July’s UK consumer price index (CPI) came in hotter than expected at 10.1%. This is a 40-year high and has the potential to drive share prices further down as consumers struggle with a cost of living crisis. So, here are five shares I’m considering buying.

Lloyds

As the UK’s biggest lender, I believe Lloyds (LSE: LLOY) shares are a sound choice for my portfolio. It earns its money from the difference in providing and earning interest from loans. This is otherwise known as net interest income.

Interest rates are expected to go as high as 3% by 2024 as the Bank of England tries to combat inflation. As a result, the high street bank should get a top-line boost from higher lending costs, while benefiting from lower interest paid to customers. With enough cash to set aside for bad loan provisions, Lloyds doesn’t need to increase its savings rate to bring in more cash, thus allowing it to increase its profits. This was evident in the company’s latest half-year results, which saw it recording excellent numbers.

It’s worth noting, however, that the majority of its income stems from mortgages. With house prices and mortgage approvals starting to decline, it remains a possibility that Lloyds’ revenue could be impacted. Nonetheless, analysts think that the increase in rates should offset any declines for the time being. In fact, Lloyds stock is rated a buy as its dividend is also expected to increase. It has an average price target of 64.33p, or a 40% upside.

SSE

Energy prices have been the main culprit behind sky-high inflation. That’s because energy prices are at their highest levels since 2009. As such, I think SSE (LSE: SSE) is a share to buy for my portfolio given the circumstances.

When wholesale energy prices go up, energy suppliers increases their rates to cover the extra costs. This has allowed companies like SSE to benefit, with its top and bottom lines seeing modest increases. As a matter of fact, its profit and loss account saw its best numbers in FY22, which is why its shares are up 9% this year.

The latest inflation report shows that energy prices rose 3% on a month-on-month basis. And with a higher price cap expected in October, SSE should benefit from this. After all, its latest trading update indicates that it expects adjusted earnings per share (EPS) of at least £1.20 for FY23. This would bring its EPS to its highest level in five years.

Additionally, its dividend yield of 4.7% is rather modest and is expected to rise given its most recent increase in payout, from 25.5p to 60.2p. SSE shares are rated a moderate buy with an average price target of £20.78.

Unilever

Next on my list is Unilever (LSE: ULVR). Its share price has been rather volatile this year. Nevertheless, it has recovered by 5% since its reported its H1 numbers. Its shares are now only down by 1% on a year-to-date basis.

The fast-moving consumer goods conglomerate produces beauty products and personal care, foods and cleaning agents. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. These are household names and have tremendous pricing power, given the inelastic demand surrounding most of its products. This is strongly reflected in the revised outlook given by CEO Alan Jope, when he improved the firm’s guidance.

Our guidance for underlying sales growth in 2022 was previously at the top end of a range of 4.5% to 6.5%. We now expect underlying sales growth to be above that range, driven by price with some further pressure on volume.

Unilever CEO Alan Jope

Nevertheless, it should be noted that Unilever shares are more of a defensive play to protect from potential downside at the moment. Analysts are forecasting an average price target of £40.81, which only means a potential 3% gain if I were to buy shares now.

Burberry

Burberry (LSE: BRBY) shares are a good inflation hedge, in my opinion. The brand’s status as a luxury retailer allows it to pass on many of its costs to consumers given the nature of its target market. This was confirmed by CFO Julie Brown in its Q1 trading update, with a positive outlook for the company.

The FTSE 100 retailer has benefited from the return of global travel, with a substantial amount of its sales coming from tourists. It saw its like-for-like sales numbers grow by 1% on an annual basis, despite lockdowns in key revenue driver, China. Excluding China, sales figures were actually rather impressive. They were 16% higher in Q1 overall, with EMEIA boasting impressive 47% growth. Moreover, the company’s most profitable products (leather goods and outerwear) also saw double-digit growth.

That being said, I should point out that China remains the firm’s achilles heel for the moment. With its government sticking to its zero-Covid policy, I don’t expect sales figures from that region to see an uptick any time soon. This is why its average price target currently sits at £19.34. Therefore, this is more of a long-term investment with a higher upside once China’s retail sales fully recovers.

Tesco

Last on my shopping list are Tesco shares (LSE: TSCO). Given that its core products are consumer staples, I’m expecting Tesco shares to be robust in a recessionary environment. It’s also been steadily increasing its dividend payouts, which should serve as an added benefit.

As the market leader in the UK supermarket sector with more than a quarter of the market share, I think Tesco will be able to outperform its peers. Its Aldi price match across hundreds of items has been a success so far. According to the last several Kantar grocery reports, the supermarket leader has seen its market share remain relatively robust. It has also managed to outperform most if its competitors with higher sales figures. And its Q1 trading update showed its strength in the industry.

Having said that, sales figures are expected to come in slightly lower for the year. The grocer no longer enjoys the tailwinds of the pandemic and faces slower sales as a result of high inflation. Even so, I still think Tesco can utilise its strong supply chain and relationship with customers to match last year’s stellar performance. Analysts seem to share the same sentiment, rating Tesco shares a strong buy with an average price rating of £3.19.

The post Inflation hits 10.1%! 5 shares to buy now! appeared first on The Twelfth Magpie.

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John Choong has positions in Burberry. The Motley Fool UK has recommended Burberry, Lloyds Banking Group, Tesco, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Growth wearing off?

That’s what one might think when looking at the headline numbers from Burberry’s most recent trading update. Comparable store sales were flat with a measly 5% revenue growth on a year-on-year (Y/Y) basis. To make things gloomier, sales in the US and China declined 4% and 35% respectively.

However, these figures start to look a little less negative when taking a number of more important factors into consideration. For one, the decline in American sales were due to tough comparisons from the year before, as the continent lifted lockdown restrictions. On a three-year basis, sales are actually up by 62%! As for China, sales were heavily impacted by lockdowns.

Excluding China, sales figures were actually rather impressive. They were 16% higher in Q1 on an annualised basis, with EMEIA showing an impressive 47% growth. Additionally, the company’s most profitable line of products (leather goods and outerwear) saw double-digit growth. This was helped by its partnership with Bimba Y Lola, which contributed to 21% growth in leather goods, excluding China. Moreover, continued investments in digitalisation and AR technology saw new Burberry products and collections reflect strong performances.

Profits are well coated

Despite a substandard Q1 report, management still expects a positive FY23. CFO Julie Brown mentioned that the FTSE 100 firm expects high single-digit revenue growth. She also expects the designer to achieve an operating profit of 20% through to FY24. While gross margins are forecasted to come in lower in H1, she anticipates this to be higher in H2, as a general move towards higher priced items should help margins.

In addition, a 5% increase in operating expenses should remain steady for the time being. This is due to Burberry’s long-term lease agreements protecting it from higher rental costs. As such, Burberry will still have sufficient levels of cash to expand its business with an estimated capital expenditure of £170m to £180m. Therefore, the British firm is on track to delivery 65 newly designed stores by the of its financial year, with its sales outlook remaining unchanged.

Love is in the air

Keeping everything in mind, is this an opportune time to buy Burberry shares then? Well, management is still confident for growth in sales and revenue in the medium and long term. As China stores reopen, I’m anticipating a huge recovery in sales figures in the second half of the year, provided no further lockdowns occur. Chinese Valentine’s Day is also coming up, with Singles Day around the corner as well. Hundreds of billions of dollars are spent on occasions like these, and if Burberry can capitalise on this, it should see its sales figures soar.

Having said all that, I think this is a good time to buy Burberry shares for my portfolio. The company’s business seems to be ‘inflation-proof’ as it’s been able to pass on higher costs to consumers with no resistance. And as the Chinese population becomes increasingly affluent, an increase in luxury good spending should benefit Burberry shares for years to come.

The post Is now the perfect time to buy Burberry shares? appeared first on The Twelfth Magpie.

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John Choong owns of Burberry. The Motley Fool UK has recommended Burberry. 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 general, UK shares have outperformed global stocks of late. Over the past year, the FTSE 100 has risen nearly 6%, whereas the S&P 500 has dropped 9% and the Hang Seng has sunk over 20%. But this success has mainly been due to the performance of a few individual companies, such as AstraZeneca and some of the big oil giants. Therefore, many UK shares are still trading at multi-year lows and look very cheap for the long term. Here are two I’d pick up today. 

A recent crash

Hotel Chocolat (LSE: HOTC) is a British high-end chocolatier, recognised for its excellent quality. However, on Tuesday, the company announced that it expected a statutory loss for FY22, which led to this UK share plunging nearly 50% in a day. 

Although the company has been performing well, Hotel Chocolat was affected by its subsidiaries in both Japan and the US. In fact, after an internal business review, the company has decided to close its retail stores in the US. This will lead to costs of £3m, including future lease liabilities and landlord deposits. At the same time, the board also acknowledged the potential to have to pay a full impairment charge of £23m, due to a revised assessment of the likelihood of recovering loans made to its ailing Japanese joint venture. 

These factors meant that as well as the company expecting a statutory loss for the year, it predicts lower sales growth and profit margins for FY23 too.

However, there are many positive signs. For example, revenue growth in the latest year totalled £226m, up 37% year-on-year and ahead of market consensus expectations. This was primarily due to growth in the UK market. Further, for the long term, the group also expects “less risk and an even stronger balance sheet with a higher profit percentage growth in FY24 and FY25”.

Therefore, I’m not too worried about the recent crash and believe that the recent dip makes it an excellent time to buy. I may add some Hotel Chocolat shares to my portfolio. 

An internationally focused UK share

Burberry (LSE: BRBY) is a historic British luxury fashion house that gained a new lease of life in recent decades. It has managed to expand internationally, with over a third of its business exposed to the Chinese market. However, recent lockdowns in China have strained Burberry’s business there. 

For example, Q1 sales in Mainland China fell by 35% year-on-year, and in the Asia Pacific region, sales fell by 16% in the period. This meant that, at a constant exchange rate, comparable store sales only increased by 1% year-on-year, far slower growth than the group wished for. 

However, there are still many positive signs. First, the company has just commenced its £400m share buyback, which is expected to be completed by the end of the year. Second, the European part of the business saw sales increase by 47% year-on-year, driven by the rebound in tourism and higher sales to locals. This is a great sign moving forwards. Finally, according to the company, there are signs that Mainland China performance has been improving since stores reopened in June.

Therefore, I think that this UK share should be able to overcome the current struggles and would be an excellent addition to my portfolio. 

The post 2 beaten down UK shares to buy in a heartbeat appeared first on The Twelfth Magpie.

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• This FTSE 100 share pays no dividends. Could that change?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and Hotel Chocolat. 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.

Burberry on discount?

There are multiple reasons behind the Burberry share price fall — rocketing inflation, low consumer confidence, fears of an impending recession, you name it. However, one economic metric that stands out is retail sector weakness. Retail sales figures coming out of China have been dismal.

Burberry receives the bulk of its revenue from Asia, and more specifically, China is a key market. As such, lockdowns there have impacted consumer spending substantially. As a result, the country’s retail sales figures have seen a steep decline. For context, China’s retail sales were 11.1% down year on year in April, and down 6.7% in May. Burberry said that Chinese sales accounted for 30% of its turnover last year, but were down 13% in Q4.

Making matters worse, that other key Asian market, South Korea has seen its retail figures decline on a month on month basis since January. Nevertheless, there could be a glimmer of hope for Burberry. As China’s major cities come out of lockdown, I expect sales to start rebounding.

Luxury perks

Do Burberry shares come with good income? Well, the stock goes ex-dividend on 30 June so if I buy it after that, I won’t get the latest dividend payout. But it’s planning a final payout of 35.4p per share, giving it a 2.8% dividend yield. While this isn’t the highest in the FTSE 100 index, the yield still outperforms the luxury industry’s average of 1.7%. Taking these factors into account, I think it’s a reasonable percentage.

Diamonds are created under pressure

Burberry shareholders felt the pressure when its share price dropped as low as £14.80 in May, but that pressure may be about to reverse. The stock has seen a steady recovery since then, and could be on track to head into the green, as retail sales in China are expected to recover sharply in the coming months.

Furthermore, the firm is expected to benefit from travel tailwinds. This is because it generates a substantial amount of revenue from airport stores and tourists shopping in destination cities. Having said that, Burberry will be reporting its Q1 results in around two weeks’ time. I’m not expecting strong figures given the lockdowns in China and poor retail sales data coming out of South Korea.

But like many investors, I’ll be paying close attention to guidance provided by management. A downward revision of its expected earnings for the year could send the share price lower. In that scenario, I’ll be looking to buy some shares. After all, the company has a healthy balance sheet with high-quality earnings margins. Therefore, I think it’s a matter of when, not if, Burberry shares will return to previous highs above £23.

The post Should I buy Burberry shares in July? appeared first on The Twelfth Magpie.

More reading

• This FTSE 100 share pays no dividends. Could that change?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

Burberry

Burberry (LSE: BRBY) is a British luxury fashion house. The brand designs and distributes ready-to-wear items. These include leather goods, footwear, and fashion accessories. This week, a director sold thousands of Burberry shares, but they were also awarded from a huge chunk of free shares as part of their compensation.

• Name: Jonathan Akeroyd
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 15 June 2022
• Amount purchased: 71,106 @ nil
• Total value: £N/A

• Name: Jonathan Akeroyd
• Position of director: Chief Executive Officer
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 15 June 2022
• Amount sold: 34,395 @ £16.18
• Total value: £556,399.73

Greggs

Greggs (LSE: GRG) is a British bakery chain. It specialises in savoury products. Among these are bakes, sandwiches, sweet items, and its famous sausage rolls. This week, a non-executive director purchased a thousand Greggs shares.

• Name: Lynne Weedall
• Position of director: Non Executive Director
• Nature of transaction: Purchase of Shares
• Date of transaction: 16 June 2022
• Amount purchased: 1,000 @ £19.01
• Total value: £19,007.20

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK and internationally. In the UK, it is the second biggest food delivery platform behind Just Eat. A huge director dealing occurred over at Deliveroo this week. Tens of thousands of Deliveroo shares were traded.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 15 June 2022
• Amount purchased: 83,200 @ £0.81
• Total value: £67,392.00

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 15 June 2022
• Amount sold: 40,314 @ £0.81
• Total value: £32,654.34

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, the director dealings at Burberry and Deliveroo were free shares. These are a form of restrictive stock units (RSU). RSUs are a form of stock compensation. It is a promise from the company to award a company’s shares in the future.

For Burberry’s CEO, these shares are yet to be cashed in. As such, they hold nil value. But for Deliveroo’s CFO, shares were awarded at the stock’s market price at that time. This means that he decided to cash in his awarded shares.

The post Director dealings: Burberry, Greggs, Deliveroo appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Burberry, Deliveroo Holdings Plc, and Just Eat Takeaway.com N.V. 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.

April’s consumer price index has inflation pointing at 9%. With the FTSE 100 largely unmoved this year, not many of the index’s shares have managed to outperform the stock market. That being said, although 5% down this year, Burberry (LSE: BRBY) shares could be a potential hedge against inflation.

Luxurious inflation

The moat of luxury brands is their ability to thrive in high inflation environments. This is due to their inelastic demand and ability to pass on costs to customers. Higher prices are perceived as a status symbol, rather than a weight on the consumer’s wallet.

Burberry’s recent expansion in China shows how important diversification is in building a moat. While its European and Middle Eastern sales suffered last year from high inflation and Covid travel restrictions, its Chinese sales performed exceptionally well. Low inflation paired with an ever increasing number of consumer spending on luxury goods in China certainly helped the firm’s top line.

The yuan makes cents

The result of Burberry’s rapid expansion in China reflects in its income statement, as China is the company’s main revenue driver — Burberry has opened 224 stores in Asia Pacific. China’s increasingly affluent population is taking a bigger share in the world’s luxury market. In fact, the share of Chinese luxury consumer spending is now 21% of the global market, up from 11% just two years ago.

On the flip side though, China’s zero-Covid policy has resulted in several city-wide lockdowns. This has made growth volatile. Chinese sales figures were affected in Q4, with further impacts expected in this year’s first half.

Nonetheless, Burberry still posted positive results for the year. Despite the slowdown in China, both the firm’s top and bottom lines exceeded expectations. Additionally, Burberry gave a rather upbeat outlook for the year ahead. It expects revenue to grow at high single-digits, albeit with uncertainty surrounding China’s lockdowns. However, as China awakes from its lockdowns, I’m expecting the Burberry share price to recover and outperform the current inflation rate.

Long runway

Even though Burberry had a stellar year, I’m still wary of potential future lockdowns that could affect its share price. In spite of that, the retailer has shown its ability to outperform without the support of the Chinese market, as Burberry’s continued investment in digital channels has been vital to its success during Covid. I believe that Burberry has got a long runway of growth ahead with plenty of tailwinds for several reasons.

1. China is gradually lifting its lockdowns.
2. Travel is starting ramp up globally. As the brand generates a substantial amount of sales from tourists, this should help its top line.
3. The Supreme and Lola partnerships continue to attract more customers.
4. It introduced 47 new stores in FY 2022 with new concepts, and a further 65 planned for FY 2023.

Given these factors, I’m confident that the FTSE 100 share could turn green very soon. A modest price-to-earnings ratio of 17 and a decent dividend yield of 2.7% makes this stock a lucrative buy for me. As such, I’ll be looking to buy Burberry shares for my portfolio to hedge against inflation.

The post Can this FTSE 100 share hedge against inflation? appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Burberry. 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 defence specialist

The BAE Systems (LSE: BA) share price has had a good 2021, rising around 12% year-to-date and 34% in a year. Even so, the past few weeks have been less positive, with the stock falling back around 7% over the last week alone. This was partly because it went ex-dividend, and also due to some investors deciding to bank profits after its strong run. So I think this dip offers a good time to buy. Here’s why.

Firstly, the company continues to win contracts, especially in the US. Most recently, this included a $478m contract for systems engineering and integration services for the US Navy. It also received a $26m contract to equip some US Navy frigates with naval guns. BAE’s ability to win these important contracts is a demonstration of its market-leading position. Hopefully, it will also enable it to increase its profits over the next few years.

In the recent half-year trading update, the firm’s performance was also positive. Indeed, underlying EBIT, which is a key measure of profitability, was able to climb to more than £1bn, over 20% up from the same period last year. Underlying EPS was also able to rise 25% from last year, reaching around 22p. This puts the stock on a price-to-earnings ratio of around 12, lower than a large majority of other FTSE 100 stocks.

Therefore, I feel that the BAE share price is undervalued, despite the challenges that it faces. This includes the fact that defence budgets are rising at slower rates than inflation, which could hinder profits. As such, I’m willing to overlook this risk, and may buy more shares for my portfolio soon.

A FTSE 100 stock with significant presence in Asia

The luxury fashion market has struggled over the past couple of months due to fears that Chinese growth is slowing and that it is looking to “regulate excessively high incomes”. This has caused the Burberry (LSE: BRBY) share price to fall around 7% in recent months (although it’s up 40% in a year). But while worry around China is a risk, especially because Burberry has a very large presence in Asia Pacific, I still believe that Burberry has a ton of potential.

For one, I’m excited about the company’s new CEO, Jonathan Akeroyd, who will take over from Marco Gobbetti next year. While Gobbetti made his mark at the company, I believe that a new CEO will be beneficial. Akeroyd also has experience as the boss of both Versace and Alexander McQueen, two fashion houses with significant prestige. Such an excellent CV should hold him in good stead for the role.

Further, Burberry has recovered well from the pandemic, and first quarter revenues were 86% higher than in the same period last year. I hope it can continue to build on this recovery in its interim results this month. Therefore, this is another FTSE 100 stock I’d happily buy for my portfolio.

The post 2 excellent FTSE 100 stocks to buy in November appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in BAE Systems. The Motley Fool UK has recommended Burberry. 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.