Alphabet

What it does: Alphabet is the parent company of Google Search, Google Cloud, Android and YouTube.

By Ben McPoland. I recently bought shares of Alphabet (NASDAQ: GOOGL). The stock is the cheapest it’s ever been due to Google Search facing competition and a slowdown in digital advertising.

These concerns are legitimate, specifically competition from ChatGPT. The Microsoft-backed AI chatbot serves up answers without the need for endless pages of links. And those ad-monetised search pages remain the lifeblood of Google.

However, I doubt this is a Netflix-disrupting-Blockbuster-Video situation. Google is a pioneer in AI, has $113bn in cash and equivalents, and has already built Bard, its own chatbot.

AI systems need to be trained on vast data sets. And just imagine how much data Google has amassed over the years through search, maps, Android, Gmail, YouTube, and more. Its competitive edge in the AI space is razor-sharp. 

Some people thought Amazon Echo would be disastrous for Google. Consumers would just bypass all those pages and ask/buy/order directly through Alexa. But it wasn’t disastrous. And I don’t think this situation is, either.

Ben McPoland has positions in Alphabet and Netflix.

Farmland Partners

What it does: Farmland Partners is a REIT that acquires and manages farmland properties in the US, with over 160,000 acres on its books.

By Mark Tovey. I bought shares in Farmland Partners (NYSE:FPI) because arable land can be a great hedge against inflation.

The amount of arable land per capita has decreased significantly over the last six decades and is expected to continue declining.

Moreover, arable land has a negative correlation with the S&P 500, making it a potential diversifier for my investment portfolio.

Farmland Partners recently issued a tepid growth forecast and warned of the potential for sharply falling operating earnings in 2023, causing its share price to crash by 15% in the space of a single week. I saw this wobble as a buying opportunity.

I had been watching this REIT since the Russian invasion of Ukraine, which caused a panic in agricultural markets and a sharp rally in Farmland Partners’ stock price. Now that its price has come back down, I decided to take the plunge on this out-of-favour REIT.

Mark Tovey owns shares in Farmland Partners.

Glencore

What it does: Glencore is one of the world’s largest natural resource companies with operations in 35 countries.

By Andrew Mackie. Since hitting an intra-day high of 584p back in January, the Glencore (LSE: GLEN) share price has declined nearly 20%. As a firm believer that we are in the early innings of a commodities bull market, I could not resist buying a few more of its shares.

A significant fall in the share price has pushed its dividend yield up to a hefty 7.8%. However, this is not the primary reason why I like the company.

Over the next seven years, total copper demand is estimated to reach 355m tonnes, with 100m coming from the energy renewables market alone. However, total global copper production, both primary and recycled, will see a 50m tonne shortage. The upshot is we face a supply cliff.

The low-hanging fruit of easily accessible grades is over. Mining for metals today is highly challenging. This brings with it a whole host of issues, including that of obtaining permits and licences.

Glencore is in no rush to bring new supply online — at least not until the world is screaming for it. At that point, I believe the price of the metal will be trading at many multiples what it is today.

Andrew Mackie owns shares in Glencore.

Greencoat UK Wind

What it does: This fund invests in wind farms across the UK, producing enough energy to power 1.5m homes.

By Dr James Fox. Amid the current volatility, a widely regulated market like energy generation looks rather attractive. But that’s not the only reason I’ve recently bought shares in Greencoat UK Wind (LSE:UKW).

The trust aims to provide investors with an annual dividend that increases in line with Retail Price Index (RPI) inflation. Currently the dividend yield sits at 5%, but it will rise around 13% — in line with inflation — this year. The dividend has been increased 10 successive times in line with RPI.

While Greencoat might be heavily focused on one geography and one technology type, which could make it vulnerable to weather systems or regulatory changes, wind energy is highly effective and profitable right now.

Going forward, technological advancement should enhance the efficiency of wind power, and I’m hoping to see the government restart its support for onshore wind farms — a highly cost-efficient way of producing power.

Dr James Fox owns shares in Greencoat UK Wind.

J D Wetherspoon

What it does: J D Wetherspoon operates a chain of pubs and a hotel portfolio, primarily in the UK.

By Christopher Ruane. In recent years I have seen my stake in J D Wetherspoon (LSE: JDW) decline in value. Over the past year, the shares have fallen by more than a quarter.

But I remain convinced that the company’s underlying business model is attractive. Customer demand has come back. With the total number of pubs in decline, I think Spoons’ value offering could mean it actually grows sales volumes in coming years even if overall custom in the pub trade falls.

The shares have risen 24% so far this year. I have been buying more. I’m hopeful that the interim results due on 24 March will show a business that is growing sales and making a healthy profit once more.

I do see risks, such as inflation eating into profit margins. But with a historically proven business model, strong customer demand and a unique proposition, I think the business has long-term potential not fully reflected in its current share price.

Christopher Ruane owns shares in J D Wetherspoon.

Marks and Spencer

What it does: Marks and Spencer is one of the oldest retailers in England. It specialises in selling premium food products, clothing items, beauty, and home products.

By John Choong. Despite dropping an eye-watering 45% last year, Marks and Spencer (LSE:MKS) has been one of the FTSE’s biggest winners in 2023 thus far. The retailer’s stock has made a remarkable recovery from its October lows, jumping 65% — and it’s no surprise to see why either.

In defiance of the doom and gloom projected by City analysts, M&S has managed to buck the trend of many of its peers. Inflation may be running hot, but the firm’s superb value proposition and more affluent customers have been beneficial during this trying period. In fact, Marks and Spencer witnessed increased footfall, sales, and even grew its market share in 2022.

Additionally, the company’s future is bright, as it continues to roll out sleeker stores with an ever improving omnichannel experience. And with a price-to-earnings (P/E) ratio of 9.9, price-to-sales (P/S) ratio of 0.3, and price-to-book (P/B) ratio of 1.0, I believe the stock is still incredibly cheap when taking the firm’s exciting, long-term growth into account.

John Choong owns shares in Marks and Spencer.

Moneysupermarket.com

What it does: Moneysupermarket.com operates price comparison websites and other services such as MoneySavingExpert.

By Roland Head. I bought shares in Moneysupermarket.com (LSE: MONY) in February, just after the company published its 2022 results.

Last year’s accounts revealed that revenue rose by 22% to £387.6m in 2022, as demand for personal finance and travel-related products recovered after the pandemic.

Pre-tax profit for 2022 climbed 33% to £69.3m. That’s a solid improvement, although it’s still a long way below the peak profit of £95m reported in 2019.

My main concern is that I’m not sure much growth is left in the price-comparison business, which is now quite mature.

Even so, last year’s numbers show that this company is still highly profitable and generating plenty of cash. Although the dividend was held unchanged at 11.7p, broker forecasts suggest the payout to be increased this year.

After last year’s encouraging performance, I’m happy to collect the 4.9% dividend yield while I watch to see what CEO Peter Duffy can achieve.

Roland Head owns shares in Moneysupermarket.com.

Nvidia

What it does: Nvidia is a designer of graphics processing units for computers with increasing artificial intelligence capabilities.

By Charlie Carman. Nvidia (NASDAQ:NVDA) is the world’s seventh-largest company with a market capitalisation of around $570bn. The share price has grown rapidly in recent years. 

Although the high price-to-earnings ratio of 131.7 is a concern, I bought shares in the business because I’m bullish on its long-term growth prospects for three key reasons. 

First, Nvidia dominates the discrete graphics processing unit (GPU) market, claiming an 88% share. Macroeconomic headwinds hurt sales last year, but I believe the long-term demand outlook from the custom PC market for gaming remains bright. 

Second, Nvidia’s HP100 GPU has potentially lucrative applications in the artificial intelligence (AI) arena. Offering a massive increase in computing performance, demand for this market-leading product could increase as the adoption of AI chatbots like ChatGPT becomes more widespread. 

Third, the company’s new AI cloud service DGX Cloud helps to diversify its revenue streams. This innovative solution is yet another string to Nvidia’s bow.

Charlie Carman has positions in Nvidia.

Record  

What it does: Record primarily manages currency risk for institutional clients but also increasingly manages assets for return for its customers.  

By James J. McCombie. Record (LSE:REC) grew its sales by 8.9% on average over the last five years. Its operating margin averages around 30%, and its return on equity is about 40%. The company’s balance sheet is strong, and its liquidity position is excellent. In the most recent quarter, it reported that its assets under management grew by 6%. Growth in assets under management (AUM) boosts management fees. In addition, performance fees have returned which boosts the bottom line. 

The traditional business of currency management looks in good health. Record has also begun to offer its clients more products. Excess capital is also being redirected to investments in early-stage companies as of last year. This should help boost AUM in the long run and indeed returns. But these moves do skew the risk profile of the operations higher. Nonetheless, I am happy to have bought what I think is a high-quality stock with growth potential this month. 

James J. McCombie owns shares in Record.

Scottish Mortgage Investment Trust

What it does: FTSE 100-listed Scottish Mortgage Investment Trust invests in ‘disruptive’ public and private growth companies from around the world.

By Paul Summers: Call me a glutton for punishment but I’m continuing to top up my holding in Scottish Mortgage Investment Trust (LSE: SMT) every month.

So far, this is still to bear fruit. As I type, shares are down 6% in 2023 alone thanks to ongoing market jitters about the direction of interest rates.

Still, I reckon this dogged persistence will pay off in time. There’s certainly nothing to suggest the prospects for holdings such as Tesla, ASML and Moderna are worse than they once were.

What’s particularly appealing about Scottish Mortgage at the current time, however, is that its shares now trade at a significant discount to net asset value. In other words, the price I’m paying is a lot less than what its investments are worth as a whole.

It’s always darkest before the dawn but I’m quietly confident we’ll see the latter in 2023. Probably. 

Paul Summers owns shares in Scottish Mortgage Investment Trust

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For example, the Microsoft founder is fond of farmland. Over the last five years, he has gone on a buying spree that has left him holding 270,000 acres.

Farmland can be a fantastic hedge against inflation. It is a hard asset and it produces a positive cash flow (unlike gold). Then, there is the fact that the amount of arable land per capita has more than halved over the last six decades and is expected to keep declining.

Interestingly, farmland property values are negatively correlated with the S&P 500, making arable land a potential portfolio diversifier, like government bonds.

Although I can’t outright snap up farms like Gates has done, there is one way I can get exposure to this asset class using my Stocks & Shares ISA.

A two-horse race

UK investors may be disappointed to learn that, at least for now, there are no real estate investment trusts (REITs) dedicated to buying up England’s pleasant pastures of green.

The only two farmland REITs I have dug up are US-listed.

• Farmland Partners (NYSE:FIP): with 160,000 acres owned and a book value of $1.1bn, this REIT is the bigger of the two

Farmland Partners focuses on ‘row crop farms’, that is, commodity products that are replanted yearly like corn, soybean, and wheat. By acreage, 90% of its portfolio is made up of these types of crops.

Its properties are spread across 18 American states. It rents out the land to tenant farmers, currently boasting an impressive 0% vacancy rate. Expansion is the name of Farmland Partners’ game, with $800m worth of target properties lined up for potential acquisition.

•  Gladstone Land Corporation (NASDAQ:LAND): this REIT is the smaller of the two, with 115,000 acres spread across 15 states and a book value of around $600m

Its unique selling point is that it has a stronger focus on ‘permanent crops’. These are planted once and may last for up to 25 years, for example, almonds, avocados, and oranges.

Gladstone Land says these permanent crops face less price volatility and that all of its farms come with their own water supplies, meaning they are not as dependent on rainfall.

Don’t bet the farm!

While I like the idea of diversifying my portfolio by adding in an alternative asset class like farmland, neither of these REITs appeals to me after looking at their financials.

Farmland Partners is trading at 1.4 times its book value, while its debt-to-equity ratio is a staggering 62. As interest rates rise, I am worried that Farmland Partners’ already razor-thin profit margins could be wiped out.

Meanwhile, Gladstone Land is already losing money, with earnings per share of -0.29 cents. It is true that this REIT is trading equal to book value following a collapse in its price over the last 12 months of 21%. However, its debt-to-equity ratio is 111, making it almost twice as indebted as its rival farmland REIT.

Farmland may be a great inflation hedge, but the only two REITs offering me exposure through my Stocks & Shares ISA look over-leveraged. As interest rates rise, I fear servicing such heavy debt loads could become a hard row to hoe.

The post How to invest like Bill Gates in a Stocks & Shares ISA! appeared first on The Twelfth Magpie.