With Omicron raging across the land, 2021 is ending on a down note for UK investors. Still, I think there are plenty of great opportunities out there for long-term-focused Fools like me. With this in mind — and in no particular order — here are the five best stocks I’d buy for 2022.
CMC Markets
My first pick for next year is online trading platform provider CMC Markets (LSE: CMCX). Shares in this company have sold off recently following a reduction in market volatility and, consequently, a fall in net operating income and profits. The dividend has been slashed as a result.
Considering how much of an anomaly 2020 was, this slowdown was always likely. Compared to pre-Covid-19 numbers, however, CMC is clearly growing well. Its evolving stockbroking business is going great guns and the company is considering separating this from its spread betting business in the future.
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Obviously, further falls are possible and the ongoing threat of regulation in its industry will put some off. However, the shares look tempting at less than 11 times earnings. There’s a stack of cash on the balance sheet and founder and CEO Lord Cruddas still owns a huge stake.
Perhaps most importantly, a flurry of anxiety in the markets as we enter 2022 could cause a rebound in levels of client activity.
Britvic
For a nice mix of growth and income, I’d snap up stock in Britvic (LSE: BVIC). The Hemel Hempstead-based business owns a portfolio of highly ‘sticky’ brands such as Tango, J20, and Robinsons. It also has an exclusive agreement to produce and distribute Pepsi, 7UP and Mountain Dew in the UK on behalf of US giant PepsiCo until the end of 2040.
Like most businesses, Brivic’s fortunes could be dealt a blow if pandemic-related restrictions were to get particularly tough. However, the eventual, inevitable return to normality should play into the company’s hands as people return en masse to restaurants, bars and cafes.
Its shares trade at a little less than 16 times earnings. That’s pretty cheap compared to others in the sector. It’s also attractive considering the company’s defensive qualities.
As mentioned, there’s a nice dividend stream too. The 3% yield looks easily covered by profits, meaning a cut to Britvic’s payout looks pretty unlikely.
Somero Enterprises
Somero Enterprises (LSE: SOM) has been one of the top-performing stocks in my portfolio in 2021. I think there could be even more to come in 2022.
Somero produces laser-guided machines that make concrete surfaces perfectly flat. Boring? Arguably. Essential? Yes. Profitable? Increasingly so. The huge rise in demand for warehouse space from retailers has been a boon for this company and Covid-19 has only served to boost this need further.
Earlier this month, the small-cap announced that it expected to exceed previous guidance yet again for 2021. Thanks to strong momentum in North America, revenue will now come in around $130m — $10m more than thought in September. Better still, project backlogs are seen “extending well into 2022“.
Despite this good news, the market still looks to be cautious about Somero. As I type, the shares are trading at just 11 times forecast FY22 earnings. That still looks like a steal for a leader in a specialised market, particularly one that generates high margins and returns on the cash it reinvests into itself. Other draws include its robust finances and a big 6.9% dividend yield.
Rio Tinto
FTSE 100 mining giant Rio Tinto (LSE:RIO) hasn’t had the best of years. Nonetheless, I see two big attractions.
The first is the huge dividend on offer. Analysts currently have the company returning 457p per share for FY22. Based on the current share price, that’s a yield of 9.5% — more than adequate compensation for being made to wait for a recovery. The payout should also serve as a great way of outpacing inflation (which shows no signs of slowing just yet).
The second attraction for me is the potential for a commodities supercycle over the next few years. Huge amounts of copper, lithium and aluminium will be required to meet the demand for electric vehicles and clean energy solutions. This should do the £80bn cap’s bottom line no harm at all.
Obviously, there’s nothing to say that Rio’s share price won’t fall further. As a ‘buy and hold’ dividend stock for 2022 and beyond, however, I think this is among the best available in the FTSE 100. The valuation, at just seven times forecast FY22 earnings is low too.
Boohoo
Suggesting that Boohoo (LSE: BOO) might be one of the best stocks to buy for 2022 sounds nothing short of fanciful right now. The fast-fashion giant’s value has plummeted this year as increased costs, corporate governance concerns, reduced sales guidance and higher levels of returns have all pushed investors to the exits.
It’s undoubtedly been a tricky year and problems may persist. However, the share price capitulation looks overdone to these eyes. Boohoo is far from being financially vulnerable. Thanks to some canny acquisitions over the pandemic, it also boasts a far larger portfolio of brands. The purchase of Debenhams, for example, opens up a lot of new markets, including make-up and homewares.
Simplistic as it sounds, it can often be the case that this year’s losers turn into next year’s winners. I wonder if this might be the case with Boohoo. If the next update is even remotely better than forecast, we could see a squeeze on short sellers and the share price could fly. Surely the margin of safety has never been better?
Caution advised
In proposing the above, it’s necessary to clarify a couple of things.
First, I have no idea what will happen in 2022. Not a jot. In my defence, neither do the traders or fund managers that sit glued to their screens. If anyone says differently, feel free to chuck a glass of mulled wine over them. All any investor — professional or armchair — can do is make educated guesses and try to gauge risk correctly. If a few (or all) of my calls come off and beat the market return, I’ll be chuffed. I’ll also preemptively highlight the role of luck.
Speaking of risk, it’s worth mentioning that my picks have been made with a degree of diversification in mind. While this will lead to lower returns than if I were to pick the best performing part of the market, this presumes that I already know which part of the market that is. And I don’t. Regardless of what may be going on in the world at the time, spreading my money around sufficiently should prevent me from making any impulsive and costly decisions.
Wishing all Fools a safe Christmas and New Year and a profitable 2022.
