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.

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.

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• 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.

November looks like being a busy month for investors with a large number of the UK’s biggest companies providing updates on trading. Here are three FTSE 100 firms whose statements I suspect will be positively received.

Huge demand

Online vehicle marketplace Auto Trader (LSE: AUTO) is down to reveal its latest set of half-year numbers of 11 November. Based on the ongoing scramble for second-hand motors, due to the global shortage of computer chips for new cars, I’m struggling to imagine why the figures will be anything less than impressive. The question I’m asking therefore, is whether all this positivity is already baked into the share price.

I’m not so sure it is. AUTO’s stock is up just 5% in the last 12 months and currently changes hands for under 26 times earnings. Yes, that’s hardly cheap. However, I still think it’s reasonable for a company that, like its property equivalent Rightmove, has a clear stranglehold on its market. According to the firm, browsers spend seven times more time on its site than their nearest competitor.

Naturally, there will come a time when supply chains are fixed and market dynamics change. The potential for a protracted period of inflation may also push potential buyers to delay their next car purchase. Regardless, consistently high returns on capital and sky-high operating margins keep me bullish on AUTO for the long term.

Contrarian pick

A second FTSE 100 member that could push higher next month is luxury brand Burberry (LSE: BRBY). While I’m wary of being biased here (I hold the stock), I do think the recent confirmation of a new CEO has helped to reassure an already-skittish market.

If this can be backed up with some comforting but not necessarily outstanding interim numbers on 11 November, BRBY shares may be able to breach the 2,000p barrier. Now that its physical store estate is back up and running, I’m inclined to be optimistic.

Of course, a full recovery will take time. It will also depend greatly on what the fashion world/market thinks of Jonathan Akeroyd’s plans for the brand when he takes up his post in April. In the meantime, a resurgence in Covid-19 infections and hints of a return to lockdowns could put the brakes on any progress. 

So while I believe the stock could move higher next month, I’m also keeping my expectations in check.

FTSE 100 value stock

A final FTSE 100 stock I’ll be watching is insurance firm Aviva (LSE: AV). Its shares are up 51% in the last 12 months as (some) confidence has gradually returned to the UK economy. Investors also appear to be impressed by CEO Amanda Blanc’s strategy for streamlining the company. Recent news that it achieved its best half-year sales in General Insurance for a decade was warmly received too.

However, like AUTO and BRBY, nothing can be taken for granted. Regardless of a bullish Q3 update on 11 November, the shares could still slide on global growth concerns. This includes the drawback of holding a stock whose fortunes will always be determined to some extent by wider market sentiment.

Notwithstanding this, it could be said that AV’s current valuation takes this into account. A P/E of less than nine times forecast earnings looks like a bargain to me. A chunky 5.6% dividend yield, based on analyst projections, is also attractive as higher prices bite.

The post 3 FTSE 100 stocks to buy before November appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Burberry. The Motley Fool UK has recommended Auto Trader, Burberry, and Rightmove. 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.

After months of hand-wringing for investors, luxury label Burberry (LSE: BRBY) unveiled its new CEO — Jonathan Akeroyd — this morning. As a holder of the stock myself, I’m cautiously optimistic about the appointment and what it could mean for the Burberry share price in time. Here’s why.

Good fit

Thanks to the coronavirus crisis and the need to shut up much of its store estate around the world, the Burberry share price has been on something of a rollercoaster ride for holders. Just when investors thought it might be safe to come out from behind the sofa, the shock resignation of current boss Marco Gobbetti was announced in June. Since then, the stock has dropped almost 20% in value. 

The arrival of Akeroyd should give owners the stability they crave. Indeed, the Burberry share price is comfortably in positive territory today, suggesting that the market is generally receptive to the news. 

To be clear, the fit between Akeroyd and Burberry does look good, even if the number of suitable candidates to pick from for a job this elevated may have been rather limited. Before arriving at Milan-based fashion purveyor Gianni Versace in 2016, Akeroyd was CEO of Alexander McQueen for 12 years. His apparent enthusiasm to return to the UK also suggests the new leader intends to remain in the post for a good while.

Patience required

But let’s not get ahead of ourselves. Burberry’s new leader isn’t taking up the reins until next April. Gobbetti departs for Italian peer Salvatore Ferragamo in December with chairman Gerry Murphy taking charge over the interim period. 

Knowing this, I wouldn’t expect much in the way of detail on Akeroyd’s intended strategy until next Spring. That’s a good six months or so for the Burberry share price to potentially drift lower. This might be the case even if trading at the £7bn cap improves.

Of course, a share price fall could conceivably turn into a crash if wider-market concerns over supply chains or inflation intensify. A reintroduction of Covid-19 restrictions could also impact sentiment towards all stocks, particularly those that depend on discretionary spending.

As always, there’s no sure thing in investing. The only thing we can be sure of is that Akeroyd’s services aren’t coming cheap. A base salary of £1.1m and cash benefits of £50,000 is just the start. A potential bonus of £2.2m and £1.79m in share awards is also up for grabs. Let’s just say I’ll be looking for him to justify this remuneration from the off.

Quality stock

Having had a question mark hovering over the company for a number of months, I’m fairly reassured by today’s announcement. Notwithstanding this, I suspect it won’t be enough to help the Burberry share price recover to levels seen over the summer just yet.

No matter. As a Foolish investor, I know it’s vital to focus on where the company will be in years not months. This may include taking advantage of temporary share price dips such as the one Burberry has been experiencing. Management merry-go-round aside, I submit that this remains a classy, resilient company that should thrive again.

This is assuming, of course, it’s not taken out by a deep-pocketed suitor before long. Akeroyd’s got form here, having been at the helm when Versace was snapped up by Michael Kors (now Capri Holdings) back in 2018.

Whatever happens, it’s unlikely to be boring. 

The post Is the Burberry share price set to soar after its new boss is revealed? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in 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.

FTSE 100 market leaders

The first stock on my shopping list would be Auto Trader. Operating completely online (the print version was ceased years ago), the FTSE 100-listed vehicle marketplace is the clear market leader. Apparently, more than 75% of all time spent looking at car adverts is on the company’s site. I suspect this figure might be even higher now following the scramble for second-hand motors due to the global chip shortage.

The other leader is property portal Rightmove. Like its automotive equivalent, this FTSE 100 constituent is the go-to destination for buyers and renters. For years, competitors have tried but failed to take meaningful market share, suggesting RMV’s brand serves as a great economic moat. Throw in a bulletproof balance sheet and (like Auto Trader) spectacular returns on capital, and RMV would be a compelling purchase for me.

There are still things to be aware of, of course. The vehicle and housing markets in the UK should moderate in time and could even plummet in the event of a serious economic wobble. Moreover, I don’t expect either company to ever be screamingly cheap, since quality rarely lacks friends. So I’d need to stay realistic with my target purchase price.

Luxury brand

Third on my list of FTSE 100 to buy is luxury brand Burberry. This may seem an odd choice, especially as the company still hasn’t recovered from the coronavirus crash. Moreover, the recent fall in retail sales in China doesn’t exactly bode well. After all, BRBY is hugely dependent on shoppers continuing to buy into its highly-coveted brand.

As an existing owner, I’m not worried. Burberry’s long history (and sound finances) clearly mark it as one of the FTSE 100’s most resilient members and one I’d continue to buy in a correction.

Notwithstanding this, it’s important for me to monitor just how much exposure I’d have if I continued to buy on a correction. Too much money in one company’s risky. I want to sleep at night!

Then again, all this may prove immaterial. I still reckon BRBY will be bought out before long. 

Priority buy

Last of my FTSE 100 buys would be a stock I once owned and stupidly decided to sell too soon. Health and safety tech firm Halma‘s share price has rocketed since. As I type, it’s up 36% in the last year. Anyone buying five years ago would have tripled their money. 

Still, a forward P/E of 50 suggests shares are now priced to perfection. Yes, Halma operates in a highly defensive sector. And yes, a multi-decade history of hiking dividends is nothing to be sniffed at. However, there comes a point when it’s wise to pull back from a purchase if I feel I’d be overpaying.

This is why the HLMA remains on my watchlist, for now. When the next correction inevitably comes, I want to have some dry powder ready… 

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Paul Summers owns shares in Burberry. The Motley Fool UK has recommended Auto Trader, Burberry, Halma, and Rightmove. 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 J Sainsbury (LSE: SBRY) share price has performed brilliantly over the last year, rising 57% by last Friday’s close. It’s up another 11% this morning. Could it be about to explode?

Sainsbury’s share price: ready to rocket?

According to headlines over the weekend, private equity group Apollo is taking a closer look at Sainsbury. While this has been referred to as merely “exploratory” (according to the Sunday Times), it does suggest that we could be about to see an offer submitted for the FTSE 100 member. 

This shouldn’t really come as a surprise given the bidding war that has erupted for fellow listed supermarket Morrisons. Last week, it was revealed that management would be recommending holders accept a 285p per share bid for the company from Clayton, Dubilier & Rice (CD&R). This valued MRW at £7bn, up from the £6.7bn offer received from rival Fortress. 

Sainsbury’s attractions aren’t hard to fathom either. For one, the shares still look reasonably valued and, before this morning, changed hands for a little less than 14 times earnings. It’s also got a big property portfolio and currently has the second-largest share of the UK grocery market.

However, this is not to say that I would be guaranteed a great return on my investment if I bought today.

No guarantees

One rather obvious risk to buying SBRY now is that it won’t actually receive a bid. One can name many firms in the FTSE 100 that have looked like prime takeover candidates for years but that are still to be snapped up. Broadcaster ITV springs to mind. Luxury fashion firm Burberry is another. Both already occupy places in my portfolio. However, I own them because they are, in my view, great businesses. If I were to buy the supermarket’s stock now, I’d need to be confident that Sainsbury is capable of delivering a solid gain without any bid interest.

A further, potential issue here is that Apollo could join forces with Fortress and launch another counter bid for Morrisons. Were this to happen, any talk about acquiring its rival would likely end and the Sainsburys share price rally may run out of steam.

It’s also worth highlighting that SBRY is among the most shorted stocks on the London Stock Exchange, according to shorttracker.co.uk. In other words, a good proportion of traders are betting that the Sainsbury’s share price will fall. 

Of course, this could actually work in investors’ favour if bid rumours grow. In such a scenario, the aforementioned traders would rush to close their positions. The resultant ‘short squeeze’ would likely put a rocket under the Sainsbury’s share price. We may already be seeing some of this today. 

Undeniably positive

Based on recent news, I think there’s certainly a chance the share price could continue rising — and potentially explode — over the next few weeks. The fact that it’s already up 6% in early trading today is certainly evidence that the market is getting excited over the company’s near-term outlook.

Even so, I’m less inclined than others to buy today. Based on my own risk tolerance, (long) investing horizon and the business itself, my preferred choice remains market leader Tesco. And if I were solely looking for income from the supermarket space, this real estate investment trust looks by far the least risky option to me. 

The post Is the Sainsbury’s share price (SBRY) about to explode? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Burberry and ITV. The Motley Fool UK has recommended Burberry, ITV, Morrisons, and Tesco. 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.

Here are just some of what I consider to be the Sage of Omaha’s most important lessons.

Know your business

“Never invest in a business you cannot understand“.

Warren Buffett is a fan of sticking to what you know. He only buys stakes in a business if he understands what it does and how it will continue to make money for him in the future. 

The portfolio of stocks owned by his holding company Berkshire Hathaway bears this out. Buffett part-owns giants such as Coca-Cola, American Express and Apple. 

Early in my investment journey, I found it remarkably easy to get involved in things I didn’t understand (or at least didn’t understand as well as other people). Even if I didn’t end up buying shares in these companies, I still wasted lots of time trying to figure out exactly how they would grow my capital.

These days, I do what Buffett does. Throw such stocks in the ‘too hard’ pile. Instead, I hold shares in businesses I can easily summarise, like food-on-the-go retailer Greggs, luxury fashion brand Burberry and drinks firm AG Barr.

Buy quality stocks

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

If understanding what a business does is vital, so too is knowing how much to pay for its shares. Warren Buffett’s original investment strategy was to buy seriously cheap stocks. Their quality didn’t matter so much if they were so lowly priced. As such, he was confident he could still make money. This focus later changed to buying stocks with strong competitive advantages (or economic moats).

By their very nature, such companies aren’t all that common and are usually more highly valued. So, having found a good thing, Buffett believes an active investor should bet big. If not, s/he may as well track the index.

Learning how to separate the wheat from the chaff takes time. What’s taken me longer however, is recognising that paying up can still work if a company can reinvest and compound earnings for years to come.

Stay the course

“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”

With news coming thick and fast every day, there’s a tendency to think that investors need to react to everything. Buffett disagrees. He thinks that inaction is key to growing wealth. This is why he says his favourite holding period is ‘forever’. 

While we shouldn’t take that literally (he still sells), Buffett’s record bears out this ‘buy and hold’ approach. He first began investing in Coca-Cola back in the late 1980s and still holds the stock today. 

Whether I can own stocks for as long as Buffett remains to be seen. However, adopting a ‘don’t touch!’ policy means I’ll definitely save on commission fees. Over time, costs like these actually have a huge impact on returns.

The post How I’d invest using 3 lessons from billionaire Warren Buffett appeared first on The Twelfth Magpie.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Paul Summers owns shares in Greggs, Burberry and AG Barr. The Motley Fool UK owns shares of and has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool UK has recommended AG Barr and Burberry and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on 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.