What does Serica Energy do?

Serica Energy is one of Britain’s leading independent upstream oil and gas companies, with operations centred on the UK North Sea. It currently plays a leading role in the UK’s energy transition, with over 85% of its production being natural gas that has significant environmental advantages over other fossil fuels.

The UK shares continued their positive momentum after Serica Energy confirmed on Tuesday that it’s rejected an offer, by rival Kistos, that represented a 25% premium on their closing price. At the time of writing, the stock was trading at 348p, which is still 10% under the offer price. This indicates management has conviction that it can continue to deliver growth for investors. This is certainly a promising sign.

Oil and gas sector tailwinds to headwinds

The UK North Sea has been extremely lucrative for Serica. However, even with that being the case, there is no guarantee that future explorations will yield similar results. The company naturally also has a history of success, but if it does not strike proverbial gold in its ongoing exploration projects, such as the North Eigg project, it could be a considerable drain on its funds. This would naturally damage the share price and, importantly, could affect the company’s long-term plans and attractiveness.

The sector as a whole has received tailwinds this year thanks to runaway oil and gas prices. However, I do not see these prices as a long-term trend, and certainly not a sustainable one. In fact, I see this as more of a short-term symptom of the restructuring of global supply chains. I am not bullish on the long-term prospects and prices of oil, although the company is focused more intently on natural gas and this is certainly where the opportunity for Serica remains.

Conflicted: what I’m doing!

You would think that after such a meteoric rise — to the tune of 10,000% over the last decade — that the shares would look overpriced, but in a relative sense it still appears to hold pretty good value to me, trading at a price-to-earnings ratio of a little over 10. Since 2018 it has also multiplied revenue by a whopping 15x. Quite the feat for a company operating in such an uncertain sector.

All in all, despite the rosy picture painted and the demand for its assets at a premium by a rival company, I believe Serica could soon face turbulence in the shape of falling oil and gas prices. This means I expect the share price is at risk of becoming cheaper over the coming months to years.

Whilst I do still see value in Serica shares, I feel there are better long-term opportunities out there to park my cash today.

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Joshua Kalinsky 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.

When digital meets physical

Today, we have programmed almost everything there is to program in the digital world. Much of the infrastructure that will be digitally created has arguably been created, and is merely being expanded upon today.

Dating far back to the rise of stem cell therapy – Dolly the sheep comes to mind as a landmark breakthrough – we have not had much luck in the programming or reprogramming of the physical world (or at least it has been a lot slower in developing than many thought back then). That is all changing, and this is where I feel the investment opportunities undoubtedly lie today.

Technology has, and will continue to, converge with and disrupt every sector to the extent that new markets are built and old ones are toppled. Supply chains will be re-routed and built anew. Now this is where biotech — and in particular, synthetic biology — has a leading role to play in the future, by tweaking, tuning and recreating an undistinguishable version of the physical.

Investing in the sustainable mega-trend

With that being said, the investment case for Agronomics is clear. It invests in companies with technology that can provide me with exposure to cellular agriculture (in other words – meat grown from cell cultures in labs) and the ability to disrupt the food production market. The market here is being made as we speak, with both Meticulous Research and McKinsey & Company both projecting the animal-free food market to be worth £20bn by 2030, touting a compound annual growth rate (CAGR) of 19% until then.

The company itself states that “the adoption of new technologies and processes is vital to address the damage to the natural environment”. In an age where climate change, animal welfare, health and sustainability are at the forefront of socially conscious minds, consumers seem to agree. This is demonstrated by the growing adoption of a vegan lifestyle.

Not only that but companies like Starbucks, McDonalds, Subway and Burger King now provide meat-alternative options and have announced targets to be substantially meat-free by the end of the decade. The trend is clear, and the opportunity to decouple supply chains from animals and the environment is one that will not be missed.

Scarcity prevails… for now

Analysing Agronomics, I can see that the business would be considered expensive with a price-to-earnings ratio of 50. The company has traded at a premium since listing, so this is no surprise.

Higher multiples are often paid, however, for companies operating within a game-changing sector and delivering the kind of growth that Agronomics has so far. Moreover, it also enjoys the benefit of scarcity value as the only UK-listed investment vehicle targeting cellular agriculture.

That being said, Agronomics will also face stiff competition in the future from established companies with deeper pockets, as firms like Tyson Foods, Kraft Heinz and even Amazon enter the picture — increasing economies of scale will also be key to widespread adoption.

Taking the above into account, Agronomics owns an impressive suite of disruptive companies and presents a huge long-term growth opportunity for my Stocks and Shares ISA.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Joshua Kalinsky has no position in any of the shares mentioned. 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.

The Rolls-Royce (LSE:RR) share price has been sliding fast, falling 44% off its 12-month high.

The question weighing on my mind is whether this drop represents something that has gone fundamentally awry with the business, or whether global recession concerns have provided me with a golden buying opportunity? Providing it is the latter, as markets look forward and short-term fears abate, high-growth stocks such as Rolls-Royce will come back into fashion and rebound sharply.

When analysing any share price, it is important to look at where a business has come from and where it is today. That is because 1) today’s price merely provides us with a snapshot of today and taken by itself provides no information to investors, and 2) the share price can often become detached from reality. Just because a price is close to record lows or record highs, we cannot infer success or failure in that one snapshot. Looking at today’s share price alone vs its historical prices, we could infer that Rolls-Royce is struggling badly and is in very nearly the worst place it has ever been. Does this ring true or has the share price become detached from reality? In order to answer this, let’s delve a little deeper into Rolls-Royce’s history.

Then: loss-making…

The Rolls-Royce brand started out over a century ago as a British automobile maker and has, over that period, gone through a raft of corporate restructures.

In 2017, Rolls-Royce posted its largest ever pre-tax loss. This led to huge cuts to the workforce in a mammoth restructure in 2018 where it started to focus on key three segments, namely aerospace, power systems and defence. Weighed heavily by debt, having invested over £11bn in R&D over the decade, as well as poor relative revenue performance, the restructure proved necessary and financially prudent, resulting in some impressive cost-savings for the business today. At that time the market cap of the company was £17bn and the share price was 333p.

Now: profit-taking…

Fast forward to today and Rolls-Royce is capped at just £7bn, trading at 88p. The pandemic naturally proved challenging across the aviation sector and saw the company hit a record low of 36p as it made further cuts to mitigate against reduced flying hours. Despite these challenges, Rolls-Royce is now back in the black and bearing the fruits of its restructure, returning to profitability in 2021.

The business generated £11bn in revenue last year and is trading at close to half of this right now, so this certainly does appear cheap on a relative historical basis – looking at where the business was back in 2017.  It should be noted that on a pure price-to-earnings basis the business would still be considered expensive, but to deliver any cash-flow at all right now given the challenges the business has faced is no mean feat.

Of course, the share price could fall further under continued market pressure, additional funding requirements and/or inability to manage ongoing debt – I believe, however, the price is ready to rebound having become detached from the reality of Rolls-Royce, as the underlying businesses are arguably leaner and healthier than ever over the previous five years.

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Joshua Kalinsky 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.

As an investor who is primarily focused on growth and disruption, picking solid and reliable passive income stocks can seem somewhat underwhelming. That is why it is important to remember that when we talk about passive income stocks, we are talking about companies that deliver a dividend purely by virtue of owning them. This is a powerful selling point for an investor, even for growth-focused investors like myself, as the income received can also be reinvested.

It’s worth noting that high dividend yields don’t automatically mean superiority, as we are looking for reliable passive income that can be reinvested — and too high of a yield can be considered a risk to long-term company prospects.

Phoenix Group Holdings

My first pick is insurance and savings giant Phoenix Group Holdings (LSE:PHNX).

Like much of the market, Phoenix’s share price has come under selling pressure since its peaks in 2021 and, despite a strong start to the year, is currently trading at 628p, 17% off its 52-week high.

Even taking into account the current volatility in the market, this drop looks overdone, with Phoenix once again declaring annual growth in free cash flow, new business and profitability.

Phoenix Group boasts an impressive track record of stable growth in both profitability and dividends, providing shareholders with a whopping 8% dividend yield. This meant the company boosted its investors’ coffers with 3% organic dividend growth on the year, and keeps it in line with the sustainable 4% compound annual growth rate (CAGR) in dividends it has provided shareholders since 2011.

My one concern here would be the maturity of the underlying businesses owned by Phoenix and whether such levels of growth can be maintained under stricter market conditions. That being said, Phoenix has a rich history of smart strategic acquisitions, and so I certainly wouldn’t bet against its ability to maintain this level of income over the coming years.

GlaxoSmithKline

Next up, a potentially surprising choice, in GlaxoSmithKline (LSE:GSK), currently trading at 1,771p.

A £90bn-cap pharma giant wouldn’t normally be considered a surprise pick, but growth in revenue for Glaxo has been relatively slow, and it has not raised dividends since 2014, keeping the yield at a steady 4.5%. Nonetheless, that is still well above the current FTSE 100 average yield of 3.3%.

Glaxo also had a strong first quarter with revenue and net income increasing by 32% and 68% year on year respectively. This has been reflected somewhat in performance with its share price demonstrating considerable relative strength in the face of a protracted sector pullback.

Moreover, the company operates in a sector that tends to outperform both going in and coming out of recession cycles which goes some way to offsetting growing pains.

Given the pressure the biotech sector has come under, coupled with GlaxoSmithKline’s cash position, there also appears to be some attractive merger and acquisition possibilities to shore up its pipeline. Overall, GSK will be a key pick for my passive income portfolio going forward.

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Joshua Kalinsky has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.

Value and growth

With a market capitalisation of £1.89bn, this top UK defence tech firm is a manufacturer of autonomous robotic and integrated artificial intelligence surveillance systems, and has just achieved record order intake for the full year contributing to revenue of £1.278bn, equating to 19% growth in full year-on-year revenue. QinetiQ has also maintained dividends for the last 10 years, despite having to contend with supply chain headwinds and a shift of focus to renewed growth via acquisitions since 2016.

The company is mission-driven and has been involved in a range of projects that aim to reduce the need for fuel and assist in global ESG targets. Looking forward, the company expects to maintain its growth rate over the next five years by increasing market share in the UK, and crucially has set its sights on markets in the US and Australia.

QinetiQ appears to be on the right track to meet its ambitions, with the recent award of a framework U.S Department of Defence (DOD) BOA that could be worth up to $241m over five years. This contract — immediately after the news that it will play a central role in the Royal Navy’s £100m next-generation Electronic Warfare system — follows on from recent contracts and partnerships with US Army, European Space Agency, Australian Department of Defence and Australian Missile Corporation.

Currently, the QinetiQ Group share price has a lot of momentum behind it in the market and is up 36% from its annual low (trading at 326p) but is still trading below its pre-Covid range (18% off its all-time high of 396p), with a price-to-sales ratio below that of its peers on average and in a sector expected to grow at a compound annual growth rate of 26% up to 2025.

The company’s current addressable market is estimated to be in excess of £20bn and still offers a tremendous growth and value story for me, as it looks to retest and surpass its all-time highs in due course, in my humble opinion.

It is worth noting that any signs of a slowdown or decline in revenue growth would see these gains quickly reversed. Supply chain disturbances have certainly weighed on revenue in the past, and sustained disruptions may cause a rethink of valuations.

All things considered, it is clear to me that QinetiQ Group share price still has a lot of upside potential. I will be paying close attention to this company.

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Joshua Kalinsky 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.