Investing strategy

My investing strategy is to focus on buying shares in high-quality companies. The advantage of this is that it should work relatively well in any situation.

The best businesses are able to do at least one of two things: charge higher prices and incur lower costs. Companies in this position have a huge advantage in just about any situation. And that’s why I think they make for great investments.

Pricing power and lower costs are beneficial when things are going well, but they can also make businesses more resilient in difficult situations. That’s why I think finding the right companies is more important than predicting the future. And the FTSE 100’s a great place to look.

Finding a dynamic, growing business trading at an attractive price isn’t easy. But I think it’s possible right now.

Contract catering

Compass Group‘s (LSE:CPG) a contract caterer that’s bigger than its next two competitors combined. And it has a simple business model.

The firm’s size gives it a cost advantage that it uses to offer customers low prices. That increases its scale further and the cycle continues. That scale is extremely difficult to replicate. And this makes it very hard to see how this type of business can be disrupted by competitors.

Compass also looks to grow through acquisitions. This can be risky, but the ability to reduce costs goes some way to offsetting this.The contract catering market is extremely fragmented and that means there’s a lot of scope for the firm to keep making acquisitions. 

Compass isn’t a complicated business, but a durable competitive advantage and strong growth prospects are an attractive combination.

Threats and opportunities

Despite what I see as some clear strengths, the stock’s been falling. And there are a couple of reasons for this. One is that organic sales growth has slowed to 7%. But that’s still impressive and the firm anticipates this stabilising. 

Another is that there are potential threats on the horizon. One of these is artificial intelligence (AI) replacing workers. If AI agents take over from humans, demand for catering services in offices might fall. And that’s something to keep an eye on. 

It’s important to note though, that there are also opportunities. A tough macroeconomic environment encourages organisations to bring down costs. One way of doing this is by outsourcing services. And Compass is able to offer better savings than its competitors for firms looking to do this.

Hard to resist

I set a Buy price of $28 (the share price is quoted in dollars) for Compass Group. And the stock finally reached that level this week. 

It was incredibly tempting to just buy it when it got close. But I’m delighted to have got the price I really wanted. 

The stock could absolutely fall further from these levels. My view though, is that it’s cheap enough to be worth me buying at my target price..

The post Down 23% from its highs, I’ve just bagged myself a FTSE 100 bargain! appeared first on The Motley Fool UK.

There are all kinds of opportunities in the FTSE 100 and the FTSE 250. So here are a few I think are worth investors following closely.

Rentokil Initial

I own shares in Rentokil Initial (LSE:RTO) in my ISA. And it’s fair to say the stock has done pretty well for me since I bought it. 

In an uncertain world. I think it’s one of the FTSE 100’s most predictable businesses. Demand for pest control isn’t going away any time soon.

The company’s balance sheet has been a concern recently. It acquired a big competitor in the US and took on a lot of debt in the process. Things, however, have been moving in the right direction recently. And if this continues, I think the stock could still do very well.

Boring businesses don’t always get the attention they deserve, which is fine. But Rentokil is definitely one investors should keep an eye on.

Target Healthcare REIT

Target Healthcare REIT (LSE:THRL) owns over 90 care homes across the UK. It makes money by leasing these to private operators. 

This is an industry where demand should be strong for some time. Put simply, people are living longer and that’s likely to increase the need for care.

The stock comes with a 6% dividend yield, which is pretty attractive. It means a £1,000 investment could return £60 in cash directly to investors.

Investors should note that regulation means the firm could be forced to incur costs if standards change over time. That’s one of the key risks. While this isn’t under Target’s direct control, it has been trying to prepare for this. And it’s done this by focusing on high-quality assets.

Attempting to stay ahead of any changes is the best thing the firm can do. So I think it’s an interesting business in a promising industry.

Compass Group

Compass Group (LSE:CPG) is a name a lot of investors won’t have heard of. It’s a FTSE 100 contract catering firm. 

While the name might not be familiar, it’s the industry leader. It’s bigger than both of its nearest two competitors combined. That size and scale gives Compass a big advantage. It means the firm has lower costs and can charge customers lower prices.

Despite being the leader, the firm only accounts for 15% of the global food services market. And that leaves plenty of scope for growth. 

Most of the firm’s sales come from the US (which is why its share price is listed in dollars). And that makes a recession over there a real risk.

Despite this, I think this is one for investors to take a closer look at. The more I find out about this business, the more I like it. 

Get it right

I think all three of the companies I’ve listed here are worth considering for a Stocks and Shares ISA. But investors don’t have to rush.

The important thing is to look at the businesses properly and build an informed view of them. That’s the key to investing well.

The post Getting started with investing? Here are 3 UK stocks to take a look at appeared first on The Motley Fool UK.

One strategy is to hold off buying and wait for opportunities. That might be what billionaire investor Warren Buffett has been doing recently, but it’s not the only strategy for most investors.

Warren Buffett

A lot of people have pointed out that Buffett’s investment vehicle Berkshire Hathaway has been building cash reserves recently. While it has made some investments, it’s sold more than it’s bought.

I think it’s always worth paying attention to what some of the most thoughtful investors are doing. But Berkshire does have some unique reasons for piling up cash at the moment.

Sooner or later, the firm’s going to have to deal with Buffett’s shares being liquidated by the charities it’s being left to. And the company doesn’t want this falling into activist hands.

New CEO Greg Abel indicated that the way to avoid this might be by buying them back in a private transaction. Berkshire’s done this before, but it would cost around $165bn.

Stock market crashes

A stock market crash can be a tough experience. It’s not much fun seeing something you’ve bought selling 20% more cheaply a week later, especially if it’s part of your retirement plans. 

When it comes to investment returns though, stock market crashes matter less than you might think. The most important thing is what the underlying business does.

Every company – even the best ones – go through difficult periods. But the best ones find ways to recover and this is what makes them great investments over the long term. 

That means investors don’t need to wait for a stock market crash before thinking about buying shares. What they need to do is find high-quality businesses with strong long-term prospects.

A FTSE 100 survivor

Contract catering company Compass Group‘s (LSE:CPG) a great example. Lockdowns and travel restrictions meant the FTSE 100 company was hit hard by the pandemic.

The share price crashed 36% as sales fell and the firm barely broke even. But it came storming back, with revenues and earnings per share now at record levels – and the stock’s responded. 

A key reason for this is the company’s scale, which gives it lower costs than competitors. And that allows it to offer better value to customers while maintaining strong margins.

That’s a long-term advantage not going away any time soon. So I think it’s a stock that investors could happily consider buying at today’s prices, even if a big downturn is around the corner.

Opportunities

The way to get ready for a stock market crash is to own shares in businesses that are likely to emerge stronger on the other side. That gives investors the best long-term chances.

If artificial intelligence (AI) leads to the kind of job losses investors are worried about, then Compass Group will find its business takes a hit. But this has happened before. 

In that situation, I expect weaker demand will hit competitors with higher costs harder. So I think Compass might emerge stronger, which will ultimately lead to better investment returns.

The post Which are the best stocks to buy ahead of a potential market crash? appeared first on The Motley Fool UK.

Half-a-million’s a big number. But with steady saving, ISA tax benefits, and the miracle of compounding returns, it’s not as crazy as it sounds. With a Stocks and Shares ISA, UK investors pay no tax on capital gains or dividends. That makes a big difference over 10-20 years.

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.

Turning regular savings into £500k

Imagine you start by using this year’s Stocks and Shares ISA limit to invest £20,000, then keep adding £500 every month in the years after that opening year. The key is to invest in solid dividend stocks and reinvest all the returns for years.

Let’s say the portfolio returns around 10% a year on average (price growth plus dividends). A rough sum, say £20,000 up front plus £6,000 a year in contributions, can grow to about £500,000 in around 20 years — if markets play ball. That is because the pot is not just growing from your £500 a month, but also from growth on all the money already invested.

In the early years it feels slow, but after a decade, the growth accelerates.

An appropriate example

Compass Group (LSE: CPG) runs catering and support services for organisations all over the world. It has long, sticky contracts and serves millions of meals a day, making revenue fairly steady.

Over the last 20 years, its share price has risen about 430%, which works out at roughly 9% a year in price growth. On top of that, its dividend yields typically around 1%-2% a year, taking the total return to above 10%. That kind of compounding is exactly the sort of pattern a long‑term ISA investor is trying to copy.

Recent results back up the ‘steady compounder’ story. In its 2024 full‑year numbers, it reported revenue of about $42bn, up around 11% on the year, and lifted its operating margin to roughly 7.1%. Earnings per share (EPS) and free cash flow both grew strongly, and return on capital employed (ROCE) sits in the high teens to mid‑20s – impressive for a large, mature business.

Pros, cons and risks

Compass looks attractive because it operates in everyday areas such as workplace and stadium catering. With demand fairly steady, it has delivered strong growth and cash generation over many years, paying a growing dividend with a yield of around 2%. This is supported by a sensible payout ratio of roughly 60%, leaving room to reinvest and expand.

Still, that yield is meagre compared with more popular UK income shares.

On the risk side, rising wages and food inflation could squeeze margins if Compass cannot fully pass on costs. Given it often trades on a premium to the wider FTSE, investors are already paying an inflated price. Yes, it’s a high‑quality company, but it must keep delivering or risk a correction.

The bottom line

For a British saver considering an ISA for retirement, a stock like Compass is a core long‑term holding to consider. It’s not a get‑rich‑quick play, rather a business with the kind of steady, compounding profile that makes reaching a £500,000 portfolio over a couple of decades a realistic goal.

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Despite strong gains from the FTSE 100 recently, I think some quality stocks have been discarded by the stock market. And that’s where I’m looking for potential buying opportunities. 

Compass Group

In general, I like businesses able to charge customers lower prices than their competitors while still making more money. That’s why Compass Group (LSE:CPG) stands out to me.

The contract catering firm’s size allows it to negotiate better prices from suppliers by ordering in bulk. And it uses this advantage to charge customers less and fend off competition. 

The stock’s down 14% since the start of the year as investors weigh a few risks. One is the threat of anti-obesity medication and another is US hospitals finding themselves under financial pressure.

Importantly though, the company’s competitive advantage is still firmly intact. Nobody’s likely to match its scale any time soon and that’s why I think it’s worth considering at today’s prices.

Rentokil

Rentokil (LSE:RTO) shares fell 7% on Thursday (12 February). The reason is that one of the main risks – the amount of debt on its balance sheet – has become more of an issue.

The firm has a lot of debt after a huge acquisition a couple of years ago. And while it’s actually bringing its debt level down, it’s doing this with cash already borrowed at a higher rate. 

Investors should watch the debt maturities, but I think the business is likely to be one of the most durable around. Pest control isn’t going to be disrupted by AI or anti-obesity drugs.

Rentokil’s big acquisition brought a lot of debt, but it also made it the market leader. That’s a very valuable long-term position to be in, which is why it’s a stock I’m watching closely at the moment.

Judges Scientific

By comparison, Judges Scientific (LSE:JDG) is a tiny operation. But the scientific instrument company is my number-one UK stock for investors to consider at the moment. 

The share price is down 32% in the last 12 months. That’s largely because of weak demand from the US, where funding for scientific research has been under a lot of pressure from the government.

This is entirely out of Judges Scientific’s hands and thus represents a risk. Congress however, recently rejected the administration’s proposals (and increased budgets instead of cutting them). 

That should be a huge boost for the business. And while it isn’t showing up in the share price yet, I think this could be a great time to buy shares in a company with some terrific long-term prospects. 

Beyond Rolls-Royce

Rolls-Royce has been a brilliant stock for investors over the last few years. And the reason’s simple — it’s a quality business, but its shares were trading at a discounted price.

The question for investors is where to find that combination in today’s stock market. And Compass Group, Rentokil, and Judgest Scientific all fit into that category.

I think investors would be wise to give any of them a closer look. While I’m favouring Judges Scientific right now, I see all three as worthy candidates for consideration

The post 3 UK stocks I like more than Rolls-Royce right now appeared first on The Motley Fool UK.

According to Buffett, one business was so strong that if someone could only own one stock for the next 50 years, it would be hard to find a better candidate. Have a guess at what it was.

Costco

It’s Costco (NASDAQ:COST). In Buffett’s words: “Costco is an absolutely fabulous organization… If you had to pick one company to own for the next 50 years, you’d have a hard time finding one better than Costco.”

Fair enough. But the really interesting thing isn’t which stock Buffett identified but why he chose it. And it has to do with the company’s business model.

Like a lot of businesses, Costco uses economies of scale to generate a cost advantage. It then passes these on to consumers in the form of lower prices, creating strong customer loyalty.

Holding down prices also makes things extremely difficult for competitors. Any time another retailer increases their prices, Costco looks more attractive by comparison.

The process reinforces itself. Attracting customers helps boost the company’s scale, which increases its cost advantage, which allows it to lower prices even further, attracting more customers.

The stock used to be part of the Berkshire portfolio, but the firm sold its stake, in a move Buffett later described as mistake. And it looks expensive to buy at today’s prices. 

The question for investors, then, is where to find similar businesses to Costco with shares trading at more attractive prices. And I think the place to look might be the FTSE 100.

Compass Group

Compass Group (LSE:CPG) is a contract catering business. That’s a different industry to grocery retail and it can be more cyclical, as investors have been seeing recently.

A recession can force companies to cut back on external spending, threatening demand. But while this is a risk, there are striking similarities between the firm’s business model and Costco’s.

Compass has a big scale advantage, being the largest operator in its industry and around the size of its next two competitors combined. And it uses this to buy ingredients in bulk.

This generates economies of scale, giving the firm a cost advantage. This allows it to be competitive when it comes to contracts, but it’s not the only similarity with Costco. 

One of the most attractive things with Costco is the membership structure. Customers pay a subscription just to shop in their stores – and Compass has something similar.

The firm allows third parties to use its food-buying platform and benefit from the associated savings. But it charges them a fee for doing so, which boosts its margins and profits.

Long-term investing

The first thing Warren Buffett cited in support of Costco was its business model, rather than its growth potential or its profit margins. I think this is quite striking. 

There aren’t many companies that can do what Costco does, but Compass is probably one of the closest comparisons. And it’s one I think investors should consider buying with a view to owning it for the next 50 years.

The post Here’s Warren Buffett’s “1 company to own for the next 50 years” from 2000 appeared first on The Motley Fool UK.

Nobody knows for sure what 2026 will bring. But I’m prepared to predict that a couple of high-quality names that have underperformed in 2025 are about to have a good year.

Compass: the strong survive

It’s been a tough year for contract catering firm Compass Group (LSE:CPG). The stock’s down more than 10% since January in a year where the FTSE 100’s up 13%.

US healthcare providers – one of the company’s key markets – are in a tough position. They’re facing higher costs due to wage inflation and managers are looking for ways to offset this.

As a result, they’re looking to bring down costs and this is a threat for external contractors like Compass. But I think it could also be an opportunity.

The firm’s massive scale gives it a cost advantage over competitors. And in a world where customers are price conscious, being able to offer better value could be crucial.

I therefore think there’s a chance for Compass to win new business from competitors. And even if this doesn’t come with the usual margins, it could be very positive. 

In that situation, I expect the stock can go higher. But even if I’m wrong about 2026, I see the company’s scale advantage as a force to be reckoned with over the long term.

Unilever: getting into gear

Unilever (LSE:ULVR) shares have largely gone nowhere this year. And the dividend hasn’t been enough to stop the stock underperforming the FTSE 100 on a total return basis.

In a move that feels like it’s been coming for a long time, the company’s finally divested its ice cream division. Given the high capital requirements, I think this is a good move.

Importantly, the firm’s CEO has stated an intention to push on with transforming the business. So I’m expecting to see more growth-focused initiatives coming in 2026.

Consumer spending is under pressure right now and this could be an issue for Unilever in the year ahead. It’s not hard for customers to switch to cheaper products if they want to. That’s a risk, but I’m expecting the firm’s recent moves to result in higher margins. And signs of progress on this front could help push the stock higher next year.

The company isn’t naturally a dynamic growth business, but the board’s brought in the new CEO to push things along. So I think the stock looks interesting both in 2026 and beyond.

Investment opportunities

Even the best businesses go through challenging periods. But for companies with durable competitive advantages, these can be buying opportunities. I think both Compass Group and Unilever – for different reasons – fall into this category. And that’s why I expect both to do well both in the year ahead and further into the future.

I already own Unilever shares in my portfolio, so I’m favouring Compass at the moment as a stock to consider buying in 2026.

The post Prediction: I think these FTSE 100 shares can outperform in 2026 appeared first on The Motley Fool UK.

It’s fair to say the stock has lost some momentum recently. But I’m very interested in what I think could be a clear path to sustained revenue growth for the long term. 

Warning signs

It’s easy enough to see why the stock’s been falling. The underlying business seems to have lost some momentum after a strong recovery coming out of Covid-19. 

A key metric for monitoring this is organic revenue growth. This measures how much sales have been increasing by adjusting for acquisitions (more on those later). 

The firm was never going to keep growing at 37.5% a year. But the rate continues to slow and the stock still trades at a price-to-earnings (P/E) ratio roughly double the FTSE 100 average.

Given all this, investors might well think the stock’s overvalued. In fact though, it’s getting to a point where I’m starting to take it seriously as a potential buy for my portfolio.

A heavyweight

Compass is the largest operator in the contract catering industry. And with revenues roughly equal to its nearest two competitors combined, it’s a true FTSE 100 heavyweight. 

That size is a big advantage. Being able to buy ingredients in larger volumes than its rivals gives the company a crucial advantage when it comes to costs. 

A decentralised approach means the firm benefits from local and industry-specific knowledge as well as economies of scale. And that’s a powerful combination.

All of this makes Compass very difficult to disrupt and this goes some way towards justifying the relatively high multiple. But there’s also more to the firm’s growth prospects. 

Acquisitions

Compass has previously grown by acquiring other companies and management expects this to continue. Investors typically see this as risky though, and justifiably so. 

With acquisitions, there’s always a danger of paying too much for a business. But while the risk can’t be eliminated, it can be limited and this is something the firm does very well. 

As said, Compass is the largest operator in the contract catering industry, but the firm only accounts for around 11% of the market. And it estimates that 75% consists of local or regional operators. 

The company’s ability to add value by incorporating new subsidiaries into its existing network means there could be a lot of scope for growth. This is something to take seriously.

Buy time?

Organic growth might be falling, but I think Compass has a lot of scope for long-term growth. It has a very strong position in an important industry and that’s a valuable combination. 

Intrinsically, I think it’s cheap enough for me to buy it, but I’m holding back for now. The question is whether I can find even better value elsewhere – and that might be the case in today’s stock market.

The post A rare slowdown for this FTSE 100 heavyweight — should I buy the dip? appeared first on The Motley Fool UK.

OpenAI chief executive Sam Altman says that GPT-5 is supposed to be like talking to a PhD-level expert. But the response I got resembled something I might expect from first-year undergraduates.

What ChatGPT said

All that ChatGPT gave me is a list of potential AI risks, including weak earnings and tighter regulation. But in terms of a crash, all it said is that the threat’s “meaningful” – whatever that means.

That wasn’t much help. But it offered to help me assess the probability of different scenarios —  including a mild correction, a moderate decline, and a major crash – which sounded better.

This however, turned out to be some statistics about the past frequency of each of these. And it concluded the likeliest outcome is a 10%-20% drop, because that’s happened most before.

That’s information I can get myself fairly easily. But maybe a PhD isn’t what you need for figuring out when a crash is coming and the best way to prepare.

How I’m preparing

Given this, I’m sticking to my usual approach for being ready for a stock market crash. Part of this involves having an idea of which shares I want to buy if prices go down sharply. 

What I look for is a business that’s going to emerge from a downturn in a stronger position than it was in before. And that means a company with a strong competitive advantage.

When things get tough in an industry, it’s often the case that the weakest firms get hit the hardest. So stronger operators find themselves in an even better position when things recover. That means looking for businesses with big competitive advantages. And there’s one in particular from the UK that’s at the top of my list. 

What to do?

Compass Group (LSE:CPG) is a FTSE 100 contract caterer. It’s not an obvious AI casualty, but if automation drives staff reduction, the firm could face lower demand from workplaces.

The company however, has an incredibly strong competitive position. It’s the biggest operator by far and its scale gives it an advantage when it comes to negotiating prices with suppliers.

What impresses me most is that the firm’s been strengthening its position in an unusual way. It’s been monetising its position by letting competitors use its platform in exchange for a fee.

This generates extra cash while disincentivising rivals from trying to build a competing operation. I think this makes it a brilliant move in terms of securing its long-term position.

Crash opportunities

ChatGPT wasn’t able to tell me much about whether the next stock market crash is imminent. That might be because figuring this out is just too hard even for PhD-level thinking. 

Given this, my plan is to make sure I’m ready with a list of stocks I want to buy whenever the next big drop in share prices comes. And Compass Group’s one of these.

Right now, the stock’s about 10% above my target price. But I expect it to be more resilient than its peers in a big downturn and that makes it an ideal candidate to consider in a crash.

The post I asked ChatGPT if an AI bubble’s about to cause a stock market crash and it said… appeared first on The Motley Fool UK.

I’m a big admirer of the business, its competitive position, and its growth record. So I’m wondering whether this might be my opportunity to add the stock to my portfolio. 

Valuation

Right now, Compass Group shares are trading at a price-to-earnings (P/E) ratio of around 40. That’s higher than the likes of Alphabet, Amazon, and Meta and doesn’t sound low, by any standards.

Sometimes however, P/E multiples can be misleading and I think that’s the situation here. Shares in the UK contract catering firm are actually a lot cheaper than they look. 

The company’s official net income reflects a number of one-off costs and non-cash charges. Adjusting for these, the current share price implies a P/E ratio closer to 26. That’s a much more reasonable metric. And it’s well below where the stock has traded in recent years, which suggests investor sentiment’s weaker than it has been in some time. 

Growth

After more than doubling since October 2020, the share price has been falling since the start of the year. And one of the main reasons is that organic revenue growth’s been slowing. 

Leaving aside acquisitions, sales grew 8.5% in the first half of the year. While a lot of FTSE 100 businesses would view this as not bad at all, it marks something of a decline for Compass Group.

The more the firm uses acquisitions to drive top-line growth, the more risk investors see in the stock. And this might be justified, given the inherent danger of overpaying for other businesses.

I think though, that there are reasons to be optimistic about sales growth. Recent macroeconomic data from the US – where Compass generates more than half of its sales – looks encouraging. 

Services PMI

The Purchasing Managers Index (PMI) by the Institute for Supply Management (ISM) is one of the best monthly economic indicators. And the latest report for the services sector looks encouraging.

Source: TradingView

The index as a whole is at 50, which indicates neither contraction nor expansion. But below the surface, Accommodation and Food Services were the strongest sectors overall. 

There are signs of the impact of US tariffs on imported ingredients, which is another risk. So I’ll be keeping a close eye on margins when Compass Group reports in November. 

Overall though, I think the latest report’s very encouraging for the FTSE 100 company. And that’s why I’m thinking carefully about whether this might be my chance to buy the stock.  

Long-term investing

Compass Group has a strong position in an industry that I expect to be durable. Its scale gives it a number of advantages over competitors in terms of lower costs, efficiency, and reliability.

This long-term strength is why I’m interested in the company in the first place. But right now also looks like an unusually good time to consider buying. The stock’s trading at an unusually low valuation and there are signs that growth might be about to pick up.

That’s why I think this could be my chance to add the stock to my portfolio and hope to do so as soon as I have the cash.

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