s price rise in times ahead. Its 3.67% dividend yield is a further bonus.

One concern I have with Unilever is its large debt. And with interest rates potentially being hiked further, this only magnifies this issue for the firm.

However, I’d still follow Buffett’s advice when buying the stock. At a cheap price, I see Unilever as a strong long-term hold.

The post How I’m following Warren Buffett when buying stocks! appeared first on The Motley Fool UK.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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.

2022 has seen the Tesla (NASDAQ: TSLA) share price falling nearly 40%. With ongoing supply chain issues derived from Covid-19, the firm has also seen rising pressure due to spiking inflation.

But despite these headwinds, last week saw the stock rebound by 10%. In fact, over the last month it has witnessed a 16% rise. So, after falling from its 52-week high of over $1,200, can it recover?

Tesla Q2 update

Earlier this month saw the release of Tesla’s Q2 production and delivery update. Within the period, the electric vehicle manufacturer produced over 258,000 vehicles, while it also managed to deliver over 254,000. This equated to a 27% increase year-on-year.

However, Q2 was the first time vehicle deliveries fell quarter-on-quarter in more than two years. The firm pinned this to “ongoing supply chain challenges and factory shutdowns,” as Tesla has struggled with production in recent months due to those Covid-19 restrictions hitting operations in China. Despite this, June 2022 was the highest vehicle-production month in the firm’s history.

Where next for Tesla?

So, where does the EV manufacturer go from here?

The slowing of production from Tesla falls in line with wider market struggles. Both the Nasdaq and S&P 500 have experienced large declines this year. And especially impacted have been growth stocks. This is because upward inflationary pressures tend to have the opposite effect on the price of these stocks. And as a result, the first half of this year has seen them come tumbling down. As investors tend to switch their money to ‘safer’ value stocks in volatile times, Tesla may continue to struggle in the near future.

Another issue I see with Tesla is its high valuation. For me, a price-to-earnings (P/E) ratio of 101 shows the stock is very overvalued. With this said, its P/E has been much higher in the past.

The business may also struggle with rising competition. There’s been a large push for a faster transition to electric vehicles in recent years. For example, in 2020 the UK government announced the sale of new petrol and diesel cars will end by 2030. And as such, I can see competition heating up in the EV space. This can already be seen with rivals such as Ford, which has pledged to be all-electric by 2030. While Tesla currently holds a dominant market position, this may slip in the future.

Despite this, I won’t write off the firm. It has taken massive strides to expand its manufacturing capacity. It recently unveiled its new Giga Texas plant. And at the same time, it has also set out plans to boost European sales with the opening of a gigafactory in Berlin. While this may cost Tesla in the short term, its ambitious expansion plans could help it retain its dominant position further down the road.

What I’m doing

The firm’s expansion should help it thrive in the long run. And its ambition has seen Tesla grow massively in recent times. However, I won’t be buying the shares today. I think macroeconomic pressures could see its price slip further. And with competition heating up, Tesla may see its role as industry leader slide.

The post The Tesla share price is rising. Here’s what I’m doing appeared first on The Motley Fool UK.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

Warren Buffett is renowned for his quotes. Over his long and successful investment journey, Buffett has always liked to buy quality stocks for a cheap price. For example, amid the devastating financial crash back in 2008, he famously quoted in a letter to Berkshire Hathaway shareholders how “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

With 2022 having seen big falls in the stock market so far (for example, the US S&P 500 is down 22% year-to-date), here’s why I’d follow Warren Buffett and buy Apple (NASDAQ: AAPL) stock today. It’s by no means a cheap stock, but it is marked down at the moment.

Apple share price history

Long-term investors in Apple have seen strong results over time. Following the firm’s rise, the last five years have seen its share price rocket by 275%. In fact, Apple has risen over 1,300% in the last decade. However, the stock has failed to repeat this form in 2022. It’s down 26% year-to-date. Despite a 7% rally in March, the share price has struggled to take off this year.

Apple shares make up nearly half of Berkshire’s stock portfolio. And amid its fall, Buffett has rushed to purchase more shares in the tech giant. At the end of March 2022, Berkshire had nearly $160bn worth of Apple shares.

Apple opportunities

With this fall, I think, just like Buffett, that Apple could be a strong addition to my portfolio. One reason for this is the firm’s buyback scheme. Led by CEO Tim Cook, in recent times the business’s performance has been boosted by the programme. Companies buy back their own stock for a variety of reasons, with one being to increase value for shareholders. Last year alone, Apple spent over $85bn on buying back shares.

Also, the current Apple share price can be seen to provide value from some viewpoints. Buffett has previously said that “the important thing is to know what you know and what you don’t know.” Essentially, what he means by this is that investments should be understandable. And with over a billion people using Apple devices across the world (myself included), it’s clear to see the useful services that Apple provides and to understand why it’s popular.

Apple risks

With this said, there are a few concerns I have with this stock.

Firstly, it’s currently trading on a price-to-earnings ratio of around 22. While it has been higher in times gone by, this is still not cheap.

Apple may also suffer from the cost-of-living crisis. With everyday life becoming more expensive, the business may see a slow in demand as consumers shy away from purchasing new expensive goods. This would no doubt impact the share price.

Why I’d buy

Despite this, I still deem Apple a buy. Although it could see a drop-off in demand, I think it holds such a strong position in the market this is unlikely. And along with the firm’s buyback scheme, I think the company is in a strong position to bounce back. Just like Buffett, I would buy Apple shares today for the long term.

The post Why I’d follow Warren Buffett and buy this stock today! appeared first on The Motley Fool UK.

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

What caused the large decline?

There is no doubt that the recent Q4 trading update from the company was a disaster. In fact, for the first time in its history, daily active users dropped slightly to 1.929bn. This was partly due to the rise of TikTok, which has been attracting many younger users. This also led to disappointing forward guidance, whereby Q1 revenues are only expected to increase 7% year-on-year.

There are also issues due to operating changes by Apple, which allows iPhone users to tell app makers not to track them around the internet. This was introduced in June 2020, and it has been revealed that it will likely cost Meta around $10bn in revenues this year. These are big numbers, and due to the recent issues with the company, its impact seems particularly profound right now. As such, there is a risk that Meta stock will continue to fall due to the weaker growth prospects.

Is Meta stock now too cheap?

The recent dip may have made it an ideal time to buy though. For example, the stock currently trades at a price-to-earnings ratio of around 15. This is similar to the valuation of many utilities’ companies, which are seeing far slower, or even negative growth. Further, the company has a very large share buyback programme, which was under way even before its disastrous results in February. These repurchases were completed at prices of around $300, demonstrating that the company believed the stock was too cheap at these levels. Therefore, I believe that the stock buyback programme will continue at a fast pace throughout 2022, and this should have a positive effect on the Meta share price.

There is also a hope that Meta will play a major role in the metaverse in the future. Indeed, it’s currently investing a lot of money into development in this area, with the hope that future profits can grow at extraordinary rates. Of course, there are several risks with the tactic, especially as the metaverse may not be as big as the company hopes. Even so, it’s still promising to see a new dimension to the company.

Can the company outperform the S&P 500?

It’s clear that Meta stock is trading at historically low valuations. In comparison to other S&P 500 stocks, it also seems ridiculously cheap. For example, Apple trades at a P/E ratio of around 30, Amazon at over 50 and Nike at over 30. Meta’s growth prospects are not too dissimilar to these companies. Further, McDonald’s,which is seeing slower growth than Meta, has a P/E ratio of 25. This makes me think that Meta is far too cheap right now and will hopefully be able to outperform the S&P 500. I may add some Meta shares to my portfolio.

The post Can Meta stock outperform the S&P 500? appeared first on The Motley Fool UK.

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• Why Meta Platforms shares fell 12.5% in March
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in Apple. The Motley Fool UK has recommended Amazon, Apple, and Nike. 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.