I rate Diageo (LSE:DGE) as one of my best stocks to buy now. I would add the shares to my holdings for 2022 and beyond with £1K to invest in shares. Here’s why.

Cheers to Diageo

Diageo is one of the largest alcoholic beverage makers in the world. Although the company name may not resonate instantly, many of its brands are world renowned and consumer favourites. Some of these include Captain Morgan, Johnnie Walker, Smirnoff and Ciroc, to name a few.

As I write, Diageo shares are trading for 3,738p. A year ago, shares were trading for 2,909p, which is a 28% return over a 12-month period. The shares are currently trading higher than pre-pandemic levels by some distance. Most of my best stocks to buy now have achieved a similar feat. I believe Diageo shares have achieved this due to pent up demand helping performance as well as recent shareholder returns.

Why I like Diageo shares for 2022 and beyond

Diageo’s recent and past performance has been impressive. I do understand the past is no guarantee of any future performance, however. I tend to use it as a gauge when reviewing investment viability. 2021 revenue came in as £12.73bn, very close to the £12.87bn record in 2019. 2021 revenue surpassed 2020 Covid-19-affected revenue levels. I am confident 2022 results could surpass pre-Covid levels by some distance.

As well as impressive performance, Diageo can make me a passive income through dividends. At current levels, Diageo has a dividend yield of close to the FTSE 100 average of 3%. More importantly, management has decided to return over £4.5bn in capital to shareholders. This will have definitely boosted shares upwards in my opinion.

Diageo’s position in its market solidifies my belief it can continue to perform well and provide me with excellent returns. Its billion dollar brands and high operating profit margins should continue to keep financials on an upward trajectory. Pricing power is extremely important in Diageo’s market and it seems to have a major competitive advantage on that front. This should continue a healthy trend of shareholder returns.

The best stocks to buy now have risks too

Diageo shares do currently look a bit expensive. At current levels, they are trading at a price-to-earnings ratio of 32. In addition to this, its debt level is a bit high. There are real risks that if performance were to dip, the shares would dip as well as the fact new pressure could be placed on management due to the current debt levels. All this could affect investor returns and sentiment.

Overall I would add Diageo shares to my holdings at current levels for 2022 and beyond. It has a competitive advantage in its market with several well performing, well known brands. In addition, there is a focus on returning capital to shareholders, and pent up demand due to the pandemic is helping boost performance. I put Diageo high on my best stocks to buy now list.

Jabran Khan has no position in any 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.

Lithium stocks are catching on to be one of the hottest sectors in the stock market. Given the broad use of lithium in commercial enterprises, this makes sense. However, given such a range of possibilities, I need to be careful about making generalizations about where to invest my money. Here are a few points that I’m noting down before I take the plunge.

Back to basics with lithium stocks

The first point worth noting down is what exactly lithium can be used for. Lithium is a chemical element in the form of an alkali metal. It is a highly reactive element and a good conductor of heat and electricity. As a result, it can be a popular flux additive for iron and steel production. The other major use of lithium is in batteries. This use is the one that’s catching investors’ attention.

For example, electric vehicles (EV) make use of lithium and lithium-ore batteries. This is because they offer good performance, long life, and can be charged relatively quickly.

So the second point regarding lithium stocks is to check what part of the sector is being serviced. Battery manufacturers could be the place to be, given the potential high demand for batteries if the EV market continue to grow. One of the largest lithium-ore battery manufacturers in the world right now is Tesla. Buying shares in Tesla would combine both the lithium stock and the EV stock sectors.

Choosing which part of the sector to go for

The third point to consider is at what vertical do I want to invest in a lithium stock. I could buy shares in a company that mines lithium and other elements, to sell on. Or I could go further down the line and buy shares in an EV company that uses the finished output.

Personally, I’d prefer to split my investment up into a mix of lithium stocks, given the risks involved. Yet if I could only invest in one area, I’d go for the miners. I feel this gives me the cleanest exposure to a potential surge in demand for lithium in years to come. It also doesn’t make me dependent on what the end use is for. It could be for car batteries, phone batteries, additives for steel production, or other things.

An example in this area is Kodak Minerals. The company has an advanced lithium project in Mali.

Noting the risks

The final point to note with lithium stocks is that the sector is high risk. Many of the stocks that fall into this category are exposed to the price movements of lithium. Further, constant development is going on with batteries, which may render certain firms useless in the future depending on their operations. Finally, given the high interest already being shown, accurately valuing the share prices of these companies is difficult given the number of speculative buyers in the market.

Jon Smith has no position in any firms mentioned. The Motley Fool UK has recommended Tesla. 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.

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The BT (LSE: BT-A) share price has been soaring in recent months and is up around 40% since the end of October last year. So, what has caused this recent rise, and can it continue during the rest of 2022?

What has caused the recent rise?

After many disappointing years, there has finally been some good news for BT investors over the past year and some signs of growth. For example, it seems that the company is capitalising on the opportunities presented by 5G. Indeed, BT’s 5G network covers over 40% of the UK’s population and it has over 5.2m 5G-ready customers. In the most recent quarter, it added 1.2m 5G customers, demonstrating the growth the company may be capable of.

BT’s subsidiary, Openreach, is also making excellent progress with its fibre-to-the-premises (FTTP) network. This is an ultra-fast network that connects customers straight to the exchange. Openreach has now rolled this out to around 6m premises, and it is expected to reach around 25m premises by 2026. As such, it’s clear that there are growth opportunities, and hopefully this will be reflected in future profits.

The BT share price has also reacted positively to the decision to sell BT Sport. The estimated figure for this sale is around $800m, and the buyer is expected to be DAZN. Nonetheless, there is also interest from Discovery, and this may lead to a bidding war, which could see BT Sport sold for more. This sale will allow further investment into Openreach, and could potentially be returned to shareholders as dividends. It seems like a shrewd decision to me.

Finally, I’m also impressed by the firm’s cost-cutting measures. In fact, it has already hit its £1bn cost savings target 18 months early, and this allows it to bring forward its FY25 target for £2bn of savings to FY24. These cost savings will hopefully see an improvement in profits over the next few years.

My concerns

The one key risk with BT is its huge pile of debt. In fact, net debt has continued to rise over the years, and it currently totals £18.2bn. This restricts BT from investing significant amounts into the business, as this debt needs to be paid off. Due to extremely large interest payments, it also has a negative effect on the company’s profits. This is likely to worsen as the Bank of England raises interest rates due to the soaring rates of inflation. As such, this is a risk which could cause the BT share price to fall.

Overall verdict on the BT share price

After years of disappointment, I believe that management are making several steps in the right direction. For income investors, there has also been the return of the dividend. This is likely to grow over the next few years, making BT a potentially good income stock as well. Therefore, although operational challenges remain, I feel that the BT share price can continue to soar. This is a value stock I’d consider adding to my portfolio.

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.

Investing now in International Consolidated Airlines Group (LSE: IAG) stock may sound like a poor idea. Having been hit hard by the pandemic in every sense, one may feel wise to steer clear. From January to October 2020, shares of International Consolidated Airlines Group had plummeted around 78% from 420p to 91p. Currently trading between 160-165p per share, it is safe to say IAG stock has a long way to go in order to complete a pandemic recovery.

The question is therefore: how likely is a recovery in 2022? And to what extent will a recovery recoup the losses of those unfortunate investors?

Headwinds

Fundamentally, the main cause for concern for any prospective or current investor in International Consolidated Airlines Group is the high level of uncertainty that is associated with the Aviation Industry through the age of coronavirus.

As shown recently with the reporting of Omicron, sudden news on incoming variants and speculation surrounding their severity can cause sudden panic and as a result vast movement in share price (moving 17% in the final five days of November following Omicron reporting).

As investors are quick to pull out their money with the fear of a worsened pandemic and the negative impacts this brings to world travel (and the potential for both revenue and profits…), shares of International Consolidated Airlines Group are certainly vulnerable to short-term shocks.

This vulnerability to shocks and the associated volatility is one reason why large-scale recovery is yet to be seen in the share price of International Consolidated Airlines Group.

Tailwinds

The short-term volatility that has suppressed recovery presents a ripe opportunity to me as a Foolish investor with a long-term view. With the world finally opening back up for business, with my optimism about global travel – this is a no-brainer.

After two years of travel restrictions, many countries simply cannot afford to close themselves off to tourism for much longer. It does seem that global travel will return closer to pre-pandemic normality. With that, surely comes a return for associated companies e.g. International Consolidated Airlines Group and Rolls-Royce.

In addition, the fundamentals of International Consolidated Airlines Group have not changed since before the pandemic. I believe this is still a well-run company with the systems in place to remain an industry leader for years to come.

Conclusion

In essence, International Consolidated Airlines Group is a business that was harshly affected by the pandemic and the associated reduction in global travel, now affected by uncertainty and volatility-fearing investors steering clear from the industry. However, with a long-term view, International Consolidated Airlines Group presents a huge opportunity. The fundamentals of the business have not changed and the world is opening up. Its shares are grossly undervalued… potentially now is the time for me to get in.

Tommy Williams 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.

Key Points

• With inflation remaining above 5%, different investment options can be attractive.
• I can consider tracker funds, high-growth stocks and dividend stars
• Historically-inflation-beating stocks don’t offer any guarantee of future performance

The latest inflation figure for the UK economy was released yesterday. It showed that in December, the price level rose by 5.4% year-on-year. This meant another month where inflation was rising, up from 5.1% the month before. At a basic level, inflation is my enemy as it erodes the value of my money. So here are a few ways that I can invest £1,000 in inflation-beating stocks.

FTSE 100 tracker funds

Tracker funds mimic the performance of the underlying index being followed. As well as capturing the share price movements of the stocks, they will receive and pay out dividends. For the FTSE 100, the current average dividend yield is 3.31%. Over the past year, the FTSE 100’s share price has risen by almost 13%.

So when I pull this all together, a FTSE 100 tracker over the past year would have enabled me to own a cohort of inflation-beating stocks. If over the course of the next year I can pick up 3%-3.5% from the dividends and 3%+ from any index gains, my £1,000 will have beaten the current level of inflation.

On the downside, a tracker does put me at the mercy of broader market sentiment. For example, if we see Covid-19 worry investors again, the index will likely fall. If I just own a few stocks that actually have performed well during the pandemic, I might not see any losses.

Targeting high growth stocks

I can try and outperform an index by picking a smaller group of inflation-beating stocks. These could be those that are on a high-growth trajectory. For example, the Royal Mail share price jumped 49% in 2021. Again, I can’t guarantee future returns based on past performance, but it’s a good example of a stock that I like that could gain another 5%-6% this year to offset inflation.

Another example is NatWest Group. I think banking stocks could perform well this year in general due to higher interest rates. The share price is up 58% over the past year. Similar gains for this growing bank could help me in 2022.

Inflation-beating dividend stocks

Finally, I can consider investing in specific stocks that offer a generous dividend yield. There are currently a dozen in the FTSE 100 and 10 in the FTSE 250 that offer a yield of 6% or greater. Some examples that I like are CMC Markets, with a yield of 10.52% and Rio Tinto with a yield of 8.89%.

The idea here is that if I invest some of my £1,000 in these dividend stocks, I’ll receive the income payout over the course of this year. If the dividend per share remains the same, then it’ll offset the erosion from inflation. In fact, with yields above 6%, it’ll give me a positive real return.

Of course, I need to be cautious when trying to estimate future dividends. They can be unpredictable and can even be cut depending on company performance.

Jon Smith and The Motley Fool UK have 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.

UK growth stocks aren’t having a great time right now with both inflation on the rise and the pandemic dragging on. But despite what the downward trajectory indicates, many of these businesses seem to be doing rather well.

With that in mind, I’ve found one UK stock already in my portfolio that could have explosive growth potential over the long term. Let’s explore.

A behind-the-scenes leader in video game development

Many top game development studios like Microsoft, Activision Blizzard, and Electronic Arts steal the headlines when a new game hits the shelves. But behind most AAA titles lies another UK growth stock called Keywords Studios (LSE:KWS).

This business provides support services to the industry, assisting throughout the entire game development process. That includes content creation, marketing, programming, audio FX, quality assurance, and player testing. What started out as a small team based in Ireland has expanded to a global enterprise, serving 23 of the top 25 game development studios worldwide.

As budgets for new games get bigger, the need for the expertise provided by Keywords Studios has never been higher. The latest trading update makes that perfectly clear, with 2021 full-year revenue expected to come in at €505m (£420m) – a 35% year-on-year growth.

That’s pretty consistent with results delivered over the last five years, even during the height of the pandemic. So I’m not surprised to see the UK growth stock climb over 330% in the last half-decade. And if it can continue to cater to the rapidly growing video game industry, I believe the stock can climb even higher over the next five years as well.

Taking a step back

A recent report by Market Research Future forecasts the video games industry will grow by 14.5% annually until 2026. That’s obviously an exciting opportunity for this UK stock. However, there are some notable risks to consider.

Game development is hard. And due to tighter deadlines along with increased expectations from gamers, the pressure for finding top-notch talent is paramount. To date, Keywords Studios appears to have been able to deliver. But should the quality of its services start to falter, or a competitor is capable of providing a better service, it could begin to eat into its market dominance.

Another potential concern is management’s growth strategy. At its core, it’s reliant on acquiring smaller service-focused studios and integrating them into the company’s talent pool. But acquisitions can be risky. Even the most promising takeover target can later turn out to be an expensive nightmare. Perhaps the quality was oversold, or the work cultures don’t blend.

Regardless, if the business makes a series of bad acquisitions, it could damage its reputation and compromise the balance sheet. Needless to say, that would likely send the UK growth stock plummeting.

A UK growth stock to buy?

The risks surrounding this business are concerning. However, they appear to be mainly within the company’s control. And, so far, management seems to be fairly disciplined in deploying its growth strategy. Therefore, personally, I think the risks match the potentially explosive reward.

So I’m definitely considering buying some more shares this year.

Zaven Boyrazian owns Keywords Studios. The Motley Fool UK has recommended Keywords Studios. 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.

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There is no lack of high-quality FTSE 100 stocks to buy right now that also offer me above average dividend yields. In fact, I can also identify stocks whose dividends could improve this year, perhaps taking their dividend yields above the average levels in 2022.

What to consider when selecting passive income stocks

At the same time, I need to be careful when investing for the long term. Just because a stock offers a high yield today, does not mean that it will continue to do so in the future. And the opposite is true as well. Just because a stock has low dividend yield today, it does not mean that it cannot add significantly to my pile of passive earnings over time. To me, this says that I should look at a blend of stocks for my passive income portfolio that would ensure steady and solid dividends for me over time. 

High-yield defensive stocks

I have identified four categories of stocks to help me achieve my goals. The first group is the defensives with high dividend yields. Examples of these would include utilities. All the FTSE 100 utilities today have yields higher than the average index yield of 3.4%. Considering the predictability of demand for their services, even if the pandemic were to return, they should still be steady performers, as we saw during the pandemic. I have bought SSE among these, though the others are on my investing radar too.

Low-yield, fast-growth defensives

The next group is defensives with low current dividend yields, such as healthcare stocks. Even if their yields are low, they could possibly offer me stronger dividend yields over time if they are fast-growing companies. One such is AstraZeneca, which I invested in for capital growth, but I have found that its dividends are not too bad either. It is possible that a stock like this could take a bit of a dent post-pandemic, but it was a high-performing stock even before Covid-19 came along. 

Low-yield, fast-growth cyclicals

This holds not just for defensives but also cyclical stocks with low dividend yields, which brings me to the third kind of stocks. Some stocks’ prices have risen so fast in the past decade that even with big growth in dividends, their yields have remained muted. One such is Ashtead, the industrial equipment rental company. Today it offers the highest dividend yield among FTSE 100 stocks, but only if I had bought it 10 years ago! The trouble with cyclicals, of course is that they could be impacted during slowdowns, though this one company has managed to stay pretty strong over time. 

High-yield cyclicals

The last kind of stock I like for my passive income portfolio is high-yield cyclical stocks. This one is a no-brainer, I feel. Some of the stocks with the biggest dividend yields today are miners like Evraz, which saw a mini-boom recently. They have eye-popping yields that I would not want to miss out on, even if they are relatively short-lived. I could reallocate my investments of course, if they stop paying dividends as could happen during downturns, but for now, they look good to me. 

Manika Premsingh owns AstraZeneca, Evraz and SSE. 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.