It’s been a difficult year for Tesco (LSE: TSCO) shareholders. In the last fortnight, Tesco shares briefly dipped to a five-year low below 200p. The FTSE 100 supermarket stock’s consistently remained above this level for over 20 years, except for a couple of rare occasions.

After regaining some ground, the Tesco share price now hovers just above 210p. So, would the company make a good addition to my portfolio today?

Here’s my take.

Why have Tesco shares crashed?

Various factors have contributed to Tesco’s poor performance. I’m going to explore three in particular.

First, there’s the cost-of-living crisis. As consumers feel the pinch, there are indications that spending at the firm’s stores is falling, particularly on clothing and general merchandise. To compound difficulties, food inflation is currently running at 14.5% — the highest level since 1980. In response, Tesco has raised the price of its meal deal package from £3.50 to £3.90 as soaring ingredient costs put pressure on already tight margins.

This leads me to another key challenge facing the company — competition. German budget chains Aldi and Lidl have been nipping at the heels of home-grown supermarkets for a while now. As shoppers count the pennies, there are signs competition is intensifying. Recent Kantar research indicates that the duo increased their market share this year following aggressive expansion campaigns over the pandemic.

Finally, Tesco’s vulnerable to currency fluctuations. The business model relies heavily on imports. With the pound trading near generational lows, the company will have to contend with higher supplier costs for the foreseeable future.

Reasons to be cheerful

Despite significant risks, I can find some compelling reasons to invest.

Following recent falls, the stock’s dividend yield has risen to 5.5%, comfortably beating the FTSE 100 index average. Dividend cover looks healthy at 1.9 to 2 times anticipated earnings for the next couple of years. Tesco shares have the potential to be a solid passive income generator for my portfolio in the years ahead, provided the grocery giant can successfully navigate market turbulence in the short-to-medium term.

There are some encouraging signs of financial health. In its interim results, Tesco revealed a £0.5bn net debt reduction. It was also the only one of the UK’s traditional ‘big four’ supermarkets to grow its market share over the past three years.

Admittedly, full-year profit expectations were trimmed to £2.4bn-£2.5bn from the previous forecast of £2.4bn-£2.6bn. However, this could have been worse, and I’m pleased to see updated guidance is still within the previously estimated range, albeit towards the lower end.

Britain’s largest supermarket is also continuing its £750m share buyback programme. It recently appointed HSBC to repurchase shares with a value of up to £100m in the latest tranche. This should act as support for the share price if underlying profits decline.

Would I buy?

I’m tempted by Tesco shares at the current price, but I think there could be further falls ahead, particularly if full-year profits are lower than expected. Ideally, I’d like the stock to revisit its five-year lows below 200p before I start to build a position.

Accordingly, Tesco will take a prominent position on my watchlist, but I won’t be buying at today’s price.

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Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings 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.

I’m searching for new passive income streams. My primary aim is to diversify my investments, giving me the best chance of stable income during periods of heightened market volatility that will inevitably occur throughout my life.

Here are five passive income ideas I’m exploring today.

1. Dividend Aristocrats

Dividend Aristocrats are companies that have increased shareholder payouts over long time periods. They’re often established industry leaders with low debt and strong profitability.

Good examples from the FTSE 100 include consumer defensive stock British American Tobacco, healthcare firm GSK, and financial outfit Legal & General Group. They yield 6.6%, 6.8%, and 10.4%, respectively.

Admittedly, too great a focus on such stocks carries risks. For instance, my portfolio might have low exposure to certain sectors like technology. I might also neglect better capital growth opportunities elsewhere in my quest for regular dividend income.

Nonetheless, as passive income generators that have a good chance of withstanding recessions, they’re a great place for me to start.

2. High-yield dividend stocks

I’d also buy high-yield dividend stocks. Admittedly, unusually high yields often result from huge share price falls, which could signal trouble for a company’s bottom line. As dividends can be slashed at any time, I view these investments as high-risk plays, but I’m prepared for that.

FTSE 250 commodity trader and miner Ferrexpo is a good example. Its current dividend yield is a whopping 33.6%. The business has significant geographic exposure to Ukraine. Its share price has tumbled 62% over 12 months, largely due to a flash crash following the Russian invasion in February.

Accordingly, Ferrexpo shares would only form a small proportion of my total passive income portfolio.

3. REITs

A good way for me to diversify away from traditional stock market holdings is investing in real estate investment trusts (REITs). Property investments often operate on a different market cycle, and REITs offer passive exposure to this sector.

One REIT I like is British Land, a Footsie constituent that focuses on high-quality retail premises and London offices. It currently yields 6.3%.

Granted, rising interest rates are putting pressure on property prices, which is a headwind for British Land shares. But for me, this is a price worth paying for the diversification benefits.

4. Fixed income funds

Fixed income funds are another great passive income source. They often invest in bonds or other debt securities and pay distributions on a fixed schedule.

A key advantage of bonds is that they tend to be more stable than equities and act as a diversifier. However, there are fresh doubts being cast on this received wisdom. For example, recent chaos in the gilts market has damaged their traditional reputation as a lower-risk investment.

Nonetheless, I still view holding some bonds as a valuable part of my passive income arsenal.

5. Index funds

Finally, I like simplicity. Investing in a tracker fund that mirrors the price performance of an index, such as the S&P 500 or FTSE 100, can produce handsome rewards. Currently, these indexes yield 1.8% and 4.1%.

Indeed, Warren Buffett advises people to invest consistently in a low-cost S&P 500 tracker fund. Although index funds won’t beat the market, I heed the billionaire’s advice. Accordingly, they’re a crucial element in my passive income investing strategy, even though individual stock picking is my main focus.

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Charlie Carman has positions in British American Tobacco. The Motley Fool UK has recommended British American Tobacco, British Land Co, and GSK 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.

The stock market downturn has made the last 12 months painful for many investors, including me. The damage has been particularly acute for those with big positions in growth stocks like Darktrace (LSE: DARK). So, what return would I have made if I’d invested in Darktrace shares a year ago and do I think they’d be a bargain buy for me today?

Let’s explore.

One-year return

The rapid growth and subsequent decline in the Darktrace share price is a remarkable story.

A year ago, the FTSE 250 stock was trading near its all-time high at £9.12 per share after making a stock market debut less than six months earlier. The Cambridge-based company was buoyed by excitement surrounding its AI technology designed to protect critical national infrastructure and global corporations from cyber-attacks.

It’s since plummeted 63% to £3.38 today. The fall was driven by multiple factors including broker downgrades, a recent collapse in takeover discussions with US private equity firm Thoma Bravo Advantage, and fraud accusations levelled against the company’s former adviser Mike Lynch.

To illustrate the point, in October 2021 I’d have been able to buy 109 Darktrace shares for a total of £994.08. Today, my shareholdings would have shrunk in value to £368.42, with no dividends to soften the blow.

By contrast, £5.92 in leftover cash from my initial £1,000 investment would still be enough to buy a pint of beer!

Investing lessons

Two lessons from this saga stand out to me.

The first is understanding stock market volatility. Fluctuations in share prices are often more pronounced in growth stocks, such as Darktrace. While there are sometimes great bargains to be found when equities are oversold, positive returns are far from guaranteed.

This leads me to the next valuable lesson — the Foolish investing approach. In my view, adopting a long-term investing horizon spanning many years (ideally decades) is the best way for me to ride out volatility and maximise my chances of making money.

Where next for Darktrace shares?

Today, Darktrace is in a very different position than it was a year ago. The stock’s currently hovering above the £3.30 level where it finished its first day of trading in April 2021.

On the face of it, the current valuation improves the risk/reward profile for me. I can find several reasons to be bullish. The FY22 results showed strength across a number of financial metrics. Other key highlights included a 28.7% uptick in employee headcount to breach the 2,000 barrier. The business also achieved impressive 290% growth in its free cash flow, which is now just below $100m.

Nonetheless, unresolved legal troubles engulfing Mike Lynch complicate the picture and add uncertainty to the outlook for Darktrace shares. The company also isn’t immune to broader economic headwinds. It acknowledges spiralling inflation affects “recruitment and retention of staff” due to “pressures on salaries and costs within the business”.

Would I buy?

At today’s price, I’m tempted to enter a position. However, in this febrile investing environment, I’d prefer to invest in companies with established track records of surviving recessions. After all, Darktrace is less than a decade old. I won’t be buying today.

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Charlie Carman 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.

Investing in high-yield dividend stocks is my favourite way to earn passive income. Recently I’ve been looking for cheap FTSE 100 and FTSE 250 shares with market-leading shareholder distributions.

If I had some cash to invest, here are two I’d buy today.

Legal & General Group

When looking for big dividend players, I can’t ignore Legal & General (LSE: LGEN) shares. A 26% fall in the L&G share price over two months has pushed the forward dividend yield up to a whopping 8.81%.

First, let’s examine the risks facing the FTSE 100 financial services outfit. Pensions are a big part of its business. Unsurprisingly, the stock tumbled in the market panic prompted by the mini-budget on 23 September, given its exposure to rising gilt yields.

In the short term, an emergency £65bn bond-buying operation conducted by the Bank of England has calmed nerves. L&G was quick to reassure shareholders in an unscheduled trading statement last week, confirming it was not a forced seller of UK government bonds in the turmoil.

However, the central bank’s intervention ended on Friday. Further turbulence in the bonds market is a downside risk to L&G shares, particularly if financial stability concerns regarding pension funds worsen. Nonetheless, for me, the finances look healthy enough to allow the company to ride any volatility.

Our balance sheet and liquidity position remain strong, and our businesses are highly cash generative.

Sir Nigel Wilson, Legal & General Group CEO

L&G delivered an 8% increase in operating profit to £1.16bn for H1 2022. The firm also announced cumulative capital generation of £4.1bn. This means it’s currently on track to achieve its ambition of £8bn-£9bn by 2024.

With the group hiking its interim dividend 5% to 5.44p per share, I think now could be an excellent time for me to invest at a bargain price. The present economic climate is unpredictable, but I believe there’s a good chance L&G shares could rally if traders regain confidence in the UK’s fiscal direction. Right now, I don’t have spare capital to deploy, but if I did, I’d buy.

Vistry Group

FTSE 250 housebuilder Vistry Group (LSE: VTY) has also seen its share price plummet this year. The stock’s down 56%, causing the forward dividend yield to rocket to 12.13%.

The company faces significant headwinds. Rising mortgage rates and the growing likelihood of a housing market slump have harmed the Vistry share price. This pressure could intensify if the macroeconomic environment fails to improve.

However, the business is taking steps to bolster its position despite adverse market conditions. It recently announced a £1.2bn merger deal with rival Countryside Properties, which is expected to complete on 11 November. The new company will become the UK’s third-largest housebuilder.

Vistry expects the deal could lead to £50m in annual cost savings two years after completion. What’s more, the housebuilder anticipates adjusted pre-tax profit for 2022 will be around £417m and that this figure could potentially double to more than £800m post-merger.

Additionally, the company’s CEO and CFO recently snapped up £248,000 in stock. This suggests they see room for growth at current share price levels. Encouraged by insider buying and an exciting merger, if I had spare cash to invest, I’d suppress my concerns about a possible property price crash and open a small position today.

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Charlie Carman 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.

I always look to Warren Buffett for inspiration when picking stocks for my own portfolio. With the benefit of hindsight, it’s easy to admire the billionaire’s skill at identifying promising value investment opportunities. A good example is his substantial purchase of Apple (NASDAQ: AAPL) shares in 2017.

Despite having a longstanding aversion to tech stocks, five years ago the Oracle of Omaha doubled down on the world’s most valuable company. Berkshire Hathaway increased its stake to 134m shares, up from the 57.36m it held in 2016.

So, how much would I have today if I’d invested £1,000 in Apple half a decade ago?

Five-year returns

First, let’s examine the dramatic increase in the Apple share price over the past five years. At a whopping 275%, I’d have made a handsome return. My initial £1,000 investment would have ballooned to £3,750 today. For context, the S&P 500 only managed a 47% gain over the same time period and the FTSE 100 suffered a 7% loss.

But share price gains are not the full story. The company has also distributed dividends over this time period. Admittedly, the annual yield hasn’t been huge — it ranges from between 0.6% and 1.4% over the past five years. However, it’s notable that other tech titans, including Alphabet, Amazon, and Meta, don’t offer dividends at all.

Following a dividend reinvestment plan, my total return from holding Apple stock for five years would be just above £3,952 today, nearly quadrupling my original investment!

What did Warren Buffett do with Apple stock?

Over the past half-decade, Buffett has consistently bought Apple stock. Admittedly, in 2020, the legendary investor sold some of his position as the pandemic struck. However, this year Berkshire Hathaway has returned to form, scooping up millions of additional shares over the first two quarters.

It’s probably the best business I know in the world.

Warren Buffett on Apple

Today, the company represents roughly 40% of Berkshire’s portfolio — its largest stock market holding. Buffett has consistently heaped praise on the business over the years. He has described the iPhone as “enormously under-priced” and championed its status as a ‘sticky’ product that keeps consumers within Apple’s ecosystem.

More recently, it’s been a turbulent ride. Heavy selling in US markets has seen $36bn wiped off Berkshire’s stake in 2022 with the stock tumbling 20%. Nonetheless, the fact that Buffett has been taking a further bite of the Apple with his share purchases this year suggests the investor sees fresh value in his favourite stock.

Would I buy today?

I’ve been reluctant at times to invest in Apple, wary of the fact that the stock is often reaching new all-time high prices. The prospect of heightened downside risk by investing in the company at sky-high valuations has dissuaded me from entering a position thus far.

Today, the situation is a little different. A big drawdown in Apple shares during the bear market stateside makes the risk/reward profile more attractive in my view. A more reasonable current price-to-earnings ratio just above 24, when compared to its historical average, looks appealing.

Despite the risk of further pain ahead if the US economy enters a recession, I’d follow in Warren Buffett’s footsteps and buy Apple stock today.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Carman has a position in Alphabet and Berkshire Hathaway (B) shares. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and 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.

Lloyds (LSE: LLOY) shares have struggled somewhat this year, declining 14% amid a wider drawdown in FTSE 100 stocks. In my view, the current economic climate holds both risks and opportunities for the bank’s shareholders.

Let’s explore three factors that I believe could determine the next move for the Lloyds share price.

The housing market

Lloyds is the UK’s largest mortgage lender. It corners around 18% of the British market, with the closest competitor NatWest claiming 12%. Accordingly, the black horse bank’s fortunes are closely linked to fluctuations in domestic real estate prices.

The housing market may have already entered a more sustained period of slower growth.

Kim Kinnaird, director at Halifax Mortgages

With hundreds of mortgage deals pulled from the market in recent weeks and the average five-year fixed-rate offer breaching 6%, many experts are beginning to take a gloomy view on the future for UK property. Indeed, Halifax (which is part of Lloyds Banking Group), is among those making bearish calls.

This could spell trouble for Lloyds shares. The bank’s net income would likely drop in the event households struggle to keep up with mortgage payments. Nonetheless, taking a longer-term view, the UK has a persistent problem with housing supply, which acts as an ongoing tailwind.

Overall, a robust balance sheet should allow the bank to ride any potential short-term volatility that affects its mortgage-dominated loan book in my view.

Interest rates

In addition to the Bank of England’s special operation in the gilts market, another consequence of the government’s new fiscal policies is the prospect of higher interest rates. Some experts are predicting the base rate could almost treble to 6% next year.

Rising interest rates are traditionally viewed as good news for banking shares. The reasoning behind this is that they can increase the interest on loans they make. On the face of it, this is positive for Lloyds, but it could be a Catch-22 situation if tightening monetary policy raises the likelihood of a UK recession.

A possible recession

So how likely is a recession? It’s a difficult question to answer, but the latest ONS data on UK GDP growth reveals anaemic progress with a 0.2% expansion in July 2022. Rising borrowing costs combined with elevated geopolitical uncertainty fuelled by the war in Ukraine will continue to weigh on UK plc in my view.

Given its greater domestic focus than rivals Barclays and HSBC, a recession in Britain could be particularly harmful for Lloyds if there’s an increase in the number of bad loans.

There’s a risk the bank might respond to a financial crisis by slashing dividend payments, as happened in 2007. This concerns me as the 5% dividend yield is one of the stock’s most attractive features in my opinion.

Would I buy Lloyds shares today?

The outlook for Lloyds is mixed in my view. I can see strength in both the bull and the bear case. Much will depend on wider economic developments.

I already own a number of Lloyds shares. In light of the uncertain future, I’m comfortable with my present position. I won’t be buying more shares today, but I won’t sell my existing holdings either.

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Charlie Carman has positions in Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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’s my 5-step plan to achieve a £1,000 per month goal by investing in the stock market.

1. Save regularly

First, I need to save. To earn passive income from stocks, I’ll require spare capital to deploy.

Building a sizeable portfolio takes time. Establishing clear goals and sticking to them is essential if I want to hit my ultimate target.

2. Use a Stocks and Shares ISA

My next concern is tax optimisation, which I can achieve by buying shares in a Stocks and Shares ISA.

Capital gains and dividends are awarded tax-free treatment on investments kept inside the ISA wrapper. While this isn’t a huge concern in the early stages of my investing journey, it’s likely to become so once I start drawing from my portfolio.

The annual tax-free dividend allowance is £2,000. Given my passive income target is six times greater, I’d like to minimise my tax liabilities and maximise the amount that makes its way into my pocket.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

3. Pick high-yield dividend stocks

The third step is selecting dividend stocks to buy. In particular, I want to identify promising high-yield opportunities.

For example, Rio Tinto has an impressive, albeit cyclical, dividend history. It currently yields 10.41%. The mining giant’s been supported recently by tailwinds from rising prices in metals and commodities. Looking forwards, the FTSE 100 company should benefit from the ongoing electric vehicle revolution thanks to its new lithium concentration plant in Quebec.

On the other hand, the spectre of recessions across Asia is dampening demand for iron ore, which is one of the company’s key commodity markets. This may suppress growth in the Rio Tinto share price — a risk I’m prepared to take for a bumper yield.

4. Diversify

Diversification is important to ensure I secure a steady passive income flow. After all, dividends aren’t guaranteed. Individual companies can suspend or cut distributions at any time.

For me, a good balance to Rio Tinto might be specialist property outfit Derwent London. The FTSE 250 constituent sports a 3.07% dividend yield. Although this trails the index average, the company has a track record of growing its dividend for nearly 30 consecutive years. A knock to the share price following the mini-budget could present a buying opportunity.

Admittedly, increased flexible working arrangements may have a long-lasting negative impact on commercial property yields. Nonetheless, the firm’s concentration in upmarket London real estate and bespoke leasing arrangements should allow it to ride any volatility. I’d buy.

5. Maximise my passive income

Finally, it’s possible to harness the power of compound returns. By reinvesting dividends until I plan to spend the passive income, I should reach my goal faster.

Let’s crunch the numbers. Assuming my pool of dividend stocks has a collective 5% annual yield and experiences no capital growth, my ultimate target would be a £240,000 portfolio. I could achieve this in less than two decades by investing just under £20 per day and reinvesting the dividends.

In reality, the maths won’t be this simple. My portfolio will likely experience some years of poor returns. Nevertheless, investing little and often over the long term can reap substantial rewards!

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Charlie Carman 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.

I’ve been closely monitoring the UK stock market since the ‘mini budget’ on 23 September. The government’s drive for economic growth included a £45bn package of tax cuts that spooked traders. Gilt yields soared, sterling plummeted, and most FTSE 100 shares went into a tailspin.

The near future could be turbulent for investors like me. Nonetheless, some Footsie stocks look more resilient than others to weather storms ahead. Here are two I’d buy today.

London Stock Exchange Group

London Stock Exchange Group (LSE:LSEG) was one FTSE 100 share to tick higher in the wake of Chancellor Kwasi Kwarteng’s statement. The company’s been a top performer this year — its share price has risen nearly 8%.

So, why did London Stock Exchange (LSE) shares react positively to the government’s measures? First, let’s examine interest rates.

In light of inflationary pressures, the Bank of England’s chief economist Huw Pill warned that fiscal stimulus injected into the economy “will require a significant monetary policy response“. Some experts forecast the base rate could exceed 5.5% by next spring.

The LSE owns majority stakes in transactional interest rate swap businesses, such as TradeWeb and SwapClear. Rising interest rates are likely to boost growth for these companies. In turn, this should contribute to the exchange’s bottom line.

A second key factor behind the LSE’s positive momentum is market volatility. Elevated trading volumes contribute to the exchange’s income. With further fiscal statements due in the months ahead, the LSE should benefit as traders continue to focus on British shares.

The stock isn’t without risks. A weak pound, Brexit, and a dwindling IPO pipeline are threats to London’s position as a leading equity market. If fewer firms choose to list on the London Stock Exchange, this could limit future growth prospects for the company.

However, London’s been a global financial centre for centuries. I’m not convinced this status will be displaced overnight. Everything considered, I’m bullish on LSE shares — I’d buy.

AstraZeneca

Healthcare is traditionally viewed as a defensive sector and AstraZeneca (LSE:AZN) is perhaps the jewel in the FTSE 100’s pharmaceutical crown. The stock’s outpaced the index, climbing over 15% this year.

AstraZeneca’s diversification allows it to deal with currency risks as sterling yo-yos. The business generates greater total revenue in both emerging markets and the US than in Europe.

The business also stands to benefit from recent approvals for cancer drugs and Covid-19 treatments. I view this as the reward for a decade of increased R&D investment under CEO Pascal Soriot’s leadership.

In further developments, the Anglo-Swedish outfit recently acquired US-based LogicBio Therapeutics, a genome editing company, paying a handsome 660% premium on its share price.

The deal may look expensive. However, I’m encouraged to see the firm executing ambitious expansion plans while many other businesses are simply treading water.

Admittedly, AstraZeneca has a stubbornly high valuation. This does concern me — that the firm’s strong growth potential in oncology has already been priced in. A 2.2% dividend yield isn’t too exciting either.

Nonetheless, the AstraZeneca share price has nearly doubled over five years. I believe there’s every chance it can continue to perform well over the next five. I’d add to my position today.

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Charlie Carman has a position in AstraZeneca. 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.

I think it’s fair to say it’s been a wild ride for boohoo (LSE: BOO) shares over the past half-decade. Following acquisitions of fast fashion brands NastyGal and PrettyLittleThing in 2017, the FTSE AIM 100 stock maintained a steady upward trajectory until the onset of the pandemic — a period characterised by high volatility and choppy trading action.

The Manchester-based business has since plummeted, hovering around 41p at present. If I’d invested five years ago, how much would I have now?

Poor returns

Although it boasts a history of profitability, the online retailer has never distributed dividends. This means my total return would be calculated on the basis of fluctuations in the value of the company’s shares alone.

Crunching the numbers makes for grim reading. The boohoo share price collapsed nearly 84% over the past five years. Accordingly, my initial £1,000 investment would have shrunk to a measly sum of around £164 today.

Financial concerns

I can find plenty of reasons to be bearish even after those enormous losses. For starters, I’m not sure the brand ever truly recovered from damaging accusations concerning poor labour practices in its UK supply chain. This is despite the company terminating its relationships with a number of manufacturers.

In addition, the FY22 results contained a series of revelations across a range of metrics that concern me. At £8m, adjusted pre-tax profit was still in the black — but only just. For context, the preceding year saw the company delivering £125m in pre-tax profit. The group’s net cash holdings also declined by £275m to a paltry £1.3m today.

For me, this isn’t a good position for boohoo to be in as it battles to retain customers amid spiralling inflation and a possible recession.

A brighter future?

Nonetheless, despite my worries that boohoo shares could represent a value trap, I see some merit in the bull case.

There were glimmers of hope in the company’s results. A 14% uptick in revenue to £1.98bn was encouraging to see. So too was the announcement that the retailer now has 20m active customers — a 43% increase since 2020.

The business also recently partnered with Kourtney Kardashian, who will act as a sustainability ambassador. This is an exciting development that may improve the company’s image, which is a crucial asset in the fashion world.

Having said that, the initial reception was mixed. Kardashian and boohoo both received criticism for alleged ‘greenwashing’. This will likely be a hot issue for shareholders going forward as the company navigates an ongoing Competition and Markets Authority (CMA) investigation alongside competitor ASOS regarding potentially misleading sustainability claims.

Should I buy boohoo shares today?

I’m glad I’ve resisted the temptation to invest in boohoo so far. To say returns have been disappointing would be an understatement.

Until the recent financial results, I’d have predicted the business was probably resilient enough to cope with macroeconomic storms currently engulfing the stock market. However, now I’m not so sure.

There are some considerable risks facing boohoo shares. Plus, I don’t like the absence of dividends. I believe there are better UK stocks to buy at present and I wouldn’t invest in boohoo today.

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Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS and boohoo group. 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.

Warren Buffett recently said “inflation swindles almost everybody”. With prices soaring, I’m finding this a difficult time to manage my stock market portfolio. Yet, despite the doom and gloom, I think there are bargain investment opportunities in FTSE 100 shares.

Here are three I’d buy to try to beat inflation.

Shell

The share price of Europe’s largest oil and gas group, Shell (LSE:SHEL), has climbed a whopping 37% this year. Contextualised by skyrocketing energy prices, this comes as little surprise.

Following record $11.5bn profits in the second quarter, the energy giant’s undertaking a share buyback bonanza this quarter. It’ll purchase $6bn of its own shares by late October. I view this as a strong display of optimism from company leadership in the stock’s long-term potential.

With Russia throttling European supplies for the foreseeable future, elevated natural gas prices show little sign of coming down. This could be a catalyst to drive further earnings growth for Shell and competitors like BP.

Granted, the stock isn’t risk-free. Growing calls for substantial government intervention in energy markets are a potential headwind. The hurried imposition of windfall taxes across the UK and EU could be the tip of the iceberg.

Even so, the company’s price-to-earnings ratio looks tantalisingly low at 5.66. I think there’s a convincing case that Shell shares are undervalued. I’d buy today.

Diageo

Another stock in the FTSE 100 index I’d buy is global drinks goliath Diageo (LSE:DGE). Consumer goods companies can often pass rising costs to customers. Diageo is no exception.

Iconic brands from Guinness to Tanqueray mean the company benefits from strong customer loyalty. This translates into significant pricing power, adding to the stock’s inflation-combating appeal.

The FY22 results revealed ‘premium-plus’ brands contributed 57% of the business’s net sales and drove 71% of organic net sales growth. Indeed, ongoing luxury sector expansion could help steer Diageo through a possible recession.

The trend of people drinking better has been in place for a long time…even when you go back through old economic cycles – the global financial crisis for one – you saw a few quarters where that trend reversed a little bit, but it came roaring back.

Ivan Menezes, Diageo CEO

A high price-to-earnings ratio just shy of 27 makes me worry that, at over £37, the Diageo share price could be overvalued. However, it’s been a top FTSE 100 performer in the past. I believe there’s a good chance this trajectory will continue into the future.

BAE Systems

My third Footsie stock pick is defence outfit BAE Systems (LSE: BA.). The war in Ukraine has contributed to surging demand for the company’s products and services, resulting in a 41% share price gain this year.

The UK government is a major customer. Accordingly, new Prime Minister Liz Truss’s pledge to boost defence spending to 3% of GDP by 2030 bodes well for BAE shares.

In addition, continued investment in its cybersecurity portfolio means the company is well-positioned to respond to evolving threats in the 21st Century.

I’m concerned by rising costs of raw materials, such as steel and aluminium, which could weigh on the balance sheet. Nonetheless, BAE Systems is a unique defensive stock in every sense of the word. I’d buy.

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Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.