However, given the recent ‘coming to earth’ commodity prices have seen, questions remain about where Rio Tinto shares could be headed next. Given this is a stock I’m considering for my portfolio, I’ve been taking a hard look at this miner.

Just look at that dividend…

Among a list of the top FTSE 100 stocks, Rio Tinto shares take third place in terms of current dividend yield. The company’s 9.2% dividend yield is staggering. Indeed, surging iron ore and copper prices have produced incredible profits for this mining juggernaut. Accordingly, Rio Tinto’s management team hasn’t been shy about dishing out these profits to shareholders in the form of dividends.

Now, it’s worth nothing that a significant chunk of Rio Tinto’s dividend yield is a result of a special dividend. The company’s special half-year dividend will cost Rio Tinto around US$3bn. These special dividends are sure nice for investors. However, many investors (myself included) subtract these special dividends from their calculations. This is because such dividends are paid out sporadically, based on performance. Accordingly, there is significant risk in assuming Rio Tinto shares will pay out a 9.2% dividend yield over the long term.

Booming earnings lift Rio Tinto shares 

The key driver of Rio Tinto’s recent massive dividend payouts is the company’s stellar earnings. Over the past two quarters, the company grew its net earnings by more than 270%. As an investor looking for some mining exposure, these kind of explosive earnings are appealing to me.

Rio Tinto’s diversified business model is something I like. When looking across the mining sector, it’s difficult to find a comparable to Rio Tinto. Indeed, as far as size and quality go, Rio Tinto shares are among the best I can find in this sector.

That said, should commodity prices continue leveling out, I remain cautious with respect to future earnings growth from here. Thus, in my financial model, I’m assuming as a base case that things will continue as they are. 

The bottom line

Rio Tinto shares are currently valued at around 6.4 times trailing 12 month earnings. For a fundamental investor such as myself, that’s intriguing. Accordingly, this is as stock that tops my watch list right now in the commodity sector.

However, I’m also a realist. The rising commodity prices we’ve seen during the first half of this year are likely unsustainable. Rising coronavirus cases resulting from the delta variant pose a real threat to commodity price strength. Accordingly, I’m factoring in a significant buffer with this stock.

That said, I view Rio Tinto shares as a solid hedge against inflationary pressures (in a bullish economic environment). Should the economy slow, I think Rio Tinto’s diversified business model provides a significant margin of safety. Accordingly, this is a stock I’m considering for my portfolio right now.

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Chris MacDonald has no position in any shares mentioned in this article. 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.

As we continue into what should be an interesting back half of 2021, I’m looking for stocks that can outperform in what could be a relatively choppy period in the markets. 

As a long-term investor, I like the defensiveness and steadiness these three top UK stocks provide. Let’s dive into why these are some of the best stocks on the FTSE I’m considering right now for my portfolio.

Top UK shares: Anglo American

Pre-eminent miner Anglo American (LSE:AAL) is one of the UK shares I’ve been considering for some time.

Indeed, as far as defensiveness goes, Anglo American is a company worth watching. Given the rise in commodity prices we’ve seen take hold of late, this thesis is stronger than ever. Should commodity prices continue to remain stable or climb higher, Anglo American stands to be a key beneficiary. Of course, risks to the contrary are present with this economically sensitive name.

Unsurprisingly, the company’s profitability has been impressive of late. As fellow Fool contributor Manika Premsingh pointed out in a recent piece, Anglo American’s 1,000% profit increase year-over-year is worth considering. Accordingly, I’m going to be watching this stock closely, and will consider adding on share price weakness.

Unilever

An absolute behemoth in the consumer goods space, Unilever (LSE:ULVR) has perhaps one of the most stable share prices of any such company in the world in recent years. This is reason enough for me to put this near the top of my list of defensive UK shares.

Concerns about inflation and rising costs throughout the production chain have dampened my outlook on Unilever to some extent. In many ways, these risks make Unilever a hard stock to justify from a growth perspective in my portfolio. However, it’s also my view that these risks may be largely baked into Unilever’s stock price right now.

The company’s financials have come in strong of late, as Unilever pushes into e-commerce. Additionally, the company’s valuation at around 20-times earnings is enticing to me. This makes for an intriguing defensive value argument for Unilever’s potential inclusion in my portfolio.

Aviva

One stock I’ve been taking a hard look at recently is Aviva (LSA:AV). This insurance juggernaut happens to be one of the best UK shares in this space, in my view. I think this company’s fundamentals and orientation toward the domestic UK market make it a top play in the global insurance space as well. Aviva is the UK’s largest insurer, with 23% of the market share in the UK.

I’m looking at the UK market as a key beneficiary of the longer-term economic reopening coming out of this pandemic. Accordingly, I like Avivia’s positioning as the leading UK insurance play in this market.

However, risks persist in the insurance space tied to interest rates. Lower for longer interest rates reduce the amount insurers are able to earn on fixed income investments, from investing their float (premiums less claims). Accordingly, if government bond yields remain persistently low, as they have since the pandemic began, investors in insurance companies like Aviva could see longer-term growth stunted to some degree. On the flip side, should rates rise, this could provide a longer-term boost to earnings as well.

Accordingly, I like the risk-reward with this stock. This one of the UK shares I’m considering for my portfolio.

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Chris MacDonald has no position in any shares mentioned. The Motley Fool UK has recommended 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.

Last month, fintech (financial technology) firm Wise (LSE:WISE) made its highly-anticipated debut on the market. Listed at 800p, Wise shares have shot nearly 25% higher in just four weeks. For early investors, that’s a great start.

However, as with any new listing, ‘price discovery’ is likely to create some volatility, at least in the near term. The question of whether to buy Wise shares in August is one I’m pondering right now.

One thing is certain — more visibility regarding this company’s growth trajectory is set to come with its upcoming earnings reports. For now, looking at the prospectus and initial filings is all I have to work with.

Accordingly, I’m going to take a look at its business model and recent financials to get a better picture.

Wise shares: intriguing risk-reward

Online banking and digital wallet stocks are all the rage these days. Companies that facilitate the cross-border transfer of money fuel the international economic ecosystem. Accordingly, I’m looking for the potential fintech superstars of tomorrow. That is to say, the companies with the ability to take market share away from larger institutional banking incumbents.

In this regard, Wise certainly looks intriguing to me. I think companies such as this that offer low-fee services alongside quality execution and a customer-first focus are likely to thrive. There’s no reason to believe that banking can’t be disrupted. Like any centuries-old business segment, eventually something smaller comes along that can do the same thing cheaper and more effectively. Such is the case with Wise.

This is a company with a business model I think could be poised for impressive growth over the medium-to-long term. The company’s FY21 annual results highlighted the growth potential of the firm. Revenue increased 39% year-on-year to £421m. Profits came in at £41m, which is notable given the unprofitable nature of so many fintech listings recently. And the company’s EBITDA margin of 26% is certainly attractive to me.

From a numbers perspective, this is a company that (at least on paper) looks like a great fit as a growth play for my portfolio. However, there are risks.

Valuation certainly rich

Wise shares aren’t cheap. On a price-to-sales basis, the company appears expensive. Given Monday’s market capitalisation of £9.8bn, The shares trade at a price-sales multiple of roughly 23. That’s an incredible valuation for any company operating in the financial services space.

From a backwards-looking fundamentals perspective, Wise shares don’t appeal to me. Indeed, most companies trading at these sorts of valuations don’t make my watch list.

However, this is more of a technology company than a financial services play. Accordingly, I’m willing to look at this stock differently. If the company can continue to grow its top line in the 40% range for the next five years, perhaps the case can be made that these shares can grow into their valuation. Indeed, given the total addressable market Wise is pursuing, I don’t find this argument all that far-fetched. 

Bottom line

In my view, the shares are certainly valued aggressively today. On the one hand, this is a difficult stock to make the case to own right now. However, on the other hand, it’s also a company with great long-term growth potential. 

Accordingly, given my long-term investing time horizon, I’m considering buying Wise shares at these levels.

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Chris MacDonald has no position in any stocks mentioned in this article. 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.

UK-based online and mobile sports-betting purveyor Flutter Entertainment was riding high earlier this year. Indeed, Flutter Entertainment shares rose dramatically from a low of around 6,500p in 2020 to nearly double to current levels. Yet on a year-over-year basis, Flutter Entertainment shares have remained somewhat stagnant. Thus, this stock is one that’s proven even more difficult to time than most.

However, over the longer term, Flutter Entertainment shares have proven to be a solid growth bet. Trading around 350p 20 years ago, this stock has provided serious long-term growth in buy and hold portfolios. As I’m looking for a great long-term hold for my portfolio, this is a stock that’s been picked up on my screener of late.

US market key catalyst for Flutter Entertainment shares

Flutter Entertainment is a UK-based company operating a number of high-profile banners around the globe. Investors may be familiar with the company’s PokerStars, Sky Betting, and FOX Bet banners, among various others. Flutter Entertainment’s operations span the UK, Ireland, Australia, and the US. Accordingly, this is a true international play on the broader online gambling space. 

However, the US market is among the most lucrative in the world. And in this market, Flutter Entertainment is making a name for itself. The company’s FOX Bet platform has been expanding, along with loosening restrictions on online gaming in America. A high-profile partnership with Paysafe was expanded, as were the company’s growth prospects in this key market.

However, Flutter Entertainment appears to have stalled of late. Since hitting a high of nearly 20,000p in March, shares have declined approximately 30%. 

In my view, there’s not much reason for this sell-off. Sure, inflation concerns have spurred volatility in interest rates. And growth stocks have increasingly been pushed aside in favour of safer, more defensive shares of late. That I can understand. 

However, Flutter Entertainment shares certainly look to me like ones with value right now — I’m always on the lookout for growth at a reasonable price for my portfolio. The company’s currently growing revenues at a triple-digit pace. On a forward-looking basis, analysts still expect near-50% growth rates moving forward. On a price-to-sales basis, this stock is trading around 3.7-times currently. That’s not bad.

Bottom line

Flutter Entertainment shares have really underperformed over the past year, relative to their historical performance. There are many reasons for this, including how investors feel about the ethics of online sports betting.

However, Flutter Entertainment is one such company that’s currently profitable. I think that matters. In fact, I think that’s a hugely important aspect to consider. Growth is great, but unprofitable growth is something that’s hard to get behind. With gross margins in the 65% range, Flutter Entertainment shares provide plenty of operating leverage.

This company simply checks too many boxes for me to ignore. Accordingly, I’m taking a hard look at this stock right now and considering it as a speculative buy for my portfolio. 

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Chris MacDonald has no position in any stocks mentioned in this article. The Motley Fool UK owns shares of and has recommended Flutter Entertainment and Flutter Entertainment PLC. 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.

2021 may go down in history as the year of the meme stock. Indeed, the rise of meme stock favourites such as AMC Entertainment, GameStop, and BlackBerry (NYSE: BB) has been incredible to watch. Some significant moves in certain stocks have grabbed a lot of attention of late. Accordingly, questions remain as to whether such meme stocks are worth considering right now. 

In this article, I’m going to highlight two stocks that are on my watch list right now. These are meme stocks (or potential meme stocks) that I think have excellent upside in their own right, aside from the meme stock trend.

Meme stock watch: Cineworld

While not necessarily being a meme stock yet like sector peer AMC, Cineworld (LSE:CINE) certainly is a comparable company. And I think it’s a possible meme-stock-in-waiting. With pandemic restrictions ended, reopening is key for both cinema operators. As we all yearn for dinner and a movie, expectations are that both will perform well over the near term.

Cineworld has seen a big price swing in a relatively short amount of time. The shares went from around 25p in late 2020 to nearly 125p early this year. Currently, Cineworld shares are up over 64% compared to their price of a year ago. So it’s trending in the right direction.

Yet Cineworld is also one of the most-shorted UK shares right now, meaning there are plenty of experienced investors betting it will fall. Given its relatively low price per share and high short interest, Cineworld exhibits some key meme stock traits. Should the price fall, this is a stock I’ll be considering for my portfolio.

Of course, there are still concerns around how robust its recovery will be. New Covid variants could see a return to lockdown measures, which could mean cinemas having to close again. Should additional lockdowns be imposed, Cineworld is one UK share that could suffer. These are risks I’m monitoring closely with Cineworld shares and it’s not a Buy for me at present.

BlackBerry

One company that comfortably falls into the meme stock category is BlackBerry. This former smartphone-maker-turned-software-company has been on my watch list for some time.

BlackBerry’s meteoric rise this year was the result of two key catalysts, I feel. Of course, frenzied retail buying played a huge role in taking BlackBerry shares from around $5 per share in late 2020 to nearly $30 in January. This was one of the first meme stocks, and continues to hold this title.

However, in late 2020, BlackBerry also announced a key partnership with Amazon to develop BlackBerry IVY. This is a scalable, cloud-connected software program aimed at car manufacturers. This platform allows for real time data and analytics functionality to improve the passenger experience in the connected car market. Given the growth we’ve seen in this sector, this is something I’ve been excited about since late last year.

That said, BlackBerry remains a turnaround stock. The company’s transition to a pure software business hasn’t been as smooth as I’d like to see. In fact, two of the past four earnings reports undershot revenue expectations. 

However, this is also a company with excellent long-term growth prospects relating to its Amazon partnership and exposure to the connected vehicle market. Sure, there’s potential near-term potential. But I’m thinking longer term with this stock, and watching it closely.

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Chris MacDonald has no position in any stocks mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended BlackBerry and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on 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.

One top UK growth stock I’ve had on my watch list for some time is Deliveroo (LSE:ROO). Indeed, Deliveroo shares have underperformed since the company’s IPO in March. Still trading approximately 15% below its IPO levels, Deliveroo shares are beginning to look attractive to me.

Why?

Well, Deliveroo’s growth prospects are particularly intriguing. As a leading online food delivery platform, Deliveroo took advantage of a surge in online ordering activity to list its shares at what investors seemed to feel was an opportune time. Given expectations the economy could fully reopen sooner thanks to impressive vaccination campaigns, this is a stock that hasn’t performed as well as many expected earlier this year.

That said, there’s room for hope. Here’s why I believe Deliveroo shares have plenty of upside from here, and I’m considering them for my portfolio.

Growth is key for Deliveroo share performance 

The continued impressive performance of Deliveroo shares recently is notable. Sure, the economy hasn’t yet fully reopened. Some restrictions have been lifted. However, the potential for further lockdowns looms heavy over key markets Deliveroo focuses on. For Deliveroo, this is less of a risk than an opportunity. This provides a level of portfolio diversification that’s hard to come by today, given the cyclically sensitive nature of many sectors.

Organic growth remains strong at Deliveroo in this environment. The company’s recently reported year-over-year increases of 76% for gross transaction value and 88% for order volume is impressive. Additionally, Deliveroo has put forward improved guidance into the latter half of this year. 

To spur organic growth, Deliveroo has made some intriguing strategic moves of late. One I’m focusing on specifically is a recent partnership deal with Alipay, a company partly-owned by Chinese e-commerce juggernaut Alibaba. The deal provides for offers and discounts using AlipayHK. Given the size of the Chinese market, and Deliveroo’s impressive performance abroad, this move could stoke some impressive growth on the horizon.

I think the valuation of 3.3 times forward sales for Deliveroo shares isn’t that expensive at all. In fact, for a company with forward-looking revenue growth expected to be around 45%, this is a valuation I can get behind. Whether the market will is a whole other story.

Bottom line

Deliveroo is a company that isn’t without risk. Quite the contrary, actually.

Should the economy fully reopen tomorrow and interest rates skyrocket to reflect higher inflation than we’re already seeing, this will be a double whammy for Deliveroo shares. This is a company that has thrived in the pandemic environment, and is also a growth stock. Growth stocks are negatively impacted by higher interest rates.

However, assuming rates are likely to remain lower for much longer, and consumers will practice muscle memory via ordering in rather than dining out, Deliveroo is a company I’m considering here. This is a company still trading at a discount relative to its IPO price. I see Deliveroo shares as undervalued and am considering taking a position on dips.

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Chris MacDonald has no position in any stocks mentioned in this article. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd. 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.

These companies are among the best-quality earners in their respective sectors. Additionally, each of these companies provide defensiveness and a relatively high margin of safety. That’s something I look for in my portfolio.

Let’s take a closer look.

Top UK shares: Tesco

Grocery retail is an inherently defensive sector to invest in. We all need to eat. In times of uncertainty (as with the pandemic), supermarket plays such as Tesco (LSE:TSCO) tend to hold up quite well.

That being said, Tesco’s current share price remains significantly below its pre-pandemic highs. The company’s 4.2% dividend yield is juicy, when one considers where bond yields are today. Additionally, the company’s recent earnings growth and forward price-earnings ratio around 12 makes this stock an intriguing value pick I’m considering right now.

As far as risks go, Tesco is a company that is indebted to a degree that may be a cause for pause among some investors. This is a company that’s also in a slower-growth business, which is something to consider.

However, among UK shares with defensive business models and the potential for low double-digit total returns over the long term, Tesco finds its way onto my list right now.

BT

BT (LSE:BT.A) has been on a very nice ride of late. Over the past year, shares of this UK telecom player have risen more than 70% at the time of writing, as investors pile back into defensive options in an otherwise overvalued market.

This rather sharp increase in valuation may provide some uncertainty with respect to how much upside potential may remain with this stock. Additionally, concerns around rather unimpressive earnings of late continue to provide headwinds for those hoping for rapid near-term growth.

That said, there’s a reason these UK shares continue to outperform.

As fellow Fool contributor Royston Roche pointed out in a recent piece, BT has been aggressively pursuing operational efficiencies of late. The company’s modernisation programme could provide as much as £2bn over the five-year life of this strategy.

Additionally, the UK government has ramped up its focus on investing in the telecom sector. This is increasingly bullish for BT, one of the UK shares in the telecom space to secure more 5G spectrum recently.

On balance, BT shares provide an intriguing risk-reward profile, making this company one I’m considering for my portfolio today.

Aviva

The insurance sector is yet another hard-hit, but defensive, sector long-term investors such as myself have been looking at of late. Indeed, Aviva (LSE:AV) is one of the UK shares in the insurance space that has piqued my interest.

Aviva is an insurance provider with global reach, but an increasingly UK-oriented focus. The company’s recent sale of Aviva France for €3.2bn indicates its interest in staying close to home. For believers in the pandemic recovery thesis for the UK, more exposure is better.

Risks around a flattening yield curve remain. However, I think Aviva’s potential upside is far greater than its downside risk. Accordingly, this is a stock I’m watching closely right now.

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Chris MacDonald has no position in any shares mentioned in this article. The Motley Fool UK has recommended 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.

In fact, looking at the medium-term stock chart of the company, we see far from this kind of volatility taking place. That said, Cineworld shares have shown momentum of late. In fact, since the beginning of October, this stock has been a three-bagger.

Let’s discuss whether this momentum could continue, or if more downside potential is possible with Cineworld.

Pandemic reopening thesis is strong with Cineworld shares

The pandemic reopening thesis remains the key driver providing support for the cinema operator right now. Indeed, as pandemic-related restrictions are lifted (hopefully sooner than later), cinema operators stand to benefit from this trend more than most sectors.

Of course, the rise of the Delta variant and recent lockdown measures imposed closer to home have provided pause for investors. While Prime Minister Boris Johnson announced on Monday the government’s plan to allow British citizens to go maskless by the end of the month, worries about the potential rapid spread of the delta variant in such an environment is stoking caution among traders.

That said, Cineworld has seen impressive demand in its first few weeks of reopening specific locations. This reopening thesis makes Cineworld shares attractive to me.

Let’s dive into whether or not Cineworld has what it takes to become a true “meme” stock.

Cineworld well positioned for a speculative rally

It’s worth noting that what’s been going on with AMC in the U.S. is incredible. Accordingly, whether or not a similar meme rally with Cineworld shares in the U.K. remains to be seen.

However, there are some interesting parallels between the two companies, aside from their obvious similarities.

First, Cineworld is heavily shorted at the moment. The current short interest with CINE stock is around 36%. For investors who may not be familiar with these numbers, that’s high. That means that for every 100 available shares of CINE stock, 36 shares are currently being shorted.

For retail investors looking to orchestrate a squeeze, this is the perfect type of environment to do so. While it’s unclear whether other intrinsic factors driving a short squeeze type of rush into Cineworld shares may materialise, the company’s share price around 84p certainly invites retail investors to buy this stock heavily at these levels.

Bottom line

Short squeezes are typically very rare occurrences, and are usually a footnote in most business school textbooks. However, what we’ve seen of late in the cinema space makes the stock interesting to consider from this speculative lens.

That said, from a longer-term perspective, Cineworld shares appear to be much more reasonably valued than those of AMC. This stock is still trading well below its pre-pandemic levels. Accordingly, I’m considering this stock on a value basis alone.

The potential for a short squeeze shouldn’t be the reason to own any stock. That wouldn’t be Foolish. However, Cineworld’s prospective outlook in a fully reopened economy is enticing. Accordingly, this is a stock on my watch list right now.

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Fool contributor Chris MacDonald has no position in any shares mentioned in this article. 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.

Indeed, this is a stock with incredible near-term momentum. And for good reason. However, I’m going to dive into whether these results may be sustainable. After all, I would want to see continued performance from any long-term holding.

Strong earnings and momentum make AUTO a stock to buy

There are a number of reasons I’m considering Auto Trader right now. Among these, its business model comes to mind as a key differentiating factor.

Auto Trader’s business model as an online-focused vehicle marketplace is enticing to investors. The technological innovation it has made in an otherwise stale industry is impressive. However, given the recent supply shortages in the auto market, Auto Trader has been a direct beneficiary.

In fact, Auto Trader recently noted that used car sales were up 14% over 2019 (pre-Covid) levels. Unsurprisingly, this surge in volume flowed through into Auto Trader’s most recent earnings report.

The company reported relatively solid results. I say “relatively” because revenue was actually down by 29% year-over-year. That said, this revenue decline was more than offset by impressive gross margins of 61%.

Auto Trader booked £161 million profit on £263 million in sales. This healthy profit margin allowed for a dividend of 5p per share to be declared, which works out to a small but meaningful yield of 0.8%.

Can these tailwinds be sustained?

The short-term supply and demand dislocation we’re seeing in the used car market is likely temporary. At some point, supply will catch up with red-hot demand. And at that point, valuations of all auto retailers and resellers will likely be revisited.

How long it takes for us to get there is the key question.

Various parts of the world are reopening, while Covid-19 variants continue to hit the U.K. hard. Indeed, various statements by the company this past year led to some serious selloffs. Should the pandemic drive poor financial performance, Auto Trader shares could see some serious downside.

That said, Auto Trader is well positioned as an online marketplace with a significant global presence. This fact means that U.K. investors get access to the global pandemic reopening trade sooner than otherwise may be expected from other British companies. Accordingly, it’s feasible we could see this positive momentum persist longer than many expect.

Bottom line

On the one hand, it’s easy to see why many investors may believe this is a top stock to buy. Supply and demand in the auto market is dislocated right now. Advantage goes to retailers and marketplaces selling vehicles, presently.

On the other hand, serious risks and potential headwinds could materialise. Some investors may look at the company’s trailing price-to-earnings ratio of 48-times as high.

I’m considering this stock as an intriguing speculative pick, given Auto Trader’s impressive potential medium-term upside. That said, this is a position that will need to be monitored more closely than others, so the jury’s out on whether AUTO stock will make the cut.

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Chris MacDonald has no position in any shares mentioned in this article. The Motley Fool UK has recommended Auto Trader. 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.

As volatility picks up in the market, investors are increasingly looking to take advantage. Investors in 88 Energy (LSE:88E) shares certainly have seen a roller coaster ride of late.

Since hitting a high of 4.70p earlier this year, 88 Energy shares have since settled down to the 1p level in recent weeks. That said, shares surged to more than 1.40p per share after hours on Friday. Last week alone, the shares saw an increase of approximately 25%.

Why the optimism with this stock? Well, there are a few reasons investors are considering 88 Energy. Let’s dive into what investors are looking at right now with this energy exploration company.

88 Energy shares surging on new debt-free status

A key update 88 Energy shared on Monday of last week – surrounding the company’s intention to sell its Alaskan oil-and-gas tax credits in a bid to eliminate its debt altogether – has investors cheering 88 Energy shares.

Indeed, this move significantly improves the outlook for 88 Energy’s balance sheet. The US$18.7 million sale will allow the company to repay the remaining US$16.1 million of the company’s outstanding debt. Furthermore, 88 Energy will bolster its cash position as a result of the deal, providing more operational flexibility with the company’s existing drilling programmes.

From a free cash flow perspective, this deal is also bullish for investors. The company will reportedly reduce its annual finance-related overhead costs by roughly $1 million per year.

Financially speaking, this deal was a no-brainer for 88 Energy. It appears shareholders are the real beneficiaries of this strategic move. Indeed, investors betting on the long-term viability of this c.£165 million market cap energy player have reason to get excited.

Bottom line

88 Energy shares haven’t been without their share of headwinds of late. Power outages preventing sampling of two prospective zones with the company’s Alaskan Peregrine project have caused a significant selloff in recent months. And while operational updates have suggested these headwinds are likely overblown and short term in nature, investors have nonetheless gravitated toward other energy players of late.

Of course, the rally in 88 Energy shares has also coincided with an impressive improvement in global crude prices. Investors may be correct in pricing in commodity-related risks with such stocks right now.

That said, 88 Energy’s recently announced tax credit sale provides a near term one-time balance sheet boost that makes this stock hard to ignore. Accordingly, this is a company I’m certainly considering adding to my portfolio on weakness moving forward.

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Chris MacDonald 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.