Identifying stocks with decent growth potential can be more difficult than income stocks, as they don’t offer a strong indication of returns, like dividends. Choosing the best ones requires an extensive understanding of global market trends and careful analysis of company financials.

Recently, London Stock Exchange Group announced it was working with Anthropic to bring financial data access to its artificial intelligence (AI) platform, Claude. That gave me an idea: could AI pick decent growth stocks?

I decided to find out.

Testing the field

To get a more varied answer, I asked several AI platforms. Since ChatGPT’s the best-known, I started there.

Shockingly, it decided to go all in on semi-conductor chips, picking Nvidia, AMD and ASML. While they may all be decent choices, picking three stocks in the same industry goes against the number-one rule of smart investing: diversification.

Next, I gave Claude a go. Its answer was arguably even riskier: Palantir, ARM and Coinbase. The first two have eye-wateringly high valuations and the second relies heavily on the success of crypto. No thanks.

Exasperated, I tried one more time, with Gemini. Seemingly stuck in the same trend, it suggested Nvidia, Super Micro Computer and Palantir.

So I gave up. Is AI biased towards semi-conductor chips? Quite possibly.

None of the above companies are necessarily bad picks. But at best, they’re too obvious, and at worst, they lack diversification and a long-term investment thesis.

At the end of the day, I came to a realisation: AI was unlikely to tell me anything I couldn’t find with a quick Google search.

So what’s a good growth stock?

That depends on who one asks. Risk-tolerant day traders looking to make a quick buck might agree with AI’s picks. But I think smart investors with a long-term outlook should be more discerning.

More conservative investors may want to consider one of Warren Buffett’s long-term holdings, Mastercard (NYSE: MA).

The card company’s shown mixed performance recently, with its share price up around 9% over the past year. However, the longer-term picture looks far more impressive, up 445% over the past decade – an annualised return of about 18.5% a year.

The company’s fundamentals remain strong, boasting a ROE of 185.7% and a net margin of 45.2%, highlighting its exceptional profitability. Its valuation’s fairly reasonable for a growth stock, trading at a forward price-to-earnings (P/E) ratio of around 33.

However, emerging fintech challengers could pose a risk and steal some of its market share. The card payments market’s already saturated, so new customers must be retained. 

Still, Mastercard seems unlikely to fade away any time soon given its entrenched role in everyday commerce.

Bottom line

Growth stocks can be exciting, but they’re not for the faint-hearted. Diversification’s key to reducing risk and slow, steady growth’s usually better than rapid, short-term growth.

Establishing a long-term mindset focused on quality and sustainable earnings growth is usually better than chasing the next hot tip from AI.

The post I can’t believe ChatGPT picked these 3 growth stocks as its top choices… appeared first on The Motley Fool UK.

But could this be a rare opportunity to accelerate the journey towards reaching a £1m investment portfolio?

What’s going on?

Even when stripping out volatile food and energy prices, US inflation’s slowly ticking back up. Yet at the same time, the latest revisions to the US jobs report show signs of an economy slowing down. And higher prices combined with slower economic growth are an early indicator of potential stagflation.

That puts the Federal Reserve in a pretty sticky situation. Cutting interest rates will cause inflation to rise, while keeping them elevated might cause a further slowdown in economic growth. Pairing this with elevated stock market valuations points towards a looming correction if economic growth doesn’t rebound.

There’s no way of knowing the exact timing of the next stock market correction, but current consensus from analysts at Morgan Stanley suggests it could arrive as early as the third quarter of 2025.

Profiting from volatility

Stock market corrections are a natural part of every investment journey. And while they can be unpleasant to suffer, they can provide some lucrative buying opportunities for prudent long-term investors, even for typically less volatile enterprises.

Take Mastercard (NYSE:MA) as an example. In the 2022 stock market correction, the payment processing giant saw its market-cap shrink by as much as 20%. That’s obviously a significant change of pace compared to the stock’s typical growth trajectory.

However, while most investors were selling off shares, the few that used this volatility to buy at a discount have since gone on to double their money since October 2022. And this perfectly demonstrates how using a market correction can pave the way for impressive market-beating returns for patient long-term investors.

Could Mastercard win again?

Let’s assume the worst, and say that the US stock market takes another tumble on the back of an economic slowdown. Weaker consumer spending will likely translate into lower transaction volumes for Mastercard, likely sparking some selling activity from short-term focused investors.

However, as demonstrated countless times before, consumers are relying more and more on debit and credit cards to do their shopping. And that will likely enable transaction volumes to steadily recover alongside the economy. What’s more, roughly two-thirds of Mastercard’s payment volumes actually come from outside the US, where economic concerns are less prominent.

Of course, that doesn’t make Mastercard a guaranteed winner. With so much of the global market already under its belt, and tough competition emerging from China, long-term growth expectations are already starting to moderate. And with rising competition from novel fintech payment solutions, the group’s duopoly with Visa could already be getting attacked.

Nevertheless, management isn’t blind to these risks. And with an impressive track record of navigating through economic storms, as well as fending off potential disruptors, Mastercard shares could still be worth a closer look if the US stock market indeed decides to throw a tantrum in the future.

The post US Stock market correction 2025: a hidden opportunity to build a £1m ISA? appeared first on The Motley Fool UK.

However, with US inflation expected to rise sharply in the near term, various financial institutions have increased their estimates on the probability of a recession. For example, JP Morgan currently places a 60% chance of an incoming US recession, with Goldman Sachs having an equally concerning projection of 45%.

However, stock market corrections and crashes are often some of the best times to invest. After all, some terrific businesses often go on sale as panicking investors throw the baby out with the bathwater. And one S&P 500 stock from my portfolio I’ve got my eye on right now is Mastercard (NYSE:MA).

Payment processing vs recessions

Let’s assume the worst-case scenario and say the US does indeed fall into a recession. That’s bad news for Mastercard as it will likely translate into reduced consumer spending. Less spending means lower transaction volumes moving through the fintech’s payment network, resulting in weaker revenue and earnings. And this problem will likely only be compounded if other economies around the world suffer at the hand of higher import taxes.

Needless to say, that’s not something investors will want to see. Even more so from a business that’s trading at a fairly premium valuation of 37 times earnings. With that in mind, it’s not surprising that the Mastercard share price fell by over 12% when tariffs were initially announced. And while the shares have recovered slightly, signs of global economic weakness could see Mastercard shares steadily slide.

Thinking long term

While the near-term outlook for this payment processor appears bleak, the long-term picture hasn’t really changed. The number of issued cards continues to grow steadily and now stands at 3.5bn, with global gross dollar transaction volumes maintaining double-digit growth in the latest quarterly results.

Subsequently, the firm continues to be a free cash flow generating machine with almost $9bn of cash & equivalents sitting on the balance sheet, steadily buying back shares. As a result, zooming out to the last 10 years reveals a fairly consistent upward share price trend that analyst forecasts suggest is set to continue in the long run.

This consistency in beating expectations and generating value for shareholders is why Mastercard is among my larger holdings. And it’s also why I’m always keen to snap up more shares whenever they take a tumble.

However, past performance is no guarantee of future results. And one prominent threat that could handicap the group’s growth is the increasing number of regulatory challenges. In particular, pressure is mounting for Mastercard to cut its transaction fees from various merchant groups – a decision that the firm could be forced into by antitrust regulators.

It’s a risk I’m happy to take. But it’s a threat investors need to mull over when considering an investment in this S&P 500 business.

The post 1 S&P 500 stock on my buy list when volatility strikes appeared first on The Motley Fool UK.

Here, I’m going to highlight three brilliant S&P 500 stocks that have returned more than 20% a year over the last decade (in US dollar terms). Let’s get into it.

Amazon

First up, we have Amazon (NASDAQ: AMZN) and I calculate that over the last 10 years, its share price has risen 1,223%, which translates to about 29% a year.

I first bought this stock for my own portfolio in late 2020 (near $150) and it has done well, rising nearly 60%. I just wish I’d bought it sooner.

Back in 2017, I remember looking at it when it was around $60 and thinking it was too expensive (the price-to-earnings (P/E) ratio was very high). The lesson here – expensive stocks can still generate amazing long-term returns.

Looking ahead, I remain excited about this stock (it’s my largest holding). Given how diversified the company is (e-commerce, cloud computing, digital advertising, etc), I believe it still has substantial long-term growth potential.

That said, if an investor was looking to buy Amazon shares, I’d suggest they consider waiting for a pullback. Since August, the stock’s had a huge run and if upcoming earnings (next week) miss expectations, it could be volatile.

Mastercard

Another US stock that’s done well for me, and has been a brilliant long-term performer, is payments powerhouse Mastercard (NYSE: MA). It’s up about 590% over the last decade which equates to a return of about 21% a year (it’s also paid small dividends).

Like Amazon, I believe Mastercard has a ton of potential. In the years ahead, billions of transitions are set to shift from cash to card. Meanwhile, growth of industries such as e-commerce and travel should also benefit credit card companies. So for me, this is a core holding I expect to retain for many years.

That said, the valuation’s relatively high right now. Currently, the P/E ratio’s about 35. That doesn’t leave much room for setbacks (eg a slowdown in consuming spending). So again, if an investor was interested in this stock, I think they should, again, consider waiting for a pullback.

Intuitive Surgical

Finally, we have Intuitive Surgical (NASDAQ: ISRG), the leading player in the robotic surgery market. It’s risen about 956% over the last decade, which translates to a gain of around 27% a year.

This is a stock I’ve had on my watchlist for many years now. I nearly bought it a few years ago when it was under $250. I wish I had – now it’s near $600.

I’m keen to get this stock into my portfolio at some stage because I expect the market for robotic surgery to grow significantly over the next decade. However, the 72 P/E ratio’s too high for me right now. This leaves almost no room for error. If hospitals were to slow their spending on robotic surgery, the stock could underperform.

So for now, it’s also going to stay on my watchlist. I’m hoping the price comes down a bit in the next 12 months.

The post 3 S&P 500 stocks that have returned more than 20% a year over the last decade appeared first on The Motley Fool UK.

For those who have debts or lack an emergency fund, putting money aside to fix this issue is likely a sensible priority. In fact, even Buffett has advised that paying off credit card debt is a critical step on the wealth-building journey. But for those who have a bit of cash saved up and no high-interest borrowings to worry about, now could be an excellent time to follow in the footsteps of successful investors when aiming for long-term financial freedom.

Focus on long-term quality

A quick glance at the portfolio of Buffett’s investment firm, Berkshire Hathaway, reveals that most of his positions are fairly dull. In fact, most of it consists of consumer-focused brands, financial services, and energy providers.

Yet despite the lack of cutting-edge biotech or skyrocketing AI stocks, Buffett’s investment track record’s been pretty extraordinary. That’s because even boring businesses can be lucrative investments if they’re of high quality and priced at a reasonable valuation. In fact, with most investors chasing the hype train, finding undervalued high-quality businesses in industries or sectors being ignored becomes far easier.

But what makes a business high quality? There are two sides to this equation. There’s the quantitative aspect revolving around the financials, growth opportunities, and cash flows. However, there are also qualitative traits to consider. And this latter part is where Buffett spends a lot of his time searching for competitive advantages.

Having an edge over rival firms that’s sustainable and hard to replicate can be the difference between mediocre and market-beating returns. It’s how companies like Apple rose to industry prominence, lending them enormous pricing power and cult-like customer loyalty.

These advantages can come in many different forms, from a reputable brand to a novel operating model or access to a unique resource. It’s up to investors to uncover these intangible traits. The more advantages a business has, the more likely it could thrive in the long run if the financials are also in good shape.

A top Buffett stock to consider now?

Following Buffett’s investment philosophy has resulted in a lot of monopoly-like stocks entering my portfolio. And one that I share with him is Mastercard (NYSE:MA).

The digital payment processor likely doesn’t need any introduction, with over 3.4 billion cards issued worldwide. While it still battles in close competition with Visa, the firm continues to benefit from a powerful network effect advantage. The more Mastercard credit and debit cards there are in circulation, the more merchants want to accept these cards to complete transactions, which, in turn, attracts even more cardholders in a value-building loop.

In recent years, regulators have begun probing the card payment sector, with both Visa and Mastercard becoming subject to anti-monopoly legislation. And continued regulatory intervention on fees could impede future returns for shareholders.

Nevertheless, with operating margins sitting above 55%, the days of being a cash-generating machine seem far from over, in my opinion. So I think it’s a stock investors should consider in 2025.

The post Entering 2025 with no savings? I’d follow Warren Buffett and start building wealth appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Axon

What it does: Produces a range of self-defence technology and weapons for military, law enforcement, and civilians.

By Mark David Hartley. Previously named Taser after its most popular product, Axon (NASDAQ: AXON) rebranded in 2017 and branched out into a range of defensive technologies. These include bodycams, drones and forensic software, all designed with law enforcement and justice in mind. With the political landscape becoming increasingly unstable in the US, defensive technologies are in high demand. Police and military are rapidly adopting ever more advanced technology to deal with both internal and external terror threats. 

Axon is at the forefront of this industry and perfectly positioned to meet the demand. The share price is already up 48% this year and I expect further growth. In its quarterly earnings posted earlier this month, earnings per share (EPS) and revenue beat analyst’s expectations by 18% and 5.4% respectively. But like many US tech stocks, it has a high price-to-earnings (P/E) ratio of 97 and is 7% overvalued based on future cash flow estimates.

Mark David Hartley owns shares in Axon.

Mastercard

What it does: Mastercard is the world’s second-largest payment processor, operating in over 210 countries and territories.

Not only have its revenues compounded for decades but growth shows little sign of slowing. By the end of Q2, Mastercard partners had issued 3.4bn cards featuring the firm’s brands — an increase of about 200m new cards since Q2, 2023.

Further growth opportunities are in Mastercard’s crosshairs. Data and analytics are key focus areas in a world where artificial intelligence will play an increasingly important role. In addition, the company’s boosting its investment in underdeveloped payment markets, like Africa.

The valuation’s a potential risk for further share price growth. With a forward price-to-earnings (P/E) ratio of around 32.7, Mastercard shares are priced for perfection, leaving little room for error.

Nonetheless, Mastercard has long been among the world’s most reliably profitable companies. I think this will remain the case for some time.

Charlie Carman owns shares in Mastercard and Visa. 

Nike

What it does: Nike is the world’s largest supplier of athletic shoes and clothing and a major sporting equipment manufacturer. 

By Paul Summers. Holders of Nike (NYSE:NKE) stock have endured a difficult year so far. As I type, the shares are down over 20% in 2024 alone. 

If that sounds bad, the situation was even worse in June. Back then, the trainer titan said that it expected a drop in quarterly revenue due to competition from increasingly popular brands like On and Hoka. Lower demand in international markets was also blamed and the earnings outlook for 2025 was lowered. This pushed the company’s value down to levels not seen since the early days of the pandemic. 

Since then, we’ve seen something of a post-Olympics bounce. Whether this lasts is another thing entirely.

However, a sustained recovery might be on the cards if Nike can get innovating again. Lowering its prices and reconnecting with wholesale partners, rather than persisting with a direct-to-consumer strategy, could also help. 

Paul Summers has no position in Nike

ServiceNow

What it does: ServiceNow is a leading provider of cloud-based workflow automation and management solutions.

By Harshil Patel. ServiceNow (NYSE:NOW) might not be a household name, but it’s well known by many IT professionals.

Its platform helps organisations to become more efficient. For instance, it can automate routine tasks, and streamline processes across business areas.

ServiceNow benefits from a strong market position, which it has built by offering simple but powerful tools that are easy to use. This results in high customer retention.

One way it plans to remain competitive is to focus on innovation. Its investments in AI and integrations across its platform should help to keep ServiceNow at the forefront of workflow automation technology for some time.

Bear in mind that this stock is not cheap though. With a price to earnings ratio of 50, any short-term challenges could result in a volatile share price.

That said, this business is growing sales and maintaining margins. It’s also well-run and I’d happily add this US stock to my ISA.

Harshil Patel does not own shares in ServiceNow.

Uber Technologies 

What it does: Uber operates the world’s largest ride-hailing network and also offers food delivery.

By Ben McPoland. I recently sold my shares in Nike and I’m planning to redeploy the money into Uber Technologies (NYSE: UBER).

The company’s ongoing double-digit growth is impressive. In Q2, revenue increased 16% year on year to $10.7bn, or 17% on a constant currency basis. Trips grew 21% to 2.8bn, amounting to approximately 30m trips per day on average.

Crucially, profits are really starting to motor higher. The quarter saw free cash flow of $1.7bn, and this year analysts have a net profit of $4.8bn pencilled in. Profits of $9bn+ are forecast for 2026.

Of course, these projections might fall short. And Uber does face some regulatory challenges, meaning it might have to pay drivers more, which is a risk to profits.

However, the company could also end up being one of the biggest beneficiaries of the shift to autonomous vehicles (eventually resulting in less drivers). It’s partnered with industry leaders, including Aurora Innovation, Waymo, Cruise and BYD. Trips taken in self-driving vehicles on Uber’s platform rose sixfold in Q2.

The stock isn’t cheap, but I can see why 45 Wall Street analysts out of 51 currently have it down as a ‘buy’.

Ben McPoland does not have a position in any stocks mentioned.

The post Best US stocks to consider buying in September appeared first on The Motley Fool UK.

Similarly, General Motors capitalised on the automobile revolution to become the world’s only $10bn firm in 1955. Exactly 40 years later, General Electric made history as the first market cap to top $100bn.

Then the widespread adoption of smartphones propelled Apple to a record $1trn valuation in 2018. It is now worth $3trn, along with Microsoft.

Today, there are thousands of United States Steels ($1bn firms) and hundreds of stocks above $10bn. And there are 87 listed US companies with a market cap above $100bn. Even the sleepy FTSE 100 has six!

So, history shows it’s a question of when not if the next batch of £1trn stocks emerge. Here are three that could get there in 10 years or earlier.

ASML

Today’s technological revolution looks set to speed up with the rapid progress of artificial intelligence (AI) and other advanced technologies.

The common denominator in all this is the semiconductor. And the only company that sells the machines needed for cutting-edge chip manufacturing is ASML (NASDAQ: ASML).

The Dutch firm’s extreme ultraviolet (EUV) lithography system took three decades of research and billions of dollars to perfect. It contains hundreds of thousands of components — some of them pushing the boundaries of physics — from a bewilderingly complex supply chain.

Good luck trying to replicate that!

This monopolistic position at the centre of the industry means it should continue to grow as its largest customers — Intel, Samsung, and TSMC — build new chip foundries and upgrade existing ones.

For 2023, the company reported net sales of €27.6bn, a gross margin of 51%, and net income of €7.8bn. It now has an order backlog of €39bn.

Now, one risk worth highlighting is the ongoing US-China geopolitical tensions. ASML is prevented from selling many of its products to Chinese customers. This will likely slow its growth trajectory.

Still, due to its critical importance today, I’m backing it to become a trillion-dollar company, possibly Europe’s first.

With a market cap of $345bn, its share price would need to rise around 189%. That’s achievable, in my opinion.

Mastercard and Visa

My next two candidates, Visa (NYSE: V) and Mastercard (NYSE: MA), also possess enviable competitive positions. Outside of China, they dominate the digital payment processing market.

This immediately raises some risk, as the two firms are facing regulatory scrutiny. However, this hasn’t yet affected their competitive or financial positions. Visa processes more than 270bn electronic transactions every year. Mastercard isn’t far behind.

To be honest, this doesn’t surprise me. Everywhere around us, consumers are tapping their phones and credit cards. Along with millions of others, I rarely even carry cash these days.

Then there’s global e-commerce, which still has decades of global adoption and growth to go.

Both firms take a small slice of every transaction flowing through their networks. This means even inflation can provide a tailwind, assuming consumer spending doesn’t fall.

With respective market caps of $537bn and $407bn, Visa and Mastercard look poised to join the exclusive $1trn valuation club over the next decade.

The post 3 high-growth stocks that could reach $1 trillion in 10 years — or sooner appeared first on The Motley Fool UK.

Advanced Medical Solutions

What it does: AMS designs, develops, and manufactures innovative tissue-healing technology and wound-care.

By Dr James Fox. I bought Advanced Medical Solutions Group (LSE:AMS) shares a few weeks ago, and while I was buying for the long run, they’ve been good to me so far. At the time of writing, the stock is up 7% since purchase.

It’s a medium-sized business with a track record of delivering strong cash flows and has a competitive advantage in its specialised medical products. It also operates in a highly resilient sector – namely healthcare. Moreover, given the elective procedure backlog, demand should be strong.

The Cheshire-based firm has a reputation for healthcare innovation, and this will likely be enhanced by the launch of LiquiBandFix8. The hernia surgery product was granted pre-market approval ahead of schedule and is now in the partner selection phase.

US LiquiBand sales fell in the first half of the year, and that’s a concern, but the company says partner negotiations are progressing well. Hopefully this will contribute to an uptick in sales and overall revenue in the second half.

James Fox owns shares in Advanced Medical Solutions.

Barclays 

What it does: Barclays is an international bank with operations including retail and investment banking.  

By Charlie Keough. I recently opened a small position in Barclays (LSE: BARC). The stock has struggled year to date, down around 8% as I write. However, I’m optimistic. 

First of all, it offers a dividend yield of over 5%, which should be well covered by earnings. Its half-year results also saw its interim dividend increase, while a new share buyback scheme of £750m was launched.

On top of this, its shares also trade on a price-to-earnings ratio of just 4.3.  

Barclays also has an edge over some of its competitors with its balance between tight-knit risk management versus global opportunities, in my opinion.  

And in the years ahead, banks should bounce back when interest rates begin to come down again closer to the 2-3% range.  

Global economic uncertainty and volatility surrounding the banking sector could damage the share price. After all, the turmoil we saw earlier this year saw the stock hit a 52-week low.  

However, as a long-term buy, I think Barclays shares are a smart move.  

Charlie Keough owns shares in Barclays.  

Cerillion

What it does: Cerillion is a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

By Edward Sheldon, CFA. Cerillion (LSE: CER) shares recently experienced a pullback and I took the opportunity to boost my holding in the software company.

This is one of my favourite stocks on the UK’s Alternative Investment Market (AIM). For starters, the company is growing at a rapid rate. Over the last five financial years, revenue has more than doubled as businesses have embraced Cerillion’s software solutions. For the year ending 30 September 2023, analysts expect top-line growth of 17%.

Meanwhile, its financials are strong. Return on capital (a key measure of profitability) is high and there’s no debt on the balance sheet. As for the dividend payout, it’s growing at a very fast pace (the H1 payout was hiked by 27%).  

The downside to buying these shares is that its valuation is relatively high. Currently, the forward-looking price-to-earnings (P/E) ratio is a little over 30, which doesn’t leave much room for error.

I’m comfortable with this valuation, however, given the company’s growth track record and superb financials.  

Edward Sheldon owns shares in Cerillion

EOG Resources

What it does: EOG Resources develops, produces, and markets crude oil and natural gas liquids, primarily in New Mexico and Texas.

By Gordon Best. I’ve been buying shares in EOG Resources (NYSE:EOG) recently. 

After the energy sector soared in 2022 amid geopolitical uncertainty, the sector has been the worst performing of the S&P 500. However, the price of crude oil has started to rebound, indicating a potential buying opportunity. EOG Resources has always been a favourite of mine, with a price-to-earnings (P/E) ratio of 8.1 times well below the sector average of 13.2 times. 

A notable risk is how cyclical the energy sector can be, amid growing focus on clean energy. Negative sentiment or reduced demand would impact the share price. However, through economic uncertainty, oil demand is likely to be high, and with large cash reserves, the company is well positioned to perform decently regardless.

With a generous dividend of 5.6%, and a strong track record of growth, I see EOG Resources as a solid defensive investment for my portfolio. 

Gordon Best own shares in EOG Resources.

Glencore

What it does: Glencore is a leading global producer of metals and minerals, and also makes money from commodity trading and arbitrage.

By Harvey Jones. My portfolio is light on commodity stocks so when I saw Glencore (LSE:GLEN) shares had dipped 20% in a matter of months, I jumped at the chance to buy on 26 July. I’ve had a bumpy ride so far, although I expected that. This sector is more volatile than most.

Investors have been spooked by signs of disinflation in China while the US could still fall into recession, hitting commodity demand and prices.

On Tuesday, Glencore reported that first-half earnings had halved to £9.9bn, due to weaker commodity and energy prices. Management also blamed “inflation, tighter monetary conditions and limited global economic growth”.

Despite that, I’m happy with my purchase. The stock looks good value trading at 9.5 times forecast earnings and is still expected to yield 7.91% this year and 6.68% in 2024.

Since I’m aiming to hold for a minimum of 10 years and ideally longer, I can ignore short-term bumpiness and allow time for my dividends and share price growth to compound.

Harvey Jones owns shares in Glencore.

Lloyds

What it does: Lloyds is the UK’s largest mortgage provider. It’s also one of the nation’s biggest banks with over 30m customers.

By John Choong: With the Lloyds (LSE:LLOY) share price sinking below 50p recently, I’ve been steadily buying up shares of this leading UK bank. While headline results disappointed some investors, causing the sell-off, I focused on the fundamentals instead.

Rather than reacting to short-term noise, I’m taking a longer-term outlook. After all, management upgraded guidance despite economic uncertainty, with its dividend jumping 15% as well. Bearish views seem to overlook Lloyds’ strong outlook too, as I expect net income to jump as structural hedges take effect in H2, with cost-cutting benefits expected to provide a tailwind.

Trading below tangible book value as well, Lloyds shares offer deep value versus peers as the bank has room to expand margins through fee income and digital offerings. While some fret over near-term headwinds, I’ve been opportunistically buying Lloyds stock on weakness. The future looks bright for this stable UK bank once the clouds clear.

John Choong has positions in Lloyds

Mastercard

What it does: Mastercard is a payment processing company enabling consumers and businesses to complete electronic payments.

By Zaven Boyrazian. While the ongoing cost-of-living crisis continues to put pressure on families, the economic landscape has started to improve both in the UK and internationally. Consumer spending is slowly recovering as inflation begins to cool off. And it’s allowed payment processing giants like Mastercard (NYSE:MA) to enjoy some impressive transaction volumes.

Looking at its latest results, a total of $2.3trn (£1.8trn) moved through Mastercard’s payment network between April and June this year. And that’s up from $2.1trn (£1.7trn) just three months prior.

By charging small fees on each transaction, the company has bolstered its revenue and earnings by double-digits. And while it’s fiercely fighting for market share against the likes of Visa, Mastercard continues to consistently beat analyst expectations.

Future growth prospects are strongly tied to the Asian and African markets, which may be difficult to penetrate. Nevertheless, I remain optimistic about the long-term potential of this enterprise, and bought the shares recently.

Zaven Boyrazian owns shares in Mastercard.

Ramsdens Holdings

What it does: Ramsdens Holdings is a financial services group that offers foreign currency exchange, pawnbroking loans, and the buying and selling of jewellery.

By Ben McPoland. I’ve recently started a position in Ramsdens Holdings (LSE: RFX). This is a penny stock with a market capitalisation of just £70m, so high volatility is an unavoidable risk here.

Nevertheless, there are a number of things I like about this company. One is its diversified offerings, which range from jewellery retail and pawnbroking to foreign currency exchange.

Pawnbrokers tend to do well when consumer incomes come under pressure, and that’s no different during the current cost-of-living crisis. The firm is posting record revenue and operating profits across the full business.

Second, the stock carries a 4.3% dividend yield covered 2.5 times by trailing 12-months earnings. It just hiked the half-year dividend by 22%.  

Finally, the stock trades on a cheap P/E multiple of 9.2. That’s attractive because earnings growth is set to continue as Ramsdens adds to its 158 stores around the UK. Its online offering is also growing rapidly and the company intends to consolidate the highly fragmented market in which it is thriving.

Ben McPoland owns shares in Ramsdens Holdings.

Ten Entertainment

What it does: Ten Entertainment operates a network of bowling alleys around the UK, which also offer a range of other entertainment options.

By Roland Head. Ten Entertainment (LSE: TEG) has recovered strongly from the pandemic and recently reported half-year sales 57% above pre-Covid levels.

The business is continuing to expand and expects to open at least four new centres in 2023, taking its total estate to more than 50 centres.

The firm’s more recent accounts show attractive double-digit profit margins and strong cash generation. Ten Entertainment has no debt other than lease liabilities.

There’s obviously some risk of a slowdown in consumer demand if the UK suffers a recession. Growth could become a challenge, too — I don’t know how many more centres the firm will be able to open.

However, Ten Entertainment’s offering is relatively affordable and appeals to a broad market. The company’s shares look decent value to me too, trading on just nine times forecast earnings, with a 4.1% dividend yield.

I think the stock could deliver a decent return from current levels.

Roland Head owns shares in Ten Entertainment.

The post 9 shares that Fools have been buying! appeared first on The Motley Fool UK.

Growth at a more reasonable price

One stock that I think has the potential to do very well in H2 is electronic payments giant Mastercard (NYSE: MA). It’s having a good run in 2023. But it hasn’t run anywhere near as hard as some of the mega-cap tech companies, having gained ‘just’ 15%.

As a result of this underperformance, Mastercard now looks more attractive than several of the Big Tech stocks in terms of valuation. Currently, it has a price-to-earnings-to-growth (PEG) ratio of 1.7. That compares to 3.2 for Apple and 2.1 for Microsoft.

Given this lower valuation, I wouldn’t be surprised to see big-name investors move money out of Big Tech and into this stock as they rebalance their portfolios in the months ahead.

A world-class company

Like the Big Tech stocks, Mastercard is a high-quality company with a lot going for it from an investment perspective.

For starters, it has a very wide economic moat. Its enormous global payments network cannot suddenly be replicated by a competitor. This allows the company to consistently generate a very high return on capital.

Secondly, it’s benefitting from several powerful trends. One is the shift from cash to digital payments.

Another is the increase in global travel (people tend to use their credit cards a lot when abroad). It’s worth noting that the travel industry is now booming again. For example, France is so overwhelmed by tourists that it has a campaign to channel them away from the popular destinations to less visited places! This leads me to believe that Mastercard’s near-term earnings could be better than expected.

The stock is also a natural inflation hedge. When prices rise, so do its revenues as it takes a small cut of every transaction on its network. So it could be attractive to those looking for inflation protection.

Finally, it’s worth pointing out that Mastercard has recently been moved from the Technology sector to the Financial sector. I think this could increase investor interest in the company in the near term. Instead of investing in a bank, a fund manager can now get exposure to financials through this world-class payments company.

I could be wrong

Now, of course, Mastercard shares may not do well in the second half of 2023. Like every company, it has its own unique risks. New legislation aimed at curbing credit card transaction fees is one here to consider here. A downturn in consumer spending is another.

All things considered however, I think there’s a reasonable chance the stock will produce healthy gains in the second half of 2023. It’s in an uptrend and currently breaking out to new all-time highs, which is very bullish, to my mind.

If I didn’t already have a large position in the payments company, I would be investing in it today.

The post 1 of my top investment ideas for the second half of 2023 appeared first on The Motley Fool UK.

Without further ado, here are a selection of their top long-term buy-and-hold investments!

Alphabet

What it does: Alphabet owns Google and other digital properties including YouTube as well as incubating new tech businesses.

By Christopher Ruane. In the long term, I find it hard to be anything other than optimistic about the prospects for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

I realise there are risks, from an advertising downturn hurting revenues to the growth of AI reducing demand for search services. But Alphabet is a massively profitable business with a large user base.

Those users have invested time and effort in using its services, making many of them unlikely to switch even if they could find a competitor. In reality, Alphabet is the clear market leader in key areas, such as search. It has proven it can monetise its business model, technology and brands to great effect. I expect that to continue in future.

Fears about the impact of AI have pushed down the Alphabet share price over the past year. I have taken advantage of this to load up my ISA with the shares.

Christopher Ruane owns shares in Alphabet.

Alphabet

What it does: Alphabet is the parent company of Google and several other businesses that include YouTube, Waymo, Deepmind, and more.

By John Choong: Alphabet is one of the world’s few hybrid growth and defensive stocks. It boasts plenty of growth avenues such as its Cloud service, YouTube, and AI-related capabilities, while having an impenetrable economic moat as the world’s biggest search engine.

Sceptics were quick to write Alphabet off when Microsoft launched its ChatGPT-powered Bing. Nonetheless, Google has since come back with an array of its own AI offerings. Most of these haven’t shown much of a competitive advantage. However, it’s worth noting that user numbers continue to tick up for Google despite not deploying its world-class AI functions yet.

And given Alphabet’s war chest of developments and an impeccable financials, I’m confident that the group can continue developing its offerings while retaining its status as the world’s dominant search engine. Pair that with its valuation multiples trading near decade lows, and I’ve been taking the opportunity load up on Alphabet stock.

John Choong has positions in Alphabet.

Advanced Micro Devices

What it does: AMD is a semiconductor company known for its chipsets that power everything from PCs to the PS5.

By Matt Cook. Advanced Micro Devices (NASDAQ:AMD) shares have been some of the fastest growing in recent years. In the last five years, the share price has increased by over 800%. 

I began adding AMD to my Stocks and Shares ISA last year, and it has quickly become my largest holding. I bought the shares based on the excellent performance of the company’s CPU and GPU products.

AMD has been consistently chipping away at Intel’s CPU market share since 2017, and I’m confident that the company will continue to do so. Furthermore, AMD stands to benefit greatly from the rise of AI as companies scramble to purchase the hardware they need to run it.

As I’m more than 20 years from retirement, I want to maximise my Stocks and Shares ISA with growth shares. I’m confident that AMD will continue to do that for me over the next decade.

Matt Cook owns shares in AMD and Intel.

Bank of America

What it does: Bank of America is one of the largest banks in the US. It has both retail and investment banking operations.

By Stephen Wright. I think that investing well is about being aggressive and decisive when share prices are reflecting unjustified pessimism. That’s why Bank of America (NYSE:BAC) is the biggest holding in my Stocks and Shares ISA. 

Since the start of the year, the stock has fallen by around 15%. As a result, it’s reached a level where I think it’s a rare opportunity, so I’ve been buying the stock lately. 

There’s been quite a bit of uncertainty across the banking sector during March. But I don’t think this has adversely affected Bank of America at all.

In fact, the opposite might be true. As customers have been pulling their money from regional banks in fear of liquidity issues, they’ve been depositing them with the larger institutions.

A large base of customer deposits allows Bank of America to make money. And it looks to me like that just got bigger.

Stephen Wright owns shares in Bank of America.

Burberry

What it does: Burberry is a luxury British fashion brand that’s known for its trench coats and distinctive checked designs.

By Roland Head. I bought Burberry (LSE: BRBY) shares early in 2022, at an average price of about 1,700p.

At that time, global travel was still recovering from the pandemic. Lockdowns in China were also creating difficult trading conditions in one of the company’s most important markets.

Burberry’s depressed share price reflected these short-term challenges. I decided that this had created a buying opportunity. I thought the company’s luxury brand and high profit margins would probably drive fresh growth when shoppers could travel freely again.

This has turned out to be correct — store sales rose by 11% during the final three months of 2022, excluding China.

As market confidence has recovered, Burberry’s share price has risen steadily. As a result, my holding has grown from a mid-sized position in my portfolio to become my largest holding.

I’m unlikely to buy more at the current price, but I’ve no plans to sell.

Roland Head owns shares in Burberry.

CVS Group 

What it does: CVS Group operates more than 500 veterinary surgeries alongside diagnostics centres and pet crematoria. 

By Royston Wild. Strong share price appreciation means that CVS Group (LSE:CVSG) is the biggest holding in my Stocks and Shares ISA. 

Since I first invested in early 2020, the veterinary services business has risen more than 50% in value. I have since gone back to the well twice to increase my holdings. And the strength of recent trading is stimulating my appetite to buy more shares.

The company — which operates vet surgeries in the UK, Ireland and The Netherlands — saw like-for-like sales rise 7.5% in the six months to December. This was just off the top end of its organic growth target of 4% to 8%. 

I think CVS is a great safe-haven share to own. The amount people spend to keep their pets fit and healthy remains robust at all points, even when household budgets come under pressure.

And as the AIM business continues to build scale through acquisitions, I expect earnings to steadily rise.

Royston Wild owns shares in CVS Group. 

Glencore

What it does: Glencore is one of the world’s largest natural resource companies with operations across six continents.

By Andrew Mackie: I bought my first tranche of Glencore (LSE: GLEN) shares at the depths of the pandemic crash. Since then, its share price has appreciated far beyond my expectations. However, rather than sell out, I have continued to buy more during significant market sell-offs. Today, it accounts for 10% of my total Stocks and Shares portfolio.

It is first and foremost a growth stock, a fact often overlooked by the market. As a commodities business, most analysts track key metrics from its mining operations over a short time horizon. I don’t believe that’s the correct way to value this business, however.

My conviction on this front has been borne out by the recent proposed merger with Canadian metals producer Teck. To date, this has been rebuffed. Regardless of the outcome here, I remain bullish on Glencore’s long-term prospects.

I have for some time held the view that we are entering a golden era for commodities producers. Glencore is perfectly placed to benefit in the world’s push for net zero. The fact that it is the largest holding in my portfolio reflects its unique position in producing, recycling, sourcing, marketing and distributing the commodities that will enable decarbonisation to become a reality.

Andrew Mackie owns shares in Glencore.

Mastercard

What it does: Mastercard is a payments-processing company. It is the second-largest payments business in the world.  

By Edward Sheldon, CFA. At present, the largest holding in my Stocks and Shares ISA is Mastercard (NYSE: MA). This is not my largest position overall. That’s Alphabet. Yet within this account, the payments stock is top of the pile.

There are a number of reasons I’ve loaded up on Mastercard shares. One is that the company has enormous growth potential. In the years ahead, trillions of transactions are set to shift from cash to card. Mastercard will benefit from this.

Another is that the company has a strong competitive advantage, or ‘economic moat’ as Warren Buffett likes to say. As a payments network operator, it offers services that cannot easily be replicated by a new competitor.

A third reason is that the company offers inflation protection. As prices of goods and services rise, so do its fees, as it takes a slice of every transaction.

Now, Mastercard does have a relatively high P/E ratio. This adds risk. However, this is a high-quality business so I’m comfortable with the higher valuation.

Edward Sheldon has positions in Mastercard and Alphabet.

Meta Platforms

What it does: Meta operates some of the world’s largest social media platforms, including Instagram, Facebook and Whatsapp.

By Gordon Best. The world is more connected that ever, with social media usage continuing to grow, and rapidly increasing content creation. The core of this trend was Facebook, and although use of the platform is declining, others in the Meta Platforms (NASDAQ:META) family are seeing tremendous success. The company therefore has tremendous diversity and agility, with the ability to accommodate multiple demographics across a variety of products. 

The company saw major declines in recent years as investors rejected an expensive metaverse experiment, with the share price now at a level many consider is well below fair value. As the company re-structures, and look to solidify its place as the number one social media group amidst competiton, many analysts have raised their expectations for future performance. I see plenty of untapped potential in Meta’s revenue streams, and once market sentiment improves, many investors will be desperate to pick up shares in Meta at historically low valuations.

Gordon Best owns shares in Meta Platforms.

Visa

What it does: Visa is a global technology company that facilitates digital payments in more than 200 countries.

By Ben McPoland. Warren Buffett recently noted that: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

He was speaking of his winning stocks, and I’ve also found the same to be true in my own portfolio. Over the years, Visa (NYSE: V) has blossomed into my biggest ISA holding.

The evidence for the company’s remarkable success isn’t hard to fathom – it’s everywhere around us. We’re all shopping online and paying on our cards almost constantly.  

Visa takes a cut of every transaction that flows through its payments network. That includes currency conversion and cross-border activities, which admittedly does leave the firm vulnerable to events like a pandemic.

Still, its revenue was $30.1bn last year, with a profit margin above 50%! Plus, because it doesn’t lend, it’s not exposed to loan losses.

Enticingly, most of the world’s transactions are still cash-based. So as the world moves towards becoming a cashless one, Visa is poised to keep growing for decades to come. 

Ben McPoland owns shares in Visa.

WisdomTree Physical Platinum

What it does: WisdomTree Physical Platinum is an exchange-traded commodity that provides investors with exposure to the metal.

By Mark Tovey. I bought shares in WisdomTree Physical Platinum (LSE:PHPT) in July 2022. I was 15% in the green by January, but now I’m almost back to where I started.

Why is my biggest holding essentially a “pet rock” that sits idly – paying me no dividends and no rents?

Because I see a mismatch between supply and demand.

Let’s start with supply: 72% comes from South Africa, where labour strikes, power cuts and underinvestment are strangling production. Another 12% comes from Russia.

On the demand side, the metal is increasingly replacing its costlier sister, palladium, in automobiles’ catalytic converters.

The World Platinum Investment Council (WPIC) forecasts supply will be in a deficit of 556,000 ounces in 2023.

However, analysts warn the jewellery component – making up 24% of demand – is fickle.

But overall, I remain bullish – and I’m not the only one. Investment bank UBS predicts platinum’s price will run up by 20% before the year’s out.

Mark Tovey has shares in WisdomTree Physical Platinum.

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