There are many issues facing UK companies at the moment. They’re dealing with the inflation that’s driving up costs and denting consumers’ discretionary income. And the Bank of England has warned of a recession this year. But it’s still hiking interest rates, with the base rate of 1.75% set to increase borrowing costs for companies. These factors pose risk, but they’re not preventing me from buying shares. Mondi (LSE: MNDI), a paper packaging company, is a FTSE 100 stock I’m buying at the moment. 

Recent trading update

There were many positives in the recent half-year Mondi trading update. For example, group revenues increased to €4.5bn, up 37%. This excluded the Russian operations, which are set to be sold in the near future. 

At the same time, the group has dealt exceptionally well with inflationary pressures. Indeed, underlying EBITDA increased 66% year on year to €942m, with very strong margins of 20.9%, up from 17.2% in the same period last year. Basic earnings per share also totalled 148.4 euro cents, up from just 54.4 cents in the prior year. 

The fact that Mondi generates most of its energy needs internally, with biomass sources accounting for around 80% of fuels used in the process, has enabled this resilience. Further, it has also been largely successful in passing on any additional costs to customers. This differentiates Mondi from many other FTSE 100 stocks that have struggled to deal with such pressures. 

The major uncertainty

Despite these excellent results, the Mondi share price still dropped around 5% on the day of the trading update. This was mainly due to one major uncertainty for the company: the Russian business. 

Prior to the Russian invasion of Ukraine, the company generated around 20% of its underlying profits from the Russian entity. However, recognising the group’s corporate values and stakeholder responsibilities, Mondi has decided to sell these operations, and the divestment process is now under way.

Although the assets up for sale amount to around €1.7bn, it’s highly unlikely that the group will receive this price. Therefore, this could lead to asset write-downs in the future and a loss of future earnings. 

Why am I still buying this FTSE 100 stock?

Although the disposal of its Russian operations leads to large amounts of uncertainty, I feel that the rest of the business is still extremely strong. The recent half-year update demonstrated this fact. 

Further, there are many signs that this stock is now a bargain. It has a current price-to-earnings ratio of around 6, implying a major bargain. And the company recently raised its dividend by 8%, meaning Mondi now has a dividend yield of 4%, higher than in the past. For these reasons, I will continue to add Mondi shares to my portfolio. 

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Stuart Blair owns shares in Mondi. 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.

Growth stocks have struggled significantly this year, with issues such as inflation and rising interest rates particularly damaging factors. The Nasdaq, which includes many growth stocks, has dipped 14% in the past 12 months. However, over the past month, it has started to see a slight recovery, rising over 12%.

This has been driven by several trading updates that were better than expected. These two companies have recently issued very promising news, giving me another reason to buy. 

A growing fintech

As cost-of-living pressures have increased, it has been a difficult time for fintechs. This has been reflected in the PayPal share price, which has dropped 65% in the past year, and the Visa share price, which has fallen 10%. However, SoFi Technologies (NASDAQ: SOFI), which is one of the newer fintechs, is my favourite pick in the sector. It has fallen 50% in the past year, worse than many other growth stocks. 

The main reason I like SoFi is due to the business’s strong growth in recent times. For example, in the recent Q2 trading update, it said net revenue rose 57% year on year to reach $363m. At the same time, adjusted EBITDA reached $20m, an 81% year-on-year rise. Its total membership also hit 4.3m, a 69% year-on-year increase. This meant the group now expects full-year revenues of over $1.5bn, higher than previously expected. 

Such a resilient performance has been enabled by SoFi’s diverse portfolio, which includes a Lending, Technology and Financial Services Platform. The recent bank charter it obtained has also allowed it to be resilient, despite the recent macroeconomic pressures. 

There are some major risks, of course, including the major fact that SoFi is still loss-making. In the high-inflation environment, where investors are searching for profitable companies, this is an issue. The ‘short’ interest in SoFi is also very high, another bearish sign. 

However, its growth potential is clear to me, as demonstrated by that recent trading update. Therefore, I may add more SoFi shares to my portfolio. 

A growing e-commerce stock

E-commerce has also been struggling post-pandemic. In fact, some e-tail specialists, like Shopify, have been forced to lay off workers. However, MercadoLibre (NASDAQ: MELI), an e-commerce company based in Latin America, has performed far more resiliently. 

Indeed, in its own Q2 trading update, net revenues were up 56.5% year on year to reach $2.6bn. Most impressively, the group recorded income from operations of $250m, with a 9.6% margin. This has left the company with an extremely strong cash position, which should be used for further reinvestment. 

Like with many other growth stocks, there are risks. In particular, MercadoLibre operates in Latin America, which is prone to financial instability. This may disrupt future growth. 

Even so, this has been a factor burdening the company for many decades and, so far, it has continued to post excellent growth every year. I feel that it can continue to do so and I’ll add more MercadoLibre shares to my portfolio. 

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Stuart Blair owns shares in MercadoLibre, PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended MercadoLibre, PayPal Holdings and Shopify. 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.

Inflation remains one of the key issues for investors at the moment. Indeed, in the UK, core inflation measures reached 9.4% in June, a 40-year high. There are also fears among economists that inflation could peak at 13%+. This has led to a major cost-of-living crisis, whereby consumers have had significantly less discretionary income to spend. This has seen many UK shares fall significantly.

However, supermarkets are often seen as more resilient against inflation, and I believe Tesco (LSE: TSCO) could offer a great option. 

Why Tesco?

Although supermarkets are not entirely immune to the impacts of inflation, the demand for food and drink is fairly inelastic. This means that even in periods of extreme inflation, or a recession, demand remains constant. As such, supermarkets can pass on costs to the consumer far easier than other companies. 

Tesco is a great example of this. Indeed, in the first quarter of the year, group sales were able to reach £13.57bn, up 2% year-on-year. This resilient performance has been driven by the company’s 0.2% growth in market share, cementing it as the largest supermarket in the UK. 

With inflation soaring, Tesco has also incredible growth in its Aldi Price Match and Low Everyday Prices products, where overall distribution has increased 19% year-on-year. Although the profit margins on these products are low, they still entice consumers into the shop and have boosted the reputation of the supermarket.

Strong shareholder returns

Thanks to the company’s strong performance, at the end of the last financial year it announced it was undertaking a £750m share buyback, scheduled to finish in April 2023. The first stage of this scheme has now commenced. As this will reduce the number of outstanding shares, metrics such as earnings per share may also increase. This could help boost the UK share. 

Shareholder returns overall are equally strong. In fact, last year, after reporting adjusted profits of £2.8bn, the dividend per share climbed to 10.9p, a 19.1% increase year-on-year. At the current Tesco share price, this equates to a yield of 4.1%. It is also extremely well-covered by profits. 

The risks

There are some risks with Tesco however. For example, although demand for staple food and drink is steady, the group has seen demand for some higher-margin products, such as clothing, reduce. This may impact the firm’s profitability. 

Further, the competition in the supermarket industry is extremely strong, meaning that price wars are commonplace. Most recently this has included many of the supermarkets starting to reduce fuel prices to attract more customers. This may have a further negative impact on margins. 

Why would I buy this UK share?

Despite the risks for the company, Tesco remains far better suited to deal with inflation than most other UK shares, I feel. With a price-to-earnings ratio of around 12, the Tesco share price also seems very reasonably priced. For these reasons, I am very tempted to buy some Tesco shares for my portfolio. 

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Stuart Blair has no position in any of the shares mentioned. 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 general, UK shares have outperformed global stocks of late. Over the past year, the FTSE 100 has risen nearly 6%, whereas the S&P 500 has dropped 9% and the Hang Seng has sunk over 20%. But this success has mainly been due to the performance of a few individual companies, such as AstraZeneca and some of the big oil giants. Therefore, many UK shares are still trading at multi-year lows and look very cheap for the long term. Here are two I’d pick up today. 

A recent crash

Hotel Chocolat (LSE: HOTC) is a British high-end chocolatier, recognised for its excellent quality. However, on Tuesday, the company announced that it expected a statutory loss for FY22, which led to this UK share plunging nearly 50% in a day. 

Although the company has been performing well, Hotel Chocolat was affected by its subsidiaries in both Japan and the US. In fact, after an internal business review, the company has decided to close its retail stores in the US. This will lead to costs of £3m, including future lease liabilities and landlord deposits. At the same time, the board also acknowledged the potential to have to pay a full impairment charge of £23m, due to a revised assessment of the likelihood of recovering loans made to its ailing Japanese joint venture. 

These factors meant that as well as the company expecting a statutory loss for the year, it predicts lower sales growth and profit margins for FY23 too.

However, there are many positive signs. For example, revenue growth in the latest year totalled £226m, up 37% year-on-year and ahead of market consensus expectations. This was primarily due to growth in the UK market. Further, for the long term, the group also expects “less risk and an even stronger balance sheet with a higher profit percentage growth in FY24 and FY25”.

Therefore, I’m not too worried about the recent crash and believe that the recent dip makes it an excellent time to buy. I may add some Hotel Chocolat shares to my portfolio. 

An internationally focused UK share

Burberry (LSE: BRBY) is a historic British luxury fashion house that gained a new lease of life in recent decades. It has managed to expand internationally, with over a third of its business exposed to the Chinese market. However, recent lockdowns in China have strained Burberry’s business there. 

For example, Q1 sales in Mainland China fell by 35% year-on-year, and in the Asia Pacific region, sales fell by 16% in the period. This meant that, at a constant exchange rate, comparable store sales only increased by 1% year-on-year, far slower growth than the group wished for. 

However, there are still many positive signs. First, the company has just commenced its £400m share buyback, which is expected to be completed by the end of the year. Second, the European part of the business saw sales increase by 47% year-on-year, driven by the rebound in tourism and higher sales to locals. This is a great sign moving forwards. Finally, according to the company, there are signs that Mainland China performance has been improving since stores reopened in June.

Therefore, I think that this UK share should be able to overcome the current struggles and would be an excellent addition to my portfolio. 

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and Hotel Chocolat. 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.

Growth stocks have suffered huge losses in the past few months, as inflation continues to soar. After soaring over 200% in the past five years, the chipmaker Nvidia (NASDAQ: NVDA) has sunk recently, falling 50% year to date and 26% over the past year. However, I feel that this recent dip has offered a great time to buy for the long term, and it makes up part of my portfolio. At these levels, I am tempted to buy more.

Recent updates

Despite the faltering Nvidia share price, the company’s results have remained robust. For example, in the first quarter trading update, it reported record revenues of $8.29bn, up 46% year-on-year. This included record revenue from the data centre of $3.75bn, up 83% year-on-year. 

On a non-GAAP basis, which excludes the termination charge resulting from the company’s failed acquisition of Arm Holdings, net income was able to soar to $3.4bn, up 49% year on year. This has enabled the group to return $2.1bn to shareholders, through share repurchases and cash dividends. On May 23, 2022, the board of directors extended the company’s share repurchase programme to a total of $15bn. 

However, the group expects a revenue hit of around $500m in the second quarter of the year, resulting from the war in Ukraine and the lockdowns within China. This is also likely to see profits decline slightly. However, even with this revenue hit of $500m, the group still expects revenues of $8.1bn, which would be 25% higher than last year. 

Other factors

Another worry I hold about this growth stock is its involvement in cryptocurrencies. Indeed, this year the company was fined $5.5m by the SEC for covering up how crypto had boosted its revenues and was a major source of growth. However, amid the recent decline in cryptocurrencies, Nvidia recently stated that crypto revenues are now “nominal”. This may be a factor to stunt growth. 

However, there are plenty of other signs that Nvidia is set to continue its rapid growth. Firstly, in the Q1 trading update, the founder and CEO of the company, Jensen Huang, stated “we are gearing up for the largest wave of new products in our history with new GPU, CPU, DPU and robotics processors ramping in the second half”. He also pointed to its use within AI, self-driving cars, and robotics. 

According to research firm McKinsey, the global market for semiconductors could grow from $400bn to $1trn by 2030, thanks to factors such as the Metaverse. Therefore, Nvidia shares could be a great way for me to profit from this trend. 

What am I doing with this growth stock?

I recently bought some Nvidia shares, as I believe it may have hit its bottom. For one, the company is currently trading at a price-to-earnings ratio of just over 30, far lower than previous P/E ratios of around 80 during the pandemic. At the same time, the company is reporting gross margins of around 67%, far higher than most other growth stocks. This highlights Nvidia’s excellent quality and is a reason I believe it will be able to overcome macroeconomic uncertainties. Therefore, I will continue to buy Nvidia shares at this price, as I believe they could have hit their bottom. 

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Stuart Blair owns shares in Nvidia. 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.

Global indexes have seen falls over the past year. For example, the S&P 500 has sunk 11% during this period, the Nasdaq has fallen 21% and the FTSE 350 has dipped 3%. However, these dips have seen several quality companies fall to great buying levels, as their long-term prospects remain thoroughly intact. Therefore, here are two shares I’d buy for the long-term. 

An S&P 500 stock 

Nike (NYSE: NKE) has proven to be an extremely reliable stock over the past few years. In fact, in the past half-decade, the Nike share price has risen 86%, while those who bought during its IPO in 1980 would be sitting on a staggering gain of over 60,000%, far exceeding the S&P 500. However, over the past year, the sportswear company has sunk over 30%. I feel this offers a compelling entry point for me. 

For example, in the full year ending May 31, Nike managed revenue growth of 5% to $46.7bn and net income of $6bn, up 6% year-on-year. At the same time, shareholder returns were also increased. During the year, total dividends totalled $1.8bn, up 12% from the prior year. And the company repurchased $4bn of its own stock. 

There are some worries moving forward though. For example, in the current cost-of-living crisis, consumers may stop buying premium branded sports clothes and shoes in order to preserve cash. This could have a knock-on effect for Nike. Further, in the recent trading update, it was announced that operating overhead costs have increased by 11% to $11bn, partly due to wage increases. This factor could strain profit margins moving forwards. 

But with a price-to-earnings ratio of under 30, the Nike share price is far cheaper than it has been historically. For example, post-pandemic, the company’s P/E ratio was over 50. With it undertaking an $18bn share repurchase programme over the next few years, I also believe that earnings per share can grow. For these reasons, I would add some Nike shares to my portfolio after its recent drop. 

A UK share to buy

When looking at which shares to buy in the face of a potential recession, I like companies with strong brand loyalty. With a drinks portfolio of over 200 brands, Diageo (LSE: DGE) offers just that. These labels include Pimm’s (one of the big names during the summer) and Guinness (a firm favourite in nearly all pubs). Other globally recognised brands include Don Julio and Captain Morgan. 

Due to the extensive histories of these names, brand loyalty is high. This gives Diageo significant pricing power, meaning it can pass on rising costs to customers more easily than some other companies can. 

There are some risks, however. For example, the group is winding down its business operations in Russia, and this is likely to lead to large costs. At the same time, the company has a price-to-earnings ratio of over 20, which is above the FTSE 100 average. 

But due to its defensive qualities, I’m willing to pay this premium. Therefore, I may add more Diageo shares to my portfolio.    

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Stuart Blair owns shares in Diageo. The Motley Fool UK has recommended Diageo and Nike. 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 is known as one of the greatest investors of all time. Indeed, since becoming CEO of Berkshire Hathaway in 1965, he has managed to deliver a return of 3,600,000% for the company’s shareholders. This has far outperformed the S&P 500.

That is not to say that all of Buffett’s investments have been great. For example, a few years before the pandemic, he made investments into all four major US airlines, before selling them at the lows of the pandemic. Since this moment, the airlines have recovered well. He also admitted that he paid far too much for Kraft Heinz, which was one of his largest purchases. Therefore, I do not blindly follow Buffett’s investments. Instead, I opt to do my own thorough research. Here’s one of his investments I would buy and one I am staying clear of. 

One of Warren Buffett’s most successful investments

Warren Buffett first started building a stake in Apple (NASDAQ: AAPL) in 2016 and has made around a 400% return since then. Recently, he has been adding to his position, buying around another $600m worth of Apple stock in Q1. I believe that now is a good time to add to my own position. 

The group is performing excellently right now. In the recent second quarter, it posted record revenues of $97.3bn, up 9% year on year. At the same time, net income reached over $25bn, up from $23.6bn the year before. This demonstrates that Apple has dealt well with inflationary pressures and continued reporting strong growth. 

However, the company is not immune to macroeconomic worries. For instance, it has warned that due to strict Covid-19 lockdowns in China and supply constraints, revenue is likely to be hit by around $4bn to $8bn in the third quarter. 

Even so, I am happy to buy more Apple stock in the next few months. The company is in excellent financial shape, as shown by a recent $90bn increase to the share repurchase programme. I am also encouraged by its further move into finance, through its new buy now, pay later service. This could offer a further form of growth. 

An investment I would avoid

Buffett has continued to buy Occidental Petroleum (NYSE: OXY) over the past few months. As the price of oil has surged, the oil giant has been able to post extremely large profits. For instance, in Q1, the company reported net income of $4.7bn, which was a record for the company. Without the inclusion of a $2.6bn non-cash tax benefit, adjusted income reached $2.1bn, far higher than the $346m loss reported in the same period last year. 

These excellent results allowed the company to repay $3.3bn of debt. Once it manages to pay an additional $1.7bn of debt, the company’s focus will be to expand the $3bn share repurchase programme. This may help boost the Occidental share price further. 

However, despite these excellent results, I am staying away from oil stocks right now. In fact, as recognised by Occidental themselves, it sees “the potential for market conditions to dampen slightly in the second half of the year”. Further, with climate change one of the most pressing issues in society, I believe that the long-term future of oil stocks is unstable. As I invest for the long term, I will, therefore, not be adding Occidental shares to my portfolio.  

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Stuart Blair owns shares in Apple. The Motley Fool UK has recommended 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.

FTSE 100 stocks have faced a downturn in recent months. Indeed, year-to-date, the Footsie has sunk over 5%, as inflationary fears have caused many problems among UK companies. That said, it’s vrtually flat over 12 months.

Fears of a recession have also depressed investor sentiment, especially because this may lead to profit downgrades. However, the FTSE 100 has still outperformed other global indexes, such as the S&P 500 and the Nasdaq. Year-to-date, the S&P 500 has dipped 20% (and almost 11% in a year), while the Nasdaq has fallen 22% (and 18% in a year).

This outperformance has been driven by a few individual companies that are performing well, such as oil giants BP and Shell. But one of the top-performing FTSE 100 stocks is pharmaceutical giant AstraZeneca (LSE: AZN), which has climbed 30% year-to-date and 27% in the past year. It has now reached its all-time high, despite wider market volatility. 

Trading update

The recent Q1 AstraZeneca trading update was extremely strong. Total revenues increased 60% to $11.4bn, aided by the contribution of the company’s acquisitions, as well as plenty of organic growth. Core earnings per share were also able to increase to $1.89, which was 20% higher at a constant exchange rate.

There were some negatives from the trading update, however. This included the multitude of costs arising from the recent acquisition of Alexion, including a $1.2bn charge resulting from revaluing Alexion’s inventory. Research and development costs also increased by 36% year-on-year. This meant that reported earnings per share, which includes all these costs, declined 73% year-on-year to $0.25. This may be a risk moving forwards. 

However, I’m not overly worried about these additional costs. In fact, for FY22, the group expects total revenues to increase by a “high teens percentage”. Core earnings per share are also expected to increase by a “mid-to-high twenties percentage”. These strong signs of growth offset my fears about the rising costs. 

A focus on acquisitions

AstraZeneca has focused on making several acquisitions in recent months to fuel growth. While this has resulted in major acquisition costs and net debt reaching over $25bn, I believe the positives outweigh the negatives. For example, the firm’s $39bn acquisition of Alexion brings many rare diseases treatments into the AstraZeneca fold. This is likely to boost revenues significantly.

It also recently took over TeneoTwo in a $1.27bn deal, to strengthen the group’s oncology portfolio. At the heart of this deal is TeneoTwo’s experimental treatment for lymphoma. If this drug can take off, AstraZeneca’s revenues and profits may be boosted even further. 

What am I doing with this FTSE 100 stock?

With 177 projects in the development pipeline as of the end of 2021, AstraZeneca is one of the most promising pharma stocks moving forwards. It has also seen many positive trials for its new breast cancer drug Enhertu, which has apparently reduced the risk of the disease by 50%. This is another factor that could boost the FTSE 100 stock in the near future. 

For these reasons, I feel that the recent surge in the AstraZeneca share price is justified. Due to its immense potential moving forwards, I am tempted to open a small position for my portfolio. 

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Stuart Blair 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.

Global markets have sunk in recent weeks, with inflationary pressures and recession risks weighing down sentiment. However, this has left several possible bargains among UK shares. How can I tell if they’re true bargains though? Well, one way to value a stock is by looking at its book value in comparison to the company’s valuation.

Book value is calculated by taking away the company’s liabilities from its assets and in theory, if a company stopped trading and sold all its assets, it would be left with its book value. When the book value is higher than the valuation, it’s a sign a stock may be undervalued. It’s not definitive, but it can be a very important metric. After the recent market sell-off, here are two bargain UK shares trading at less than book value I’d add to my portfolio.

Beaten-down travel stock

I’m a fan of National Express (LSE: NEX) and after its 35% fall over the past year, I feel it’s now too cheap for me to miss. At the end of 2021, the group had a book value of £1.45bn, whereas it currently has a market capitalisation of £1.1bn. That means the share price is trading at a 24% discount to its book value and signals that the shares are in deep value territory. 

There are several problems facing the transport operator today. Due to US wage inflation, the group expects its recovery in profitability to lag its revenue growth. Margins are expected to be only around 7% in 2022, lower than the 9% target. Longer term, if oil prices remain high, this could drive company’s costs even higher and would put more pressure on margins. 

However, I remain optimistic about the future for this UK share. For one, with the current cost-of-living crisis, it’s likely that consumers will want to switch to lower-cost transport. National Express could be one of the best options. 

Further, the group is confident it can deliver £1.25bn of free cash flow between 2022 and 2027. This cash will be partly reinvested into growing shareholder returns, and the dividend is expected to be reinstated after the FY2022 results. For these reasons, I’ll continue adding National Express shares to my portfolio.

Heavily-shorted UK stock

ASOS (LSE: ASC) is another company trading at less than book value. As of 28 February, the stock had a book value of £1.05bn, but a market cap of £900m. It means the shares currently trade at a discount of 14% to book value, implying bargain territory. 

The current macroeconomic environment has caused problems for the fast-fashion retailer, however. For example, it recently downgraded earnings expectations from £125m to between £20m and £60m. This saw the share price plunge around 30% on the day. It also explains why ASOS is one of the most shorted UK shares, just after Cineworld. This is another bearish sign.

Despite these worries, I’m still tempted to open a small position in ASOS. For example, as noted by Barclays, there are “green shoots in the US market”, where the company saw 21% year-on-year sales growth. With a customer base of 27m, I also feel like its long-term future is bright, especially when inflationary pressures start to die down. Therefore, I may use the group’s discount to its book value as a sign to buy. 

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Stuart Blair owns shares in Barclays and National Express. The Motley Fool UK has recommended ASOS and Barclays. 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 rout among growth stocks has been brutal over the past few months. Indeed, the Nasdaq index has dropped over 23% in the past year and 30% over the past year. I own several US growth stocks in my portfolio, meaning that this fall has been devastating for my portfolio. However, I invest for the long term, and I believe that this dip has led to many opportunities to buy. Alibaba (NYSE: BABA) is one stock that looks far too cheap at its current price.

The decline of Alibaba

In October 2020, Alibaba had a market capitalisation of $800bn, and many believed that it would be the next company to reach the $1trn valuation mark. However, from this point, everything started to go downhill. 

For one, China started to crack down on tech giants, handing out extremely large fines for anti-competitive behaviour. For example, in the quarter ending 31 March 2021, it was announced that Alibaba had been given a $2.8bn fine under the anti-monopoly act. This was the largest fine ever handed out by the Chinese government. It also represented around 4% of the company’s domestic annual sales. 

Recently, the group has also seen slowing growth, partly due to the macroeconomic environment. This includes large inflationary pressures, which may reduce consumer spending on discretionary goods. As such, alongside other growth stocks, Alibaba has dipped to a market cap of ‘only’ $300bn. Over the past year, it has fallen 50%. 

What are the positives? 

Despite these recent fears, I can still see a large amount of long-term potential with Alibaba. For example, despite the macroeconomic uncertainties, revenue climbed 9% year on year. Although this is far slower growth than previously, it is still encouraging to see some sort of growth. 

Further, China has recently signalled an easing of its tech crackdown, after Chinese officials met with some of the country’s top technology executives. Chinese Vice-Premier Liu He also signalled that these companies would receive more support from the government. Some investors have argued that this may indicate the start of a bull market for Chinese tech stocks.

Finally, I feel that the group’s international operations could drive future growth for the company. For example, in 2018, Alibaba acquired Daraz, which has expanded Alibaba’s reach into Pakistan, Bangladesh, Sri Lanka, and Nepal. The company also owns Lazada, which operates in south-east Asia, and Trendyol in Turkey. The CEO of Alibaba, Daniel Zhang, believes that these international businesses have “huge potential”. This is a very encouraging sign. 

What’s next for this growth stock?

There are many challenges facing Alibaba, yet I remain confident about the company’s long-term prospects. Revenue in the Asian e-commerce market is expected to reach over $2.6trn in 2025, up from around $2trn this year. Alibaba also trades at a price-to-earnings ratio of around 14. This is very low for a growth stock. Therefore, this is a company I would be very willing to buy and hold for the next five years. 

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Stuart Blair 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.