I am more often a macro investor than not. This means that my FTSE 100 investment decisions are made from a top-down perspective, keeping in mind developments in the economy and economic policies. Based on these, I am now considering the best and worst stocks for me to buy this year.
FTSE 100 oil biggies look good
The first of the best stocks are the giant oil companies, and no points for guessing why. These stocks rose because of a huge increase in oil prices last year, as we stepped into recovery. My sense is that these stocks could also continue to benefit in the year ahead. If the pandemic keeps moderating as we saw in 2021, they could continue to rally. Besides this, they are also dividend stocks, which I like. There is even more merit to them in my view and they are about my best-performing investments for this year.
Of course, with oil stocks there is always the possibility of a crash if we go back into lockdowns around the world. Also, there is no guarantee that they will transition easily into clean energy companies, so they are risky bets for the long-term even if they are good buys for the foreseeable future.
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Banks could make gains
The second group of strong stocks is the banks, which have really languished in the pandemic. They saw some recovery last year, but I think we could really see their rise this year. Banks could benefit from the recovery as cyclical stocks. Moreover, they could also benefit from a higher-interest-rate environment, since this gives them greater discretion to increase their own lending rates. Their dividends could also improve along with their financials. Yet, their share prices are still relatively low. This makes them quite attractive to me. But they are attractive only as long as we are expecting a recovery. If Omicron or any other coronavirus variant creates havoc again, the economy could well go south and that would affect banks adversely.
Avoiding real estate
I would, however, avoid exposure to real estate stocks. The property market did surprisingly well in 2020 and during 2021 due to supportive government policies and the fact that UK households saved a lot during the lockdowns, allowing them to buy big assets. However, such policies are now being withdrawn and we are no longer in lockdown, which could impact future savings.
As a result, I think that in the foreseeable future, these stocks’ performances might be impacted. I do believe that there is some chance that the sector could stay buoyed, though. If the recovery is strong, savings could well stay elevated and house buying could continue on a fast clip because of this. I am not entirely sure if it will play out like this, however, so I am more likely to avoid the sector than not.
In general though, I think that 2022 will give a lot of opportunity to buy quality FTSE 100 stocks, possibly even at low prices. I am looking forward to investing during this year.
