The Aston Martin share price has risen 75% over the last year.

The company has several exciting ventures in the pipeline keeping shareholders interested. The most significant is an agreement with Mercedes Benz. This is providing AML with a powerful path to electrification.

Plus, through its Project Horizon operational efficiency plan, Aston Martin is improving the way it runs its facilities. Under new management, Aston Martin is aiming for long-term profitability and much-improved business performance.

Much improved financial position

Having emerged from bankruptcy no less than seven times in its 108-year lifetime, Aston Martin has experienced a turbulent financial existence.

And it was touch and go after the pandemic hit in 2020 whether it would face yet another insolvency. That’s because it faced a large overstock of sports cars in its dealer network.

Thankfully, due to several refinancing deals, and careful rebalancing of its supply and demand, the company is now in a more stable financial position.

Last year Aston Martin raised £800m in new equity and refinanced all its notes that were due to expire in 2023. Their expiry dates have now been extended to 2025/26.

This restructuring and streamlining of the business has greatly improved the stock’s financial stability, further enhancing investor confidence.

In its recently reported Q1 results, Aston Martin revenues soared, and losses were less than feared. Wholesale volumes were up 134% year-on-year, and Aston Martin has over £500m in cash on its balance sheet.

Furthermore, it supported its full-year guidance, gross margins improved, and Aston Martin even believes it could be cash flow positive by 2023.

Shareholder risks

Unfortunately, it’s not all good news. Earlier this week, Aston Martin announced it is suing Swiss car dealer Nebula Project and its board members. It accuses them of failing to pay some customer deposits for orders of Aston Martin’s Valkyrie sports car. The company estimates this will dent its full-year profits by up to £15m.

Meanwhile, the Delta variant of Covid-19 is rampaging around the UK, and there are concerns the vaccine won’t contain it. This could be detrimental to many stocks, particularly those in the luxury goods market.

Nevertheless, Aston Martin vehicles are status symbols and a luxury brand with rising demand.

According to Aston Martin’s director of investor relations, Charlotte Cowley, 90% of Aston Martins built are still in existence. I think this is a very impressive figure that shows the lasting quality of the cars.

Ultimately, I think there’s a lot to like about Aston Martin. It’s very much a speculative investment, but I may add a small allocation of the shares to my Stocks and Shares ISA.

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Kirsteen 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.

What does Sareum do?

Sareum is a small molecule drug company developing targeted therapeutics. However, it doesn’t do the initial research. Instead, the team learns from others in the game using a low-cost research outsource model.

The team looks for drug candidates they believe will go all the way through clinical trials. Sareum then further designs the chosen molecules in-house and commissions lab work to proceed.

For instance, some existing autoimmune treatments treat the disease but have terrible side effects like thrombosis or severe infection. The Sareum Holdings team believes the TYK2/JAK1 inhibitors within these treatments can be enhanced to generate quality drugs that work with the immune system, devoid of the terrible side effects.

It’s already taking these through preclinical trials to test for the optimum dose and evaluate toxicology levels.

The company does not plan to commercialise drugs. Instead, it progresses to early clinical trials (phase 1 or 2) but will then licence to a partner.

For instance, Sareum licensed its CHK1 inhibitor SRA737 cancer treatment to Sierra Oncology. And its association with Sierra has lent considerable credibility to Sareum stock.

Furthermore, it has also been running a Covid-19 research programme. This is to see if its candidate molecule SDC-1801 can treat a cytokine storm in Covid-19 patients, along with protection against bacterial pneumonia. Meanwhile, SDC-1801 is being researched to treat psoriasis and rheumatoid arthritis.

Penny stocks can be a money pit

Today, Sareum is a penny stock with a £209m market cap. Its share price is up 1,160% from its 52-week low and down 34% from its 52-week high.

Sareum may well have further to climb. But penny stocks are notoriously risky investments.

In mid-June, the company raised £1.4m from the distribution of 30m additional shares. One high-net-worth individual bought the shares after already buying £900k worth of shares on 1 June.

This money is to be used to progress its TYK2/JAK1 programmes into clinical development. But it will also be used as working capital. The buyer also received a five-year warrant, which can be sold when the share price is above 7p for five consecutive days. That’s only 11% higher than it is today.

Furthermore, the company will need to raise additional funds in the coming weeks to undertake clinical trials for its autoimmune indications and a potential Covid-19 application.

Will this top biotech slide or soar?

Based in the UK, Sareum became the third-best-performing European biotech small-cap company last year. I think much of the success of the Sareum share price is due to the Covid-19-related hyping of biotech stocks.

Unfortunately, penny stocks are volatile, and I think this share price could just as easily slide as soar. I think Sareum does have some enticing reasons to be bullish, but it’s too risky for me. When investing in pharma stocks I prefer an established company like AstraZeneca.

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Kirsteen 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 like to follow a long-term investment strategy, which means I opt to buy shares in companies I think will be here far into the future. These are usually FTSE 350-listed companies or well-established American brands such as Amazon.

Nevertheless, I’m often tempted by momentum stocks in exciting new sectors. Argo Blockchain (LSE: ARB) is one such stock. It mines for the famed cryptocurrency Bitcoin and has risen to prominence in the past year as the price of Bitcoin soared. But it’s extremely volatile and while the momentum can be enticing, I think it’s wise to look at the bigger investment picture.

A fluctuating share price

Argo Blockchain is a stock on a roller-coaster ride. As a Bitcoin miner, it closely follows the trajectory of the Bitcoin price. This explains the crazy volatility this stock has seen in the past year.

In fact, the Argo blockchain share price has seen a 52-week low of 3.4p and a 52-week high of 339p. Today it’s trading just above 130p, which I think is due to the suppressed Bitcoin price.

Mirroring the volatile price of Bitcoin

The Argo Blockchain market cap is £508m today. Each Bitcoin is worth around £23.7k, so it would need to have over 21k Bitcoins at today’s price to match its current value.

In May, it had its best month yet, mining 166 Bitcoin, bringing its year-to-date total, at that point, to 716 Bitcoin. This is worth £17m at today’s BTC price.

Therefore, to justify its current market cap, investors are banking on the company mining a lot more Bitcoin in the future and the BTC price increasing.

Cryptocurrency is speculative

Theoretically, both could happen. But it’s a speculative situation. Governments are cracking down on cryptocurrency, with China, in particular, taking a hard line.

Staying relevant and at the cutting edge of Bitcoin mining requires the best mining rigs money can buy. Argo Blockchain does currently have excellent rigs, but these date quickly, and it costs a lot to upgrade them.

It also has several competitors. Riot Blockchain is a major one in the US, which has a $2.7bn market cap. And Riot has already spent $145m this year on state-of-the-art Bitmain mining equipment, which it will implement in the coming months. This will double its capacity to mine.

Nevertheless, there are some investors with great faith in Argo Blockchain. Late last month, hedge fund BlackRock took a small stake, which lends it credibility.

I’m not tempted to invest in Argo Blockchain because I find it far too speculative. I’d prefer to add DS Smith, Tesco, or Amazon shares to my Stocks and Shares ISA today.

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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. Kirsteen owns shares of Amazon and Bitcoin. The Motley Fool UK owns shares of and has recommended Amazon and Bitcoin. The Motley Fool UK has recommended DS Smith and Tesco 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.

Altogether, the Main Market of the London Stock Exchange hosts over 1,000 companies from 100 countries. So, where to start is a valid question.

One popular stock in the past year has been ITM Power (LSE:ITM). It’s operating in the green hydrogen space. This is a trending sector with lots of momentum, but is also highly speculative.

The Motley Fool’s long-term-investing mindset means looking for quality companies to stand the test of time. That means companies with a competitive advantage, integrity, and that are preferably well established. A dividend is a nice addition that can help build wealth through the power of compounding.

The ITM share price is volatile

ITM Power manufactures integrated hydrogen energy systems. With global pressure on reducing our carbon footprint mounting, research into alternative green technologies like hydrogen is well under way.

Founded in 2001, ITM Power has been listed on the London Stock Exchange since 2004. During that time, the ITM share price has risen over 700%. However, its share price appeared to coast sideways during the decade between 2009 and 2019.

Then, between September 2019 and January this year, ITM shares rocketed over 1,500%. But they’ve been on a downward slide since then, and are over 40% below their January high.

Analyst price targets range between 310p and 867p. So, it’s currently at the lower end of the scale. Nevertheless, I think the January high was fuelled by an extraordinary level of retail investor mania at the time and is not a good benchmark for true value.

ITM Power’s financial outlook

In its last half-year report to the end of October 2020, the company showed an order backlog worth £124m plus £434m in the pipeline.

A June 10 trading update said this order backlog had increased to £154m with £607m in the pipeline. But total revenue is projected to drop from £5.4m last year to £4m this year. The reduction is due to Covid-19.

ITM Power expects to produce 50MW of electrolysers by 30 April 2022. 33MW are in the backlog, and the rest in the advanced stages of negotiation.

Notable hedge funds BlackRock and Canaccord took a stake in ITM in February. Fidelity Investments Canada and Robeco followed them. I think institutional investor interest shows a level of confidence in the firm.

Is this a good stock for a new investor?

Unfortunately, the company is loss-making, and losses for the full year to April 2020 were more than double those of the previous year. It’s taking its time to scale commercially, which is probably making investors impatient. Plus, there’s no dividend.

ITM Power has geared up its manufacturing and operational capacity, so it should be ready to hit the ground running as it moves into larger-scale projects. While there’s undoubtedly potential here, and it may well thrive, I’m not convinced it’s a good stock for a new investor.

That’s because I’d be wary of jumping into momentum-led sectors without confirming the credibility and longevity of the business. I think starting with FTSE 350 stocks is a safer and less volatile way for new investors to discover the world of stock market investing with plenty of growth potential on offer.

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Kirsteen 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.

Butt is a philanthropist and paid himself at least £27m in 2019. Recent news shows he and his colleagues received a £110.8m payout for the latest financial year. Such a large payout as the pandemic continues puts Silchester under the spotlight after years of staying in the shadows.

Morrisons is not Silchester’s only deep value play

Yet, Silchester is not new to the scene and is a significant investor in several UK stocks with potential growth stories. These include GlaxoSmithKline (LSE:GSK), Mitie, Pearson, and Tesco (LSE:TSCO).  

So, as speculation continues, does Silchester have a keen eye for value?

I wrote about Tesco earlier in the week as I think its institutional investors will be meeting management in the coming weeks to encourage action that will benefit shareholders. Tesco is operating under new management, and investors are hopeful a dividend is in the offing.

But investors appear to be running out of patience. I imagine a management strategy, share buyback, or dividend, would go a long way to appeasing relations and improving the Tesco share price.

Tesco’s Q1 results were not outstanding, but they show resilience and signs of growth. E-commerce sales are high, generating 1.3m orders a week. Two-year sales growth came in over 81.6%, while one-year sales growth rose 22.2%. General merchandise sales rose 10.3%, and clothing sales are up 52.1%.

Considering Tesco shares are trading at the low end of analyst expectations, I think they look like a potential deep value investment.

Rise of the activists

With climate change, health initiatives, and political agendas ever-present, activist investor presence has a rising influence on the direction companies take.

Tesco is no stranger to investor activism. It already agreed to raise its sales of healthy foods to 65% by 2025, which Silchester didn’t oppose.

I don’t think investor activism is a bad thing. It can help steer the company in a customer-friendly direction while encouraging consumer loyalty and improving its ESG score.

I’m tempted to buy Tesco shares before its Q2 earnings call in October.

Interestingly, another of Silchester’s considerable holdings is GlaxoSmithKline, which just confirmed details of its consumer healthcare spin-off after months of speculation. This arm is expected to take some of the debt burdens from the leading company to focus on R&D.

GlaxoSmithKline has a Covid-19 vaccine in the works. But many believe it’s too little too late for the world’s top vaccine maker.

For this reason and a lack of profit-making in recent years, activist investor Elliot Advisors has been vocal lately. The firm suggests the group splits further.

I’ve found GlaxoSmithKline to be a disappointing investment. The GSK share price is down 2% in the past five years, despite a promising rise in 2019. For now, I’ll hold off on buying more shares. Time will tell if it’s a deep value investment.

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Kirsteen owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline, Morrisons, Pearson, 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.

A penny stock with promise

Nevertheless, since October 2020, the share price has climbed 144%. And brokers have been upgrading their valuations.

Earlier this month, Mitie released good FY21 results, showing trading resilience and a strengthened balance sheet. Its adjusted pre-tax profit fell to £46m from £69.9m but came in better than analyst predictions.

The company acquired Interserve, a facilities management business, in November. Since then, the acquisition has been performing ahead of expectations. Interserve is a low-margin business, but it’s helped Mitie enhance its footprint.

Mitie outsources a variety of workers including cleaners, security guards, and maintenance teams. With the pandemic creating an unprecedented need for intense cleaning regimes, its staff have been in high demand. And as the reopening accelerates, I think this is likely to continue.

The company is improving its security offerings too with technological advancements and is also an industry-leading AC and renewable energy contractor. These are another two areas of growing interest.

So, the potential for further growth is strong. And the company believes its 2022 profit will be “materially ahead” of its prior expectations.

Notable shareholder

Furthermore, another compelling argument for enhanced interest in this stock is that deep value fund Silchester is its biggest shareholder. Silchester has a close to 15% stake in Mitie, and it recently upped its investment in Morrisons to 15%. Shortly afterward, Morrisons received a potential takeover bid. As such, I think UK investors will be paying closer attention to Silchester’s portfolio in the coming months.

Financial outlook

Mitie has a forward price-to-earnings ratio of 12.7. And a £201m rights issue last summer helped it drastically reduce its net debt, while also funding the Interserve acquisition. But it cancelled its dividend after the pandemic struck and is holding off on resuming it until 2022 at the earliest.

Also worth noting, Project County sold its last 7% stake in Mitie last week. It acquired these shares through the Interserve acquisition and sold them when the lock-up period ended. This means the stock no longer has the potential for dilution (aka overhang) from the Interserve purchase.

All of the above sounds great, but it’s still quite speculative. Mitie is a penny stock emerging from a seven-year struggle. It might continue to rise, but I imagine it wouldn’t take much economic disruption for its share price to tumble. Being a low-margin business makes me nervous too, plus a lack of a dividend to sweeten it makes me reluctant to buy shares in Mitie today.

Besides, there are other FTSE 250 stocks I’d prefer to invest in for long-term rewards. Nevertheless, I do see potential and I’ll keep it on my watch list for now.

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Kirsteen 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.

Multinational packaging business DS Smith (LSE:SMDS) thrived in the pandemic as e-commerce sales soared. That’s because the company makes much of the cardboard packaging online orders are delivered in. The DS Smith share price is up 26% in the past year, but it’s been fluctuating this past week. Will the pressure to meet ESG targets reduce the appeal of this FTSE 100 stock as a long-term investment?

Environmental concerns

Pressure is mounting on FTSE 100 businesses to cut carbon emissions. So DS Smith is investing in energy-efficient technologies and switching to cleaner fuels. It’s already achieved ISO 50001 certification, which will help it reduce its CO2  emissions by 30% per tonne by 2030.

Its paper mill in Croatia recently switched to green energy, which is projected to reduce its CO2 emissions there by 23% annually.

There’s also the likelihood of rising consumer pressure for more eco-friendly packaging options, which could be expensive. But it’s aware of this and has launched a mission to solve eco problems, including replacing plastics in its packaging. And it’s a global partner with the Ellen MacArthur Foundation, boosting its reuse and recycling focus.

A FTSE 100 takeover target

In March, rival packaging company Mondi was rumoured to be considering a takeover of DS Smith, but nothing came of it. However, it remains an attractive potential target.

When billionaire Warren Buffett refers to a company’s economic moat, he means its competitive advantage. I think DS Smith has this as the scale of its manufacturing and distribution network is impressive. Thanks to years of investment, it solves many of the challenges present in the e-commerce supply chain. This may well present a valuable addition to a growing business.

Even without any takeover bids on the table, I think the company offers value. Yet there are some concerns.

At the moment, manufacturing its paper means buying the raw materials cheaply when the market is down. But paper production becomes expensive when the price of raw materials rises.

This past year has seen a commodity boom, and rising costs are hurting its profit margins.

In its just-released full-year results, it said pre-tax profit to April 30, fell 38% to £231m year-on-year, and revenue dropped 1% to £5.98bn. Meanwhile, adjusted operating profit fell 24% to £502m. Covid-19 and inflation risks continue to present challenges. Higher costs of packaging, energy, transport and labour all contributed to recent losses.

Would I buy DS Smith shares?

Analyst targets for the DS Smith share price fall between 330p and 509p. At 421p, it’s currently at the halfway mark. Its market cap is £5.7bn, its price-to-earnings ratio is 29, with a forward P/E of 15, and earnings per share are 24p.

It’s also a FTSE 100 constituent, so it’s well-established and has a credible reputation. Today, the company confirmed a final dividend. Added to its interim dividend, this makes for a 2.8% yield on today’s share price. The dividend is also covered by 2 to 2.5 times earnings. Of course, if pandemic conditions worsen, then the dividend may be at risk of another cut.

Nevertheless, DS Smith is a packaging company, and packaging is in high demand. E-commerce is on the rise, and I don’t see that slowing any time soon. DS Smith counts companies such as Unilever, Danone, Diageo, and PepsiCo as clients, which are all quality international brands. I’d consider adding this FTSE 100 stock to my Stocks and Shares ISA.

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Kirsteen owns shares of Unilever. The Motley Fool UK has recommended DS Smith, Diageo, and 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.

The Diageo share price climbed between March and June last year but had lost most of its gains by October. Since then, it has rebounded 39%.

Potential takeover target?

Back in 2015, an article about a possible bid sent Diageo’s share price soaring. The potential bidder was 3G Capital Partners, in which billionaire investor Warren Buffett has a stake. Nothing was ever confirmed, and Diageo called it “market speculation and rumour”.

3G Capital Partners had missed out on acquiring Unilever for $143bn in 2017. So, could it potentially look in Diageo’s direction again?

The amalgamation of big brands is becoming a popular way to build a powerhouse. And private equity is getting in on the action. 3G Capital already acquired Kraft Heinz and Restaurant Brands International. Plus, it has significant stakes in Singaporean internet company Sea, and online used car retailer Carvana, among others.

I think Diageo is is n attractive target as it’s a force to be reckoned with. It’s grown considerably since 2015. But at £80bn, its market cap is lower than Unilever’s. I wouldn’t rule it out as a takeover target.

Loyalty pays off

But I’m a long-term investor and I think DGE scores here too. Loyal shareholders who’ve stuck with Diageo over the past seven years enjoyed a rising dividend and benefited from share buybacks. The pandemic put a temporary halt to the dividend. And today Diageo shares are still slightly below their 2019 high. But I think it has scope for climbing further as the hospitality sector reopens.

In its May update, the company said it expects organic operating profit growth to reach at least 14% this year, beating analyst expectations. This led it to resume its return-of-capital scheme, which should deliver £1bn in shareholder payments by the end of next year, including £500m in share buybacks before November 2021.

Sustainability focus

Some 80% of Diageo’s carbon footprint comes from heat, mainly through its brewing and distilling operations. To offset this, it’s been making sustainability moves. These include planting trees to restore landscapes and a paper bottle launch later this year.

It’s also integrating sustainability, inclusion and positive drinking messages into each of its brands. I think this goes a long way to building consumer loyalty and longevity in brand awareness. For instance, linking Guinness with women’s rugby, and Smirnoff with PRIDE.

Risks to shareholders

While I like the look of Diageo’s future, shareholder risks remain. Inflation or a trade war would impact sales, the travel sector is an important money-spinner for the company and has not yet resumed full capacity. Plus, a focus on health could deter consumers from drinking alcohol. I think this unlikely, but it’s still a risk. 

But as a global operation servicing multiple sectors, it has a significant advantage. Diageo is at the forefront of the growth of ready-made drinks which is also driving the sector today. Its outlook is positive, the share buyback is a plus and its track record is excellent. I’d add Diageo shares to my Stocks and Shares ISA.

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Kirsteen 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.

Is a bidding war about to start?

Morrisons has long been subject to takeover rumours. Since it linked with Amazon, there have been speculation that Amazon could buy it. Moreover, the grocery sector is a popular space for cash generation and repeat business. So this is enticing private equity to the table. And it’s not the first major deal in the sector to emerge.

Two years ago, J Sainsbury and Walmart’s Asda attempted to merge into a £15bn behemoth, but the Competition and Markets Authority (CMA) blocked it. Walmart later sold Asda to a consortium for £6.8bn.

CD&R has a history of acquiring significant retailers. It gradually sold a 60% stake in B&M Retail, accruing around £1.5bn. Through its funds it owns Motor Fuel Group, it’s begun selling out of SmileDirectClub, and recently moved to buy UDG Healthcare for £2.6bn. So if it wants Morrisons badly enough, it could come back with a better offer.

Meanwhile, other private equity firms may start circling. For instance, 3G Capital recently failed in its takeover bid of Unilever and may be looking for another big deal.

Morrisons seems a lucrative target. Its origins date back to 1899, it’s a credible business, a major private-sector employer, and makes more than half the fresh food it sells. It has a loyal following and ramped up its home delivery initiative after the pandemic hit. Altogether, Morrisons knows the retail food space very well, and I think it will continue to thrive.

Could Sir Terry Leahy return?

The interesting twist in CD&R’s bid is that former Tesco CEO, Sir Terry Leahy, is a senior advisor to the firm. And Morrisons’ current executive leaders reported to Leahy when they worked at Tesco. So there are already relationships they may be looking to cultivate.

Sir Terry is the brains behind the Tesco Clubcard and its powerhouse of consumer data. He also shaped the wider strategy that made Tesco the grocery market leader.

Value hidden in plain sight

CD&R’s offer of 230p a share is a 27% increase on its current price. However, Morrisons rejected that on Saturday, saying it’s far too low.

Nevertheless, this could be enough to boost investor confidence, and Morrisons would therefore be subject to a short squeeze in the coming days. That’s because it’s seen rising short interest, and last week it was the fifth most heavily shorted UK stock.

It will be the little-known deep value fund Silchester that will probably have the most significant say in any potential deal for Morrisons. According to the London Stock Exchange, Silchester increased its shareholding in the FTSE 250 supermarket to 15% last week.

Morrisons’ price-to-earnings ratio (P/E) is 44, but its forward P/E is a more reasonable 12, and its dividend yield is 4%.

It doesn’t come without risk and has considerable debt. The high short interest indicates a bearish stance, and grocery is hugely competitive. Nevertheless, I like Morrisons both as a place to shop and as an investment, and this news reaffirms that. I’m considering buying Morrisons shares for its long-term prospects, not for a quick acquisition profit, but I’ll be watching this space with interest.

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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. Kirsteen owns shares of Amazon and Unilever. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended B&M European Value, Morrisons, UDG Healthcare, and Unilever 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.

Investor pressure

Irish businessman Ken Murphy became the new Tesco CEO last October. He had big shoes to fill as previous CEO Dave Lewis had a strong track record and was popular with shareholders. The appointment of new CFO Imran Nawaz followed Murphy’s arrival in April.

Institutional investors respected Dave Lewis and previous CFO Alan Stewart. They were credited with turning Tesco around after the accounting scandal in 2014, which knocked shareholder confidence. Under their leadership, Tesco moved away from its foreign operations to concentrate on the UK.

Following the sale of its Asian operations earlier in the year, shareholders were rewarded with a special dividend worth almost £5bn. This kept them sweet at the beginning of the year.

Since the crew change, the company has been given the benefit of the doubt, allowing Murphy and Nawaz to find their feet and for the pandemic response to settle. Both men have impressive CVs, coming from Walgreens Boots Alliance and Tate & Lyle, respectively. So, investor expectations are high.

But patience is running thin, and I believe institutional investors are keen to see a share buyback to boost their investment value. The company didn’t announce a buyback in April, which I understand some investors were hoping for.

Tesco’s biggest shareholders include BlackRock, Schroders, Norges Bank, Vanguard, and Fidelity.

Institutional investors are a force to be reckoned with and Tesco will want to keep them onside. The institutions already backed activist investors last month to raise sales of healthy foods to 65% by 2025.

Therefore, I imagine they won’t want to wait until October to see what’s next. They’ll likely meet with management in the coming weeks to let them know what they expect. And I think they might apply pressure for serious strategy changes or a share buyback.

Tesco shows underlying strength

While the Q1 results were not outstanding, they compared year-on-year to a period of exceptionally high sales. It was the peak of the pandemic stockpiling, so I actually think growth in Q1 showed strength. UK & ROI sales were up 1.3% and sales at Booker rose 9.2%. But Tesco didn’t raise full year guidance, which may have disappointed some.

Analyst share price targets come in between 220p to 315p, so Tesco shares are currently trading at the lower end of the scale.

I believe the CEO and CFO must be motivated to impress investors. Their own track record has been exceptional, so they won’t want to taint that. Nawaz worked for Kraft Foods when it acquired Cadbury’s, and he has a history of bringing down costs.

Plus, the numbers show customers are still flocking to Tesco. And its wholesale division Booker is recovering strongly as the hospitality sector reopens.

So, I’m tempted to invest in Tesco shares and see what happens in October. If it does announce a buyback or a shake-up of some sort, I expect its share price will rebound. Tesco’s forward price-to-earnings ratio is a reasonable 12. And the 4% dividend yield is also attractive enough to make this a viable long-term investment.

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Kirsteen owns shares of Tate & Lyle. The Motley Fool UK has recommended Schroders (Non-Voting) 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.