I will look at the investment case for two great companies that I am considering: Anglo American (LSE: AAL) and International Consolidated Airlines Group (LSE: IAG).

Anglo American

Anglo American is a global mining company, being the world’s largest producer of platinum as well as a major producer of copper, nickel, iron ore, and diamonds.

When it comes to the economic fundamentals of a mining company, fixed costs are high as a proportion of total costs. As a result, with any increase in addition revenue comes a significant increase to profits. This results in a business model in which changes in demand from consumers has a large proportionate impact on performance.

Tailwinds

While mining companies have fairly predictable economic fundamentals, they are also highly cyclical. This means that they typically correlate with the business cycle.

Therefore, in a year where the economy is still fighting back to recover from the pandemic, we should see growth in demand for goods that rely on the materials Anglo American produces. If I believe this to be the case in 2022, then I expect high profits and associated share price growth.

Headwinds

In attempts to control and suppress inflation, it is safe to assume that hawkish policy making is on its way. With rate rises comes a slowing of short-term economic growth. Therefore, as mining companies are cyclical businesses, if I believe the cooling effects from tightening monetary policy will have a substantial impact on the economy, then I will steer clear.

International Consolidated Airlines Group

IAG has had a terrible time over the last few years. Being hit extremely hard by the pandemic due to the reduction in consumer air travel, the share price has fallen from 420p (pre-pandemic) to around 160p today. However, this potentially presents a huge opportunity for share price gains.

Tailwinds

With societies across the world opening up and attitudes towards being comfortable with travel reverting back to the norm, one would assume the demand for air travel will recover in due course.

This could be the year we see that return. The business fundamentals of International Consolidated Airlines Group are sound, and as a result recovery from the pandemic is the driving force for my optimism.

Headwinds

The main cause for concern with International Consolidated Airlines Group is vulnerability to shocks stemming from new variants or regulation, as seen with the discovery of Omicron, where the share price fell 17% in the final five days of November.

Conclusion

For me, both Anglo American and International Consolidated Airlines Group are great opportunities. With the economic recovery I expect this year, I think Anglo American will perform well. When it comes to IAG, if I can look past short-term volatility with a long-term view, it should definitely be in my portfolio.

The post If I was investing £1,000, I would look at these two FTSE stocks appeared first on The Twelfth Magpie.

More reading

• Up 18% in a month! What’s fuelling the red-hot IAG share price?
• £10,000 invested in IAG shares 5 years ago has now climbed this high…
• IAG shares have slumped over 10%, but is this a buying opportunity?
• Why the IAG share price could be primed to rally into the summer
• FTSE 100 volatility is rising — what should investors do now?

Tommy Williams 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.

In the last few decades, society has seen a tech revolution. The way in which we live has changed forever. One company that is a major shareholding of Warren Buffett, which has undeniably been a leader in this change, is Apple (NASDAQ: AAPL). When it comes to mainstream consumer electronics, Apple has defined the last two decades, culminating in being the first company valued at $3 trillion just a few weeks ago.

However, in accordance with company heritage, it continues to innovate and lead the way with new products. Airpods, smart watches and streaming services have been recent examples of this. Without a doubt, Apple will continue to innovate and find new revenue streams from which to grow.

There is no doubt that Apple is a great company. However, is it a good investment for me, as a Foolish investor with a long-term view?

Warren Buffett certainly thinks so, with around 50% of Berkshire Hathaway’s shareholdings being a huge stake of Apple, valued around $160bn. He has “put his money where his mouth is”, which suggests I should do too.

Let’s look at the bull and bear cases for Apple going forward.

Bull case

The bull case for Apple relies partly on continued domination of the market. Maintenance of its market share relies on consistent ability to update systems, software and improving products currently on the market. Moreover, the societal attitudes towards Apple products must continue to be strong. The fact that Apple can bring out new iterations of the iPhone yearly and continue to lean on consumer loyalty is a huge pull, with revenues from the iPhone to the tune of $39bn in the fourth quarter of 2021 alone. This is one side of the business that is fundamentally sound.

Other products currently on the market have seen growth: the Airpods and streaming services (Apple TV and Apple Music) are both promising sources of revenue. If they continue to grow, it would only further add value to the company.

For an exaggerated bull case, Apple needs to continue to innovate. Bringing out new products and services will be central to growth in the decade to come. After all, this is the fundamental of most tech companies. The ability to grow is paramount to positive movements in share price.

Bear case

The bear case for Apple in regards to share price could be a result of market repricing of growth companies in favour of value investments, as well as a reduction in liquidity due to hawkish policy-making in order to fight inflation.

In the very worst case, a fall in market share — or a change in the way society responds to Apple products such as the iPhone — would be devastating for the company.

Conclusion

Considering the recent poor performance of US ‘Big Tech’ stocks, paired with the current market correction, this could be a great opportunity for me to follow Warren Buffett and invest.

The fundamentals are solid and the scope for future revenue growth is substantial. I like this company and think this is my time to get in.

The post Warren Buffett’s most prominent stock: is Apple still a good investment? appeared first on The Twelfth Magpie.

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• Here’s how saving £3 a day could lead to an £11,925 yearly passive income

Tommy Williams 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.

Fundamentally, due to consensus being that the Federal Reserve will reduce asset purchases as well as increase rates in order to suppress inflation, the environment for US growth businesses is not a friendly one. Investors have indicated their fears through the markets.

However, have investors been too quick to come to judgement and instead overcorrected prices? Could now present an opportunity for me as a Foolish investor with a long-term outlook?

Headwinds

As mentioned previously, rate hikes present the most obvious and strongest headwind. The expected reduction in economic activity has caused fear for many investors when it comes to the ability to grow, innovate and earn future profits.

A further considerable headwind for US Big Tech (Amazon, Meta, Microsoft, Google’s parent company Alphabet and Apple) comes in the form of regulation. With a small number of companies being so dominant in their respective areas, it is not farfetched to worry about competition regulation.

The power of these companies due to the data they harvest, and the platforms they provide, results in being the target of unwanted political and regulatory attention. This is something that has been exaggerated recently with all of the Facebook leaks and allegations.

Tailwinds

The big five are established, profitable juggernauts that have not only led our society’s tech revolution but have also found themselves with considerable market power and influence.

This market share is not just a regulatory concern, it is also a huge opportunity. This ability to derive consistent and constant revenues is what underpins the big five as fundamentally sound businesses. Particularly as the world continues to move more and more digital they are impossible to ignore.

With strong business fundamentals, growth potential as well as profitability, they tick most of the boxes on an investor’ list. The question then becomes, are they overvalued or is it time to get in?

I believe that given the past few months of poor performance, coupled with the current market correction, these stocks are trading relatively cheap.

Conclusion

On the whole, it is a question of pricing. It is difficult to attack the underlying economic fundamentals of these companies, and thus it is a game of relative cost. Do you believe that the world has repriced US growth stocks? Or have they just temporarily been affected by an inflation-fighting economic environment. I believe that this is temporary, and the big five will prevail and derive profits and share price growth in the years to come. As a result, I think this is my opportunity to get in while shares are trading cheap… this is the chance I’ve been waiting for.

The post After a troubled few months for Big Tech, is now the time to invest in US growth stocks? appeared first on The Twelfth Magpie.

More reading

• How to buy growth stocks at below-market prices
• Are Meta shares at the start of a comeback?
• With dividend yields averaging above 7%, are these 2 UK shares worth considering?
• How much do you need to invest in dividend stocks to be able to retire?
• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Tommy Williams has no direct positions in any of the mentioned companies. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, 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 the decade following the financial crisis, investors fled this idea. Performance inconsistency, paired with an increase in regulatory pressures and general uncertainty, this area of financial markets has been a rollercoaster (not an enjoyable one for shareholders).

Looking at the long-term share price graphs since 2008 for both Barclays and Lloyds Banking Group, it is enough to send shivers down your spine. A sharp decline followed by over the long term, very little (if any) growth from after the crisis, with lots of volatility in between.

However, with the clear need for a change in current monetary policy due to the inflationary environment we are in, rate hikes are inevitable. Put simply, increases in the base rate of interest positively affects banks, allowing them to earn more from lending in comparison to how much they pay on deposits. This should be the single largest factor affecting the performance of banking stocks in 2022.

Headwinds

Fundamentally, this is heavily dependent on rate hikes. Despite being expected by the financial world, the extent of these raises is key to seeing moves in banking stocks’ share prices. Some individuals in the western world, such as legendary investor Bill Ackman, are advocating large raises, with others warning against potential overcorrections and the economic fallout this could cause.

If these raises do occur, especially in a short time frame, I expect to see sudden positive price changes simply due to the increased profits and consequent shareholder returns that go “hand in hand” with this.

Tailwinds

I suspect many cunning Foolish investors will have the same question. Has this all been priced in? There certainly is an argument for this. However, as is always the case when it comes to uncertainty and regulatory announcements, share prices still move with positive news no matter how expected it is. Moreover, too much variation from expectations could also prove to be harmful. Lower-than-expected rate hikes would decrease expected profits as a result the share price will follow the same trajectory. On the flip side, higher-than-expected raises — if extreme — could cause an overcorrection.

It is clear that rate hikes have to be sensible and perceived well to see the rewards for banking stocks in 2022.

Conclusion

The fundamentals of UK banking stocks are solid. In a setting of increased interest rates, I believe they will outperform the market. Despite potentially being largely priced in already, I believe there arestronger gains to come, especially given the market corrections we are seeing currently. While stocks are trading cheap in comparison to a few weeks ago, with a long-term Foolish viewpoint, I think now is the time for me to get in.

The post With the economy bracing for inflation fighting interest rate hikes, is now the time to invest in banking stocks? appeared first on The Twelfth Magpie.

More reading

• How to buy growth stocks at below-market prices
• Are Meta shares at the start of a comeback?
• With dividend yields averaging above 7%, are these 2 UK shares worth considering?
• How much do you need to invest in dividend stocks to be able to retire?
• FTSE 250 stock CMC’s shares have rocketed 51%! What’s going on?

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

The question is therefore: how likely is a recovery in 2022? And to what extent will a recovery recoup the losses of those unfortunate investors?

Headwinds

Fundamentally, the main cause for concern for any prospective or current investor in International Consolidated Airlines Group is the high level of uncertainty that is associated with the Aviation Industry through the age of coronavirus.

As shown recently with the reporting of Omicron, sudden news on incoming variants and speculation surrounding their severity can cause sudden panic and as a result vast movement in share price (moving 17% in the final five days of November following Omicron reporting).

As investors are quick to pull out their money with the fear of a worsened pandemic and the negative impacts this brings to world travel (and the potential for both revenue and profits…), shares of International Consolidated Airlines Group are certainly vulnerable to short-term shocks.

This vulnerability to shocks and the associated volatility is one reason why large-scale recovery is yet to be seen in the share price of International Consolidated Airlines Group.

Tailwinds

The short-term volatility that has suppressed recovery presents a ripe opportunity to me as a Foolish investor with a long-term view. With the world finally opening back up for business, with my optimism about global travel – this is a no-brainer.

After two years of travel restrictions, many countries simply cannot afford to close themselves off to tourism for much longer. It does seem that global travel will return closer to pre-pandemic normality. With that, surely comes a return for associated companies e.g. International Consolidated Airlines Group and Rolls-Royce.

In addition, the fundamentals of International Consolidated Airlines Group have not changed since before the pandemic. I believe this is still a well-run company with the systems in place to remain an industry leader for years to come.

Conclusion

In essence, International Consolidated Airlines Group is a business that was harshly affected by the pandemic and the associated reduction in global travel, now affected by uncertainty and volatility-fearing investors steering clear from the industry. However, with a long-term view, International Consolidated Airlines Group presents a huge opportunity. The fundamentals of the business have not changed and the world is opening up. Its shares are grossly undervalued… potentially now is the time for me to get in.

The post IAG stock: a nightmare of uncertainty or a ripe opportunity? appeared first on The Twelfth Magpie.

More reading

• Up 18% in a month! What’s fuelling the red-hot IAG share price?
• £10,000 invested in IAG shares 5 years ago has now climbed this high…
• IAG shares have slumped over 10%, but is this a buying opportunity?
• Why the IAG share price could be primed to rally into the summer
• Up 8%, how are International Consolidated Airlines (IAG) shares rising again?

Tommy Williams 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.