There are some fundamental truths about this market we can learn from watching Warren Buffett.

That’s certainly the case when his $770bn investment giant Berkshire Hathaway (NYSE: BRK.B) sells stocks.

And the third-quarter results are in. So let’s dig into what got culled, and what crucial lessons I’ve learned.

Results out

Berkshire Hathaway has boosted its cash pile from $130bn at the start of 2023 to a record $157bn today.

It has heavily cut positions in a series of top US stocks, the company revealed.

Results published in mid November showed the legendary investment firm sold off its last shares in American car stalwart General Motors. That was a position totalling £850m earlier this year. Buffett also trimmed his Amazon holdings and sold 10% of his position in oil giant Chevron.

There’s more. A total £100m stake in consumer goods giant Procter & Gamble and healthcare conglomerate Johnson & Johnson has been a good earner for Buffett. But he also sold these winners to make room for other opportunities, SEC filings show.

These bring the total Berkshire Hathaway sell-offs to $40bn in 2023 alone.

What to learn

Many investors incorrectly sum up Warren Buffett’s philosophy as being: buy and hold forever. Looking at his own moves, that’s patently false.

As chief executive of Berkshire, Warren Buffett has continued to sell shares in publicly traded companies before taking new positions.

That’s because being overinvested is a surefire way to miss opportunities when they arise. Overinvested, in this context, means having all one’s capital tied up in stocks with no extra cash left over.

So if a company an investor likes sees a dip that they think is overdone, the cupboard is bare when they come to take advantage.

Sometimes funding great ideas comes with a painful selling period to find the available cash.

But conviction is important. If I see more upside in one investment than another, I have to trust my gut and my experience. Warren Buffett certainly does.

Between July and the end of September 2023, the Oracle of Omaha sold stakes worth more than $5bn in US and offshore companies.

Pick unloved companies

It’s all very well piling into hot stocks when they make headlines. But I’ve made some of the best gains of my investing career by tracking undervalued companies and swooping in when nobody’s watching.

These businesses should be growing their profits and market share no matter what wider economic conditions look like.

I should look at a company’s balance sheet and scratch my head, thinking: “I don’t understand why this has sold off so much.”

Most new investors get this next part wrong, too. My job is not just to try to pick stocks to outperform the market. Even more important is to protect my capital and not lose money.

I can’t do that if my attention is split, or I’m constantly chasing the shiny new flavour of the month company.

In the dotcom boom, Berkshire Hathaway was ridiculed for ignoring internet stocks. But when the bubble burst and the Nasdaq lost 72% of its value from 2000 to 2002? Berkshire Hathaway increased its value by 80%.

Warren Buffett didn’t make his billions chasing fads. And neither should I.

The post Warren Buffett just sold these stocks appeared first on The Twelfth Magpie.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tom Rodgers has positions in Amazon. The Motley Fool UK has recommended Amazon. 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.

Pinterest (NYSE: PINS) released its Q2 results on Monday evening. Although most of its numbers came in below estimates, the stock rallied by more than 10%, which is a head-scratcher. So, here are the possible reasons why Pinterest stock popped.

Pinning the bottom

While Pinterest reported rather lacklustre numbers, I think there were several key figures that served as catalysts for the stock’s rally. I imagine this to primarily be its revenue, monthly active users (MAUs), and average revenue per user (ARPU).

After disappointing revenue numbers from the likes of Alphabet, Meta, and Snap last month, investors were relieved to see Pinterest perform in line with the guidance it set out in the last quarter. Although there were misses on EPS and EBITDA, it was also a relief to see MAUs bottom, as predicted by CFO Todd Morgenfeld in last quarter’s earnings call.

More importantly, mobile MAUs grew by 8%, while desktop users declined by 30%. This is significant because mobile users constitute more than 80% of the revenue generated. Therefore, Pinterest is seeing growth in higher quality users. And with the launch of its new app, Shuffles, for collage-making and mood boards, I’m expecting growth in mobile users to continue.

Elliott says Pinterest is ready

Another key catalyst for the pop in Pinterest stock can be attributed to Elliott Management disclosing its stake in the company. The activist investor now holds a 12% stake and is the company’s largest investor. Elliott also gave the vote of confidence to Pinterest’s new CEO Bill Ready, which shored up investor sentiment.

The impact of the appointment is already taking effect. Under Ready, ARPU saw an increase of 17% despite a challenging macroeconomic environment. This is most likely due to Pinterest expanding its ad reach to more regions. In Q2, the firm launched ads in Japan, and finally launched Idea Ads in 34 markets. Moreover, it expanded its ad coverage in South America, which should boost rest-of-world ARPU in the future.

Boarding for take off

All that being said, is Pinterest stock worth a position in my portfolio? Well, its monumental drop from an all-time high of $89.90 and high price-to-earnings (P/E) ratio of 60 isn’t very pleasing. Furthermore, inflation and supply chain disruptions are already impacting several of its advertisers, specifically in the consumer packaged goods market.

However, there’s so much more potential behind Pinterest. Its evolution to becoming a hybrid e-commerce and social media platform is starting to take shape. This is evident with the growth in its product catalogue, which now hosts over a billion items. In addition to that, shopping ad revenue grew twice as fast as overall revenue in Q2. And with 90% of search queries still unadvertised, there could be plenty of unexplored revenue waiting in the pipeline.

It’s also worth noting that its balance sheet is as perfect as it comes. With $3.25bn worth of cash and equivalents, and zero debt, I believe Pinterest has got a long runway to expand its business and earnings potential.

The board also mentioned its intention to continue investing this year, and expects to return to meaningful margin expansion in 2023, as Pinterest reaps the rewards of those investments. Having taken everything into consideration, I’ll definitely be buying more Pinterest stock for my portfolio.

The post Here’s why Pinterest stock popped 10%! appeared first on The Twelfth Magpie.

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General Mills

While the S&P 500 flirts with bear market territory, consumer foods company General Mills (NYSE: GIS) continues to hit all-time highs. On a year-to-date (YTD) basis, the stock is up 11%! Not only that, the board recently approved a 6% increase to its quarterly dividend, bringing its total dividend to $0.54 per share. Nevertheless, what makes it such a lucrative stock is its track record of consistent and growing dividends, which has lasted over 120 years!

Aside from its dividend, however, the company continues to post steady and healthy margins (14.3%), despite ongoing inflationary pressures. General Mills’ top line shows no signs of cooling either when taking June’s Consumer Price Index report into account. Although cereal prices are up 2.5% on average, May’s retail sales data indicates that grocery sales are up 1.2% month-on-month (M/M). This aligns with what CEO Jeffrey Harmening mentioned, that General Mills is benefiting from consumers switching to at-home eating.

Rio Tinto

Another Dividend Aristocrat on my list is Rio Tinto (LSE: RIO). Like General Mills, Rio has been paying consistent dividends for the past few decades, even during the last three financial crises. Nonetheless, its share price is down 3% (YTD).

As the second biggest iron ore producer in the world, Rio exports the bulk of its iron to China. Therefore, lockdowns across China have resulted in a 15% decline in its share price over the last month. Consequently, I’m expecting Rio’s dividend to fall in the near term. But if history is any indicator, a post-Covid rebound in China’s economy will most likely boost Rio’s top line and dividend exponentially. I only need to refer to the difference in dividends from 2020 and 2022 (‘Peak-Covid’ vs ‘Post-Covid’) to make my case.

Additionally, the miner boasts excellent profit margins that average above 20%. With a healthy debt-to-equity ratio of 21.7%, and cash ($15.3bn) comfortably covering debt ($12.2bn), the FTSE 100 firm seems well equipped to handle a potential economic slowdown.

Worthy dividend?

Having said all that, these two dividend stocks have good track records. It suggests that they are able to provide some passive income through good and bad times. As a matter of fact, their average dividend yields outperform the S&P 500. But do I think these stocks are worth a buy?

Well, General Mills’ financials put me off investing in its shares. The manufacturer has a staggering amount of debt ($11.6bn) with a minuscule amount of cash ($819m) in its reserves. With interest rates set to continue rising, debt repayments could become more costly, and potentially lower its dividend. Furthermore, its average price target of $73.87 could indicate that the stock is overvalued at this time.

On the other hand, Rio Tinto has strong financials and earnings power. As a result, the current dip is a buying opportunity for me, as I aim to capitalise on an eventual rebound in the Chinese economy. After all, its average price target is £56.43. This presents me with a 24% upside if I were to invest today.

The post 2 of the safest dividend stocks on earth appeared first on The Twelfth Magpie.

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John Choong 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.

Pinterest is Ready

Those following Pinterest for a while now would know that the company is integrating its social media and e-commerce offerings together, as it sees huge potential in that space. This is what led to its partnership with Shopify in 2020.

Since then, it has been churning out new features every quarter. One is AR Try On, which allows users to virtually place items from US retailers, using their phone’s camera. Additionally, it launched Idea Ads, which stimulates paid partnerships between creators and businesses from creator-produced content.

But more recently, it recently acquired THE YES to further develop Your Shop. The acquisition aligns with much of what Pinterest is trying to do, as Your Shop allows users to see customised shopping surfaces with brands and products, based on their activity and preferences on the platform.

Skills to pay the Bill

With those developments in mind, I can see why the board decided to hire Bill Ready. For all that Ben Silbermann has done for the company, his lack of expertise in the e-commerce space was prevalent. Therefore, hiring an online commerce expert is an excellent choice, as the new Pinterest CEO has worked at a number of large companies.

Ready was poached from Alphabet‘s Google, where he was the President of Commerce, Payments & Next Billion Users. He oversaw Google’s vision, strategy, and successful delivery of its commerce products, such as Google Wallet. Furthermore, he’s held several leadership roles at PayPal, where he was the Executive Vice President and COO, while also being the CEO of its subsidiaries, Braintree and Venmo.

With such an impressive record in online commerce, I have full confidence that Ready is the right man for the job. I believe that he’s going to be the right leader to make radical progress in the e-commerce space. As the platform continues to rollout its popular seamless checkout feature, Ready could very well help to scale it internationally, where Pinterest has a lot of untapped potential.

Sale of the year?

So, with the Pinterest stock down 45% this year, could this be the sale of the year? For one, the NYSE firm has one of the best balance sheets I’ve encountered. It has zero debt and a fat cash balance of $2.7bn. Moreover, it boasts healthy earnings margins of 12.5%. These indicators point towards a strong company with good financials, earnings power, and bright future prospects — everything that satisfies Warren Buffett‘s investment criteria. This is why I’m a big fan of the stock.

Despite losing almost half of its value already this year, I still expect the stock to continue declining. This is because growing interest rates are spurring fears of a potential recession. Nonetheless, I’m still bullish about the company’s prospects. As such, I’ll definitely be using the current bear market as a buying opportunity for me to purchase Pinterest shares at a discount.

The post Should I buy Pinterest stock with its new CEO? appeared first on The Twelfth Magpie.

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John Choong owns shares of Pinterest, Alphabet, and PayPal at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), PayPal Holdings, Pinterest, and Shopify. 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 Pinterest (NYSE: PINS) share price is now trading below its initial public offering price. Once an $85 stock, it now exchanges hands at less than $20 per share. So, here’s why I’ve opted to buy its shares despite the monumental drop.

Money doesn’t always talk

Pinterest stock and its earnings seem to have an inverse correlation. While earnings and average revenue per user (ARPU) continue to grow on a year on year basis, its stock continues to plummet to new one-year-lows.

Despite the increase in ad spend, the majority of analysts seem to misunderstand the tech firm’s business model. The focus seems to be pinned on monthly active users because Pinterest is seen as a social media platform. When viewed as such, a declining number of monthly active users (MAU) doesn’t bode well for the stock. Nonetheless, management stated in its Q1 results that this decline seems to be bottoming out, and expects MAUs to grow again later this year.

That being said, Pinterest is more than just a social media company that generates revenue from users scrolling through its platform. It’s an e-commerce platform with a social media front. The business generates revenue from engagement. This means that advertisers only pay when users engage with promoted pins. As most of these have indirect promotions of products in a pin, Pinterest is essentially selling products through a creative manner.

‘Pinning’ users down

Given that the NYSE-listed firm struggles with pinning users down, a number of acquisitions and partnerships have recently been made. This is an effort to bring better proposition to both advertisers and users.

For one, the company recently acquired Vochi, a video creation and editing app. Additionally, it partnered with Tastemade on a multi-million dollar deal. I can see how these developments will allow creators to create better video content and consequently, bring more users and revenue to Pinterest.

The firm also recently acquired The Yes, an AI-powered shopping platform. It uses an algorithm to find the right products that are personalised for a user’s taste and style. This acquisition aligns with much of what Pinterest is trying to achieve in the e-commerce space, given its recent introduction of Your Shop. Its key partnership with Shopify has paid dividends as well. I expect its top line to increase as it continues to roll out seamless checkout to more merchants.

Discount season

Nevertheless, Pinterest faces economic headwinds. A slowdown in the US economy, where it gets the majority of its revenue from, is expected. This could hinder growth in the short to medium-term. However, this isn’t a huge concern for me, as I plan to buy and hold Pinterest stock for the long term.

With a flawless balance sheet, a mountain of cash at $2.7bn, and zero debt, I’m confident that Pinterest can weather a potential economic slowdown. Not to mention its 12.5% profit margin shows that it’s got substantive earnings power. Moreover, its recent acquisitions and partnerships lead me to believe that Pinterest is finally doing a better job of marketing itself to potential users. As such, I see a further drop in its share price as a buying opportunity for me for Pinterest stock.

The post I bought Pinterest stock and here’s why appeared first on The Twelfth Magpie.

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John Choong owns shares of Pinterest at the time of writing. The Motley Fool UK has recommended Pinterest and Shopify. 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.

Pinterest (NYSE: PINS) just reported its Q1 earnings results. With a bright future ahead and it beating analysts’ estimates for earnings per share (EPS) and revenue, I’ll be looking to add to my position in Pinterest while its share price stagnates at IPO levels.

Pinning money

Pinterest posted revenue of $575m, up 18% year on year (Y/Y). Non-GAAP EPS also managed to beat estimates as it came in at $0.10. This was 8 cents higher than Wall Street’s expectations. The firm’s net loss was a 76% decrease to -$5.3m this year, a significant step closer to profitability. This was down to the increase in average revenue per user (ARPU), which saw a 28% jump (Y/Y).

The company also saw its cash and equivalents increase to $1.7bn, and liabilities decrease to $459m. This leaves it with room for investment in order to grow its user base and average revenue per user (ARPU).

Pinterest-ing developments

Speaking of the user base, Pinterest did see a decline in monthly active users (MAU). The New York Stock Exchange-listed business saw its MAUs decline by 9% on an annual basis. However, management suggested that the downtrend in MAUs could be bottoming. Nonetheless, the figure saw a 0.5% increase from the previous quarter. CFO Todd Morganfield also expects MAU headwinds to dissipate from Q3 onwards.

To give this figure more context, Pinterest highlighted in its letter to shareholders that mobile users, which make up the bulk of its traffic and revenue, saw mid-single-digit growth in the most recent quarter. This is great news as Pinterest continues to gain more quality than quantity.

Moreover, CEO Ben Silbermann cited plenty of innovations for the platform. One of them is the development of a new API for stakeholders and advertisers. This should bring additional value, which could result in higher advertising revenue. Additionally, it has begun beta testing ‘Your Shop’. Its partnership with Woocommerce has also seen shopping engagement grow, as seamless checkout continues to roll out to more users, according to management on the earnings call.

The monetisation of video Idea Pins, which saw a 15 times increase in engagement, makes me excited too. This is evident in its R&D spending that was up 13% quarter on quarter, with management mentioning its intention to spend more on innovating its offerings throughout 2022.

Pinned down supply chain

All that being said, Pinterest does face a couple of challenges in the near term. Although guidance for revenue in Q2 is for 11% annual growth, macroeconomic factors cannot be ruled out. Q2 is statistically a weak quarter for Pinterest as users venture outdoors. Nonetheless, the removal of sign-up barriers to use the platform should bring more engagement.

However, I will be paying attention to the upcoming US GDP and retail numbers, as they may have an effect on future revenue. After all, supply chain issues have already caused a decline in advertising spend by consumer packaged goods firms. With the effects of China’s lockdowns on global supply chains still to be felt, Q2 could see weaker numbers. Nevertheless, I remain bullish on the long-term prospects of Pinterest and will be buying more shares for my portfolio.

The post Pinterest earnings beat Q1 estimates. Here’s why I’m buying the shares appeared first on The Twelfth Magpie.

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John Choong owns shares of Pinterest at the time of writing. The Motley Fool UK has recommended Pinterest. 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.

Investing guru Warren Buffett recently purchased an 11.4% stake in HP (NYSE: HPQ) for his holding company, Berkshire Hathaway. The purchase now makes him HP’s biggest shareholder. To be clear, Hewlett-Packard split its business into two divisions in 2015. Hewlett Packard Enterprise would sell servers and enterprise services, while HP Inc would sell PCs and printers. Warren Buffett opted to buy shares in the latter. On the day his purchase was announced, the HP share price spiked by 15%. Nonetheless, it has since come back down to a more reasonable price. With Warren Buffett’s impeccable track record of beating the market, I will be diving into HP’s fundamentals and prospects to determine whether I will be buying HP shares for my portfolio.

Low HP

Warren Buffett has always preached his main investing philosophy. He encourages only buying shares in companies that have solid balance sheets, quality earnings, and strong pricing power. This is why I was left surprised when I saw his holding company acquire $4bn worth of stock in HP.

HP’s balance sheet certainly isn’t in a healthy position. With a -304.4% debt-to-equity ratio, the tech company has negative shareholder equity. This means that the company’s liabilities exceed its assets. Its cash and equivalents are not sufficient to cover its debt either, with only $3.4bn in cash and $7.1bn of debt. As a result, I am left scratching my head, as HP’s balance sheet doesn’t add up to the fundamental investing strategy of Warren Buffett.

Printing money

Nonetheless, the silver lining in HP’s dire balance sheet is that it manages to generate quality earnings. Since Q1 2021, HP has managed to grow its revenue and profit margins. The firm went from a 5.6% profit margin to 10.1% in its most recent quarter. In addition to that, HP has shown its intention to continue growing its business. Just last month, HP announced its acquisition of Poly, a voice and video solution company. This should boost HP’s growth strategy, as it aims to build a leading portfolio of hybrid work solutions.

More importantly, HP trades at a low price-to-earnings ratio of six, while also paying a decent dividend of $0.25 per share. It is perhaps for those reasons that Warren Buffett opted to invest in one of the world’s biggest PC manufacturers, as he expects HP to continue generating compounding amounts of free cash flow.

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Unfortunately, that is all the good news I have for HP. Despite the positives of the company, there are worrying trends that the PC giant faces. For one, market analysts are forecasting that PC growth will slow down considerably as inflation continues to eat away on consumers’ income. It doesn’t help either when UBS gives HP a stock downgrade, citing weakening demand for HP products, with Wall Street also expecting the S&P 500 company to see a decline of 12.4% in its earnings. Moreover, HP isn’t the market leader as it trails its rival, Lenovo, giving it less pricing power.

As such, despite HP’s value proposition, I don’t think the stock will be performing considerably well for the foreseeable future. The company’s balance sheet also leaves much to be desired, which is why I will not be buying HP shares for my portfolio any time soon.

The post Warren Buffett just bought HP shares. Should I buy? 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 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.

A strong economy

The next US Federal Reserve meeting is expected to mean a 50 basis points hike in the Fed funds rate. This is equivalent of a 0.5% interest rate hike and has sparked fear of a still-bigger stock market correction. The Fed has a history of being too hawkish and spurring recessions, which affects markets globally, including here in the UK. Nonetheless, Moore thinks that the US economy is strong enough to handle multiple rate hikes this year. This is backed by strong employment numbers, heavy assets, and positive earnings results. He also believes inflation is close to reaching its peak. Nonetheless, oil remains the biggest issuing affecting consumer prices. The black gold could spark chaos again if it spikes above $100 per barrel.

Moore sees this year’s stock market correction as being short-lived due to the positive economic data coming in. He expects new market highs to come at some point next year. This should happen once inflation cools down and supply chain bottlenecks ease. Unfortunately, that’s where his bullishness ends. He thinks those new highs could be followed by a potential recession soon after, and into early 2024. This is most likely to happen once ‘stagflation’ (High inflation, but slow or no real economic growth) starts to take effect.

Time is my best friend

Will all that deter me from investing? No. There are four cycles in investing — accumulation, mark-up, distribution, and legacy. This was mentioned by Moore in my interview with him. As a young investor, I’m currently in the accumulation phase. This phase is where I see buying opportunities with attractive valuations during a bear market. Moore sees the current US market correction as a buy-the-dip opportunity for me, as I begin to pick up good discounts on mega-cap companies with healthy balance sheets, attractive margins, and pricing power. The tech-heavy Nasdaq in the US is down over 12% so far this year. That presents plenty of opportunities for me to buy shares in big US-listed tech companies such as Amazon, Alphabet, and Microsoft.

My buy the dip strategy

As Warren Buffett once said: “A diversified portfolio with exposure to different sectors is protection against ignorance.” This same advice was alluded to by Moore in our interview. The main takeaway was for me to invest more in a variety of value and dividend stocks. These can include commodities, insurance, and healthcare.

I was also pleasantly surprised to find out that Moore follows a similar buying strategy to mine. And he continued to encourage me to buy the dip. This means buying when I see around a 5% to 10% decline in a specific stock. When I asked him how much cash I should be leaving on the side to buy those dips, he mentioned 15-20% of my investment portfolio.

Ultimately, my purchases would be dependent on my risk assessment during any market fall, of course. But I will be buying the dip in mega-cap companies with excellent fundamentals for my portfolio.

The post Should I buy the dip in this stock market correction? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. 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. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, 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.

What does the yield curve have to do with a recession?

An economic recession is typically defined as two straight quarters of negative gross domestic product (GDP). This means that the economy is contracting. Many analysts point towards the yield curve inverting as an indicator of an impending economic decline. After all, it has ‘predicted’ seven of the past eight recessions. The yield curve is an indicator of returns from government bonds. These bonds have a maturity date that can range from 1 month to 30 years. Wall Street normally sounds the alarm whenever short-term bonds (2-year) yield a higher return than long-term bonds (10-year), thus inverting the typical yield curve. Investment banks such as Deutsche Bank and Goldman Sachs have even predicted a recession based on this.

Cherry picking

I believe the data surrounding the relationship between the yield curve and an economic recession has been cloudy. Among all the times the yield curve has inverted in the last 30 years, a recession only preceded it three times. As such, I do not believe that three, or even arguably two data points constitutes good statistics. It is worth noting that the 2020 recession was caused by a global pandemic. Going back further, the yield curve had also inverted in 1995, 1996, and 1998, with no recession following. While it is common for a recession to follow after the inversion of a yield curve, it is not absolutely indicative of it.

Current economic data remains healthy and robust. The unemployment rate continues to decline while labour participation heads back to pre-pandemic levels. In addition, PMI numbers continue to expand, and spending patterns continue to show that consumers are in good shape. Most importantly, GDP continues to grow despite high inflation. Therefore, I think the economy is in a strong enough position to absorb the impact of rate hikes by the Fed, although an overly aggressive Fed might spark a recession.

Investing in a safe bet

While I do not know whether a recession will or will not materialise, I do know that Warren Buffett’s investing philosophy has been effective in generating healthy returns over the long term. I will continue to invest in companies with solid fundamentals, strong earnings, and potential for growth. I believe Alphabet checks all these boxes. It has a hybrid nature of being a defensive and growth stock. Its monopoly in the search and advertising space means that although revenue will take a hit, its position in the market is unlikely to get compromised. It also has tremendous earnings potential in an increasingly inelastic service, cloud computing. So whether a recession happens or not, I will continue to invest in companies that have strong fundamentals, such as Alphabet.

The post Here’s why a recession might not actually happen appeared first on The Twelfth Magpie.

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• This famous growth share’s doubled in a year. Too late to buy?

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). 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.

A new tax year starts on 6 April, and with it comes a renewed £20,000 ceiling that I can invest in my Stocks and Shares ISA. So, here are the three best stocks I’m buying to try to beat the market!

Stock pick #1 – Alphabet

Warren Buffet has always said that the best companies are those that exhibit solid fundamentals, strong earnings power, and the potential for continued growth. Alphabet (NASDAQ: GOOGL) manages to tick all these boxes. With a strong balance sheet, a 29.5% profit margin, and plenty of room for earnings growth with some analysts predicting a 22% upside to its current share price, the Google-parent stock is a no-brainer for me. Furthermore, despite having legal challenges as a big tech company, Alphabet has a history of outperforming the S&P 500. Its upcoming stock split this summer could work wonders for the share price as well. History has shown that stock splits tend to boost share prices as they encourage higher trading volume. Therefore, a solid balance sheet accompanied by strength in the search engine and advertising space makes Alphabet a hybrid defensive-growth stock for my Stocks and Shares ISA.

Stock pick #2 – PayPal

Although the PayPal (NASDAQ:PYPL) share price is 60% off its all-time-high, I think the fintech company still has plenty to offer. Despite a miss on its earnings last quarter, I am excited by PayPal’s revised business model. The platform is targeting more activity per user rather than more users. This is music to my ears because I value quality over quantity. Its partnerships with Amazon, Starbucks, and Doordash to integrate Venmo, an American mobile payment service it owns, will also provide a boost to its revenue. Its previous partnership with eBay generated a sizeable portion of revenue, showing me that PayPal has had some historical success. It could, however, suffer the effects of a high interest rate environment as transaction volume could slow down. Despite its interest income segment earning it revenue, it might not be sufficient to keep investors happy. Yet it’s also hedged against such a potential slowdown. The firm’s interest income segment hedges against rate hikes as it stands to earn revenue from interest too.

Stock pick #3 – Astra Space

Next up on my list is Astra Space (NASDAQ: ASTR). Astra sends small rockets into space to deliver satellites and other payloads for its commercial customers. As a pre-profit company, Astra carries a high level of risk, but with it also comes a high potential upside to its current share price. Since the Alameda-based company launched its first successful payload in March, the share price has shot up 21%. With more launches lined up and monthly launches planned for the rest of 2022, there could be room for the share price to continue growing. Astra also boasts a flawless balance sheet with zero debt, adequate cash levels, and a healthy cash burn. This gives me plenty of confidence to continue buying Astra shares as there is a low probability that the company will need to raise capital in the near future.

No dividends

These are all growth stocks with no official dividends. Nevertheless, the potential upside to the stocks’ share prices offsets the growth of regular dividend-paying stocks, in my opinion. This is why I’ll be buying all three stocks for my portfolio.

The post My top 3 picks for my Stocks and Shares ISA! appeared first on The Twelfth Magpie.

More reading

• This famous growth share’s doubled in a year. Too late to buy?

John Choong owns shares of Alphabet (Class A shares), Astra Space, and PayPal at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and PayPal Holdings. 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.