Sparks could fly on the London Stock Exchange after news of a huge takeover bid emerged this morning. According to a report on The Sunday Times website, consumer-goods Goliath Unilever (LSE: ULVR) made an unsolicited approach to pharma giant GlaxoSmithKline (LSE: GSK). The report claims that Unilever approached GSK in late 2021, offering £50bn ($68.4bn) for GSK’s Consumer Healthcare division. Thus, both the GSK share price and Unilever shares could see sharp moves when the London market opens at 8am on Monday.

Britain’s third-biggest bid initially rejected

According to the Financial Times, Unilever’s £50bn bid is the third-largest in British history. It’s topped only by Vodafone’s purchase of Germany’s Mannesmann in 1999 (during the dotcom boom). And by AB InBev’s acquisition of SABMiller in 2016. Early reports claim that Unilever’s £50bn bid was roundly rejected by GSK’s directors as significantly undervaluing its Consumer Healthcare joint venture. This follows established City tradition, which dictates that initial bids are always turned away. Typically, it can take three or more rising offers before a company’s directors and shareholders succumb to a knockout bid. Recent news reports estimated GSK Consumer Healthcare’s valuation at perhaps £40bn. But the division was valued internally at £47bn to £48bn. Hence, with Unilever offering such a small bid premium, it comes as no surprise that its first approach was declined. Nevertheless, the GSK share price may be volatile going forward.

The GSK share price has underperformed for years

The GSK share price has gone nowhere of late, having gained just 6.2% over the past five years. What’s more, the stock is far below its all-time peak. On 8 January 1999 — again during the dotcom boom — GSK stock peaked at an intra-day high of 2,333p, before easing to a record closing level of 2,288p.

This afternoon, Unilever confirmed that it approached GSK and joint-venture partner Pfizer about buying GSK Consumer Healthcare, due to be spun off this year. Pfizer owns almost a third (32%) of GSK Consumer Healthcare. However, what’s unclear is how Unilever would fund and structure this bid. In my experience, bids of such size usually consist of a mixture of cash, plus shares in the bidder. However, corporate borrowing rates are hovering near record lows and Unilever enjoys a premium credit rating. Hence, it’s possible that it could have assembled an all-cash offer.

What next?

Unilever said: “GSK Consumer Healthcare is a leader in the attractive consumer health space and would be a strong strategic fit as Unilever continues to re-shape its portfolio.” Indeed, combining GSK’s consumer-facing brands with Unilever’s could bring significant savings and synergies. However, the Anglo-Dutch firm would have to stump up a significant premium to win over GSK’s CEO Dame Emma Walmsley and her team. Finally, whatever does happen going forward, negotiations are sure to be tricky and drawn-out. Of course, both companies are no stranger to major corporate activity. GSK is the product of multiple mergers, while Unilever fended off a gargantuan takeover bid from Warren Buffett and other backers in January 2017. For now, let’s see what happens to the GSK share price and Unilever stock on Monday morning.

Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline, Unilever, and Vodafone. 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’m thinking about buying these ultra-cheap FTSE 100 shares. Allow me a few minutes to explain why I believe they could help me make massive returns.

Associated British Foods

Associated British Foods has a chance to deliver mighty profits growth as it rapidly expands its Primark clothing division. It’s an opportunity I don’t think is reflected at current share prices though. Today, the FTSE 100 firm trades on a forward price-to-earnings growth (PEG) ratio of 0.2. This is comfortably below the benchmark of 1 that suggests a stock is undervalued.

Sales in the US have been particularly strong for Primark, prompting the business to accelerate store openings there. It plans to have 60 stores up and running within five years, up from 13 at present.

Expansion in other territories will take the global total to 530 too, up from around 400 today. Fast-fashion is growing rapidly and ABF will remain well-placed to capitalise on this. I’d buy the company in spite of the supply chain issues it’s currently facing.

BAE Systems

BAE Systems meanwhile offers terrific all-round value for money. The weapons maker trades on a forward price-to-earnings (P/E) ratio of 11.6 times and boasts a 4.6% dividend yield. I’d buy the business as the geopolitical climate gets increasingly chilly. Last week, Russia escalated tensions with the US by threatening to deploy its troops in Latin America.

With concerns over China’s intentions, as well global terrorism also worrying the West, it’s likely defence spending will remain strong. As a major supplier to the US, UK and some emerging markets, BAE Systems stands to be a big beneficiary. I think it’s a great buy, even though possible project delays would hit earnings hard.

WPP

Strong conditions in the advertising market are persuading me to buy WPP too. The ad agency had a stellar year in 2021 as marketing and advertising budgets bounced back. Steps to improve its expertise in digital are also paying off as e-commerce expands strongly. I’m encouraged by the FTSE 100 firm’s determination to continue building for growth through shrewd acquisitions too.

Media business Zenith thinks global ad spending will have reached $705bn in 2021 and grow to be worth $873bn by 2024. WPP has the clout to maximise this opportunity to its fullest. Today, the business trades on a forward PEG ratio of 0.9. I believe this represents excellent value, despite the threat that Omicron poses to the industry’s recovery.

Entain

City analysts are expecting annual earnings at gambling operator Entain to more than double in 2022. As a consequence, it trades on a forward PEG ratio of just 0.2. I’m thinking of getting exposure to the rapidly-growing online gaming arena (Statista thinks the industry will be worth $92.9bn in 2023, up from $66.7bn last year). And at current prices, I think Entain could be a great way for me to do this.

This particular company operates some of the most popular gaming brands out there. These include Ladbrokes, bwin, partypoker and, in the fast-growing US market, it holds a 50% stake in the BetMGM venture. Despite the threat posed by regulators, I think Entain and its heavyweight brands could help investors make terrific long-term returns.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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.

Established in 1904 in Manchester, Rolls-Royce (LSE: RR) has a long history of producing quality products in automobiles, power systems, and jet engines. In more recent times, the company has shifted its attention to the use of green fuels and nuclear energy. This is alongside its flagship engine business. I think this is a great stock for the long term – let’s take a closer look.

Sustainable aviation fuels (SAFs)

February 2021 marked the first time Rolls-Royce successfully tested the practicality of SAFs on one of its jet engines. The test was conducted near Berlin and involved SAFs composed of renewable products. This includes cooking oil and agricultural waste. It is all part of Rolls-Royce’s plan to achieve net zero carbon emissions by 2050. This tells me that the company is operating with a long-term view in mind. Cleaner air travel will be essential for the aviation industry to flourish.

A successful flight test, in partnership with Boeing and World Energy, was conducted in October 2021 using Rolls-Royce Trent 1000 engines. With the company at the forefront of innovative new technology, I will likely be adding to my position for the long term. However, there are downsides regarding the implementation of SAFs. As a result, current regulations require that regulation jet fuel may only contain a maximum of 50% SAFs. Although this may change in the near future, it limits the use of SAFs in planes using Rolls-Royce engines.    

Nuclear power

One newer strand of the business is nuclear power and related infrastructure. This form of energy is significantly cleaner than fossil fuels and is a much less intrusive when mining uranium. The company has been planning the construction of small modular reactors (SMRs) around the UK. The purpose of the SMRs is to provide an alternative to fossil fuels and assist in the global effort to decarbonise. Furthermore, the reactors require only one tenth the space of a traditional nuclear plant. They should be on the grid by the early 2030s.

The SMRs are already attracting interest from foreign investors. In December 2021, the Qatar government announced an £85m investment in the SMR construction. In addition, the UK government will match any funds raised for this project to the amount of £210m. I think that this part of the Rolls-Royce business could stretch far beyond the UK. In other words, the scope for expansion is enormous. This is part of a global effort to bridge the gap during the transition from fossil fuels to sustainable energy. The Chinese government, for instance, announced it was building 150 nuclear reactors over the next 15 years.

Alternatives to long-term investing

I view an investment in Rolls-Royce as a long-term proposition that may not generate gains immediately. This needs to be weighed up with shorter-term uranium mining alternatives. A company like Yellow Cake could provide me with better opportunities for near-term profits. This company buys and sells physical uranium. Yellow Cake enjoyed a 97% increase in the value of its physical uranium holdings from one year ago.

Rolls-Royce is gearing up for the long term. This is evident from its nuclear segment and collaborations on SAFs. There is now international investment in the SMRs and I only expect this to grow in the future. I will be adding more Rolls-Royce stock to my portfolio.       

Andrew Woods owns shares in Rolls-Royce. 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 plan to build a passive income portfolio with a sum of just £11.50 a week. This works out at roughly £600 a year, a relatively modest sum. 

Unfortunately, £600 a year will not allow me to build a portfolio that will substitute my income from working overnight. It will take time to build a passive income portfolio that can generate enough income to supplement my living costs, so I need to be very patient.

I may even have to contribute extra funds in the years ahead, depending on how much I want to earn every year.

However, by starting with an annual investment of £600, or £11.50 a week, I believe I can build the foundations required to develop a large financial nest egg. 

Passive income potential

To begin with, I am aiming to generate an annual return of 10% on my investment. I plan to achieve this by investing in a basket of high-quality income and growth stocks. Companies such as Unilever and Reckitt.

These are not the most exciting corporations on the market. Instead, they are slow and steady growth and income champions. And I would rather invest in these relatively predictable organisations than high-growth stocks. 

While high-growth stocks could provide a better return on my money, there will always be a risk they could suffer a capital loss. Of course, this risk is still present with Unilever and Reckitt, but considering the size and stability of these businesses, the risk of a failure is significantly lower. 

With an investment of £11.50 a week, or £50 a month, I calculate I may be able to build a nest egg worth approximately £100,000 after 30 years of saving and investing. That is assuming I achieve an annual return of 10%, which is not guaranteed, of course. 

I can reduce the time it takes to hit this target by saving more. According to my calculations, increasing my contributions to £25 a week, or £1,300, would help me hit the target in 23 years. 

And when I have hit my target, I can then switch to passive income generation. 

From growth to income

According to my figures, with a £100,000 portfolio, I can generate an income of £8,000 a year. A handful of stocks in the FTSE 100 currently offer dividend yields of 8%, or more.

This is the strategy I plan to use to generate a passive income from dividend investments. One of the most significant risks of using this strategy is the fact that dividend income is never guaranteed.

Any one of the companies in my income portfolio could cut their payout, which would then reduce my annual income. In this scenario, I would have to revisit my portfolio holdings. 

Still, it is a risk I am willing to take considering the potential for me to generate an annual income of £8,000 from my dividend investments.

Rupert Hargreaves owns Reckitt plc and Unilever. The Motley Fool UK has recommended Reckitt plc 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.

Key points

• The Vodafone and BT share prices both look cheap
• These two groups are similar in some ways but very different in others
• One company stands out as having better growth prospects in the long run

The Vodafone (LSE: VOD) and BT (LSE: BT.A) share prices have similar desirable qualities. They are both telecommunications companies with tempting income credentials and currently look cheap. 

However, there are a couple of crucial differences between these two businesses, which suggests to me that one could be the better buy for my portfolio. 

BT share price qualities 

BT is the largest fixed-line and broadband provider in the UK. This makes the company a highly defensive investment. Unfortunately, its position in the market is under threat. Smaller, more nimble competitors have been edging in on its turf for years. Even Vodafone is trying to grab a share of the market. 

The organisation has responded by ramping up capital spending and launching a customer services blitz. This is starting to yield results. Analysts are forecasting a return to growth for the business over the next two years. 

Vodafone is facing similar challenges in its European and international markets. It is having to spend a lot of money fighting off competitors. Still, its global footprint gives the group an edge over smaller peers. Not only does the company have more financial resources to support growth, but it can also offer consumers a more comprehensive range of services. 

I think this international footprint is the company’s primary advantage over BT.

Vodafone growth potential

The international telecommunications giant also appears to have more room for growth. Unlike BT, which is having to spend money consolidating its market position, Vodafone can focus on expansion in some of its key markets. 

One of BT’s mistakes over the past decade is under-investing in its network. This means it is having to play catch-up to the rest of the market. Vodafone has not made the same mistake. Over the past decade, it has spent tens of billions of euros building a network for the 21st century focused on data services. 

That is not to say the business can rest on its laurels. It is going to have to continue to invest to stay ahead of the competition. Nevertheless, it is another reason why I think Vodafone has more potential than the BT share price. 

Regulatory headwinds

Unlike Vodafone, BT also has to worry about regulatory headwinds. The telecoms sector in the UK is highly regulated, and as the most powerful player in the country, BT gets most of the attention. It has come under fire for not investing enough in its broadband network and was forced to legally separate from its Openreach infrastructure business several years ago. 

Vodafone has to meet regulators’ demands, but it has far more freedom to operate as a small business with a lower market share than BT. 

As such, I think Vodafone has more potential than the BT share price over the long run. I think it could make a great addition to my portfolio as a way to invest in the growth of the data economy across Europe and around the world. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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 have mixed opinions about the IAG (LSE: IAG) share price. I think the stock looks cheap, compared to its trading history. However, this ignores the fact that the business has changed significantly over the past two years.

The pandemic has slammed profits and revenues, and the company has taken on a vast amount of debt to try and survive the crisis. 

However, as we begin to move on from the pandemic, I think the company does have potential. But until there is concrete progress on the recovery, it will remain a speculative investment.

Nevertheless, here is one significant factor that I believe will justify a substantial re-rating of the stock. 

IAG share price potential

Unlike most of its UK-listed peers, IAG, which owns the British Airways brand, relies heavily on long-haul travel routes. By comparison, Wizz and easyJet are short-haul, low-cost carriers. 

These are two completely different business models. As such, it would be misleading to compare them. IAG is also a bigger, more diversified business. Its stable of airline brands gives the group a foothold in many markets around the world. This is its real competitive advantage. 

The group’s brands, which also include Iberia and Aer Lingus alongside BA, give it an internationally diversified portfolio. Unfortunately, this has also has been a bit of a thorn in the company’s side over the past two years.

International travel bans have gutted long-haul travel. As countries continue to experiment with travel restrictions, the long-haul market has continued to suffer, even though the short-haul market in Europe has rebounded. 

Cash cow 

The jewel in the company’s crown is its route linking its London Heathrow hub and New York John F Kennedy International Airport. This is the most profitable airline route on the planet. 

During the past two years, travel bans and restrictions have constrained activity on this route. However, following the lifting of the US travel ban towards the end of last year, it looks like activity on this route could recover over the next 12 months. 

This is the catalyst I believe could send the IAG share price significantly higher. When the company starts to see a significant uptick in activity on the London/New York/London routes, it could signify that the global long-haul travel industry as well on the way to recovery.

This could help improve investor sentiment and, more importantly, will generate much-needed cash flow for the enterprise to reduce debt. 

Challenges ahead

Despite the potential, some significant headwinds could hold back IAG’s recovery. These include the potential for another variant of coronavirus, which may shut down the global aviation industry once again. Rising fuel prices could hit profit margins, and inflation may hurt consumer demand. 

Still, despite these challenges, I would be happy to buy IAG as a speculative investment with the potential for an upgrade when activity on the transatlantic route recovers.

Rupert Hargreaves 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.

It has been a good year for Tesco (LSE: TSCO) shares. The company’s share price has touched successive multi-year highs since August 2021. And I think there could be even better times in store for the grocer in 2022 going by its latest trading update. 

Tesco’s robust trading update

For the 19 weeks ending 8 January 2022, Tesco reported like-for-like sales growth since both last year and the year before, of 2.6% and 8.2% respectively. Like-for-like numbers are significant for retailers, because they strip out the impact of any closures of existing stores and opening of new ones, which could otherwise skew numbers. Instead, these figures give a sense of how sales are doing across the same stores over time. I particularly like the growth from two years ago, which is the last pre-pandemic data. This suggests that Tesco’s growth spurt last year was not just a one-off phenomenon driven by the lockdowns. 

Tesco’s CEO, Ken Murphy, does point out that “COVID-19 led to a greater focus on celebrating at home” in 2021. This gave the company an opportunity to deliver to its customers, and “As a result, we outperformed the market, growing market share and strengthening our value position”. In sum, to me it appears that the grocery retailer has indeed benefited from a bigger customer base during the pandemic, and that includes the holiday season of 2021. But it has also made the most of the opportunity that presented itself. 

Better times ahead for the FTSE 100 stock

Because of its continued performance, it also expects slightly higher profits than before. This in particular could drive its share price further upwards. Even with all the increase the stock has seen in 2021, it is not a particularly expensive stock in terms of market valuation. Its price-to-earnings (P/E) ratio is around 19.5 times, which is just north of the ratio for the FTSE 100 index as a whole at 18 times. If its earnings rise, its price could also rise without any impact on the P/E.

A higher profit could also mean bigger dividends. Tesco has a dividend yield of 3.1% at present. This is a bit below the average FTSE 100 yield of 3.4%, so it could do with an increase. Even though, it is far from the worst. As growing stock that also pays non-trivial dividends, it looks quite attractive to me. 

Inflation is a risk

I am wary of high inflation, though. With the UK’s last inflation print at a scorching 5% on a year-on-year basis for November, it is no surprise that a number of FTSE 100 companies have talked about it in their latest trading updates. Tesco too, mentions cost pressures in passing. So far though, it appears to have managed them well. 

What I’d do

I have long wanted to buy Tesco shares, and now that I am planning my investments for 2022, I think it is a good time to do so on a priority basis. 

Manika Premsingh 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.

If there is one stock that has started 2022 on a good note, it has to be the FTSE 100 banking biggie Lloyds Bank (LSE: LLOY). As I write, the bank has gained almost 13% since the end of 2021, and has also stayed above 50p during the past few sessions as well. 

FTSE 100 index powers ahead

This is no surprise really. The FTSE 100 index as such has also done well recently. Earlier this week, the index pushed past 7,500 and has stayed above these levels as well. Clearly, investors are feeling bullish. And when they are, cyclical stocks are expected to outperform the markets. This probably explains why the Lloyds Bank share price has been on the up and up recently. 

UK’s economy is back at pre-pandemic levels

In fact, I believe that it could rise even higher. And not just because I have an optimistic assessment of the stock markets as such. It so happens that the latest numbers for the UK economy give reason for cheer. Gross domestic product (GDP), which is the headline measure for the economy, is finally above its pre-pandemic levels of February 2020. In other words, the setback from the pandemic is now behind us and, hopefully, we can look forward to a time of growth. 

Banks are among the stocks most impacted by the UK’s economic conditions. And I think that is truer for Lloyds Bank far more than for other FTSE 100 banks. It is possibly the most focused on the UK economy, unlike HSBC and Barclays that have other geographical interests as well. So if the UK does well, essentially fortune is smiling on the bank too.

This is also a relief considering that until very recently, the UK economy’s recovery was just not picking up pace. In fact, the bank’s own ‘Lloyds Bank Recovery Tracker’ revealed in December 2021 that the pace of recovery slowed in November.

Rising interest rates

Further, the higher interest rate environment could give it a fillip too. Banks’ stocks responded well to the Bank of England’s swift move to increase interest rates after inflation came in high last month.

However, increased interest rates would only be good for banks up to a point. If they rise too much in response to inflation, they could choke demand in the economy. Mortgage demand in the UK is already slowing down, as per a recent Bank of England survey. This was expected, as fiscal support to the property sector was withdrawn. And an increase in interest rates could impact it even more. Lloyds Bank is UK’s largest mortgage lender, so I think we should brace for some impact on the sector already.

My assessment for the Lloyds Bank share price

Still, I think the stock is severely undervalued. And unlike many other FTSE 100 stocks, is still trading significantly below its pre-pandemic levels. I think it is only a matter of time before it picks up pace, though. I actually expect this year to be a really good one for the Lloyds Bank share price, and that is why I will buy it soon. 

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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 would be happy to buy and hold only a handful of UK shares for 10 years or more. 

In order to meet my strict criteria for buy-and-hold investments, a company must have a definitive competitive advantage, a strong track record of producing returns for investors, and a robust balance sheet. If a company lacks any one of these qualities, it will not make it into my portfolio. 

With that in mind, here are two UK shares I would buy today that I would be happy to hold for the next decade at least. 

UK shares to buy

The first company on my list is luxury fashion house Burberry (LSE: BRBY). I think this is one of the highest quality businesses listed on the London market. It has a debt-free, cash-rich balance sheet, internationally recognised brand, large profit margins, and a track record of returning cash to investors. The stock currently yields 3%. 

The company’s sought-after brand is its main competitive advantage. The strength of this brand, which has been developed over the past few decades, enables the business to command a substantial operating profit margin of 24%. 

As well as the company’s fundamental strengths, I am also excited about the outlook for the luxury industry in general. The demand for luxury goods and services is growing, and the industry has suffered limited disruption from the pandemic. 

Against this backdrop, I think the corporation has tremendous potential. As long as it continues to design products consumers want to buy, it seems likely they will continue to pay high-end prices. 

The biggest challenge the company faces is maintaining the fashion edge that keeps customers wanting more. Brand recognition is currently Burberry’s key advantage.

However, if  the group’s style falls out of favour, sales could take a hit. This is something I will be keeping an eye on as we advance. 

Property champion

Great Portland Estates (LSE: GPOR) is another company I would be happy to own for the next decade. I already own shares in the real estate investment trust (REIT) and would not hesitate to buy more at current prices. The stock currently supports a dividend yield of 1.8%. 

Great Portland has some similarities to Burberry. The company owns a portfolio of unique retail and office properties in the West End of London. It is one of the only UK shares to offer exposure to this market. It also has a strong balance sheet and a great track record of buying properties at discounted prices and increasing their value. 

Where Burberry produces luxury fashion items, Great Portland buys luxury properties. The pandemic had an impact on central London property prices, but there are signs prices are rebounding. Despite this disruption, I think  demand will remain robust over the next 10-20 years. 

One challenge the group could face is higher interest rates. This will make it more expensive to borrow money to buy property. Therefore, higher rates could have an impact on transaction volumes and prices in the London market. 

Still, the company has been through cycles like this before. So it should know how to deal with these headwinds.

Rupert Hargreaves owns shares in Great Portland Estates. The Motley Fool UK has recommended Burberry. 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.

Heading into 2022, I am worried there could be a stock market crash over the next 12 months. There are growing pressures on the stock market and economy, and these could weigh on equity prices in the year ahead, potentially causing a significant market decline. 

I think three primary challenges could ignite a stock market crash at some point in 2022. 

Stock market crash risks 

The first is rising inflation. This is climbing around the world due to several factors. Commodity prices, particularly energy prices, have jumped over the past six months, and this is having a knock-on effect on the economy. At the same time, food prices have also jumped and, in many regions, wages are growing as well. 

Here in the UK, the Bank of England expects inflation to hit 6% in the next few months. This is just an average. Energy and food inflation could be significantly higher. 

Rising prices will make it harder for companies to maintain their profit margins. If costs increase significantly, profits will fall, ultimately leading to lower equity valuations. Falling profits could also cause an investor exodus and a stock market crash. 

Money printing 

The second factor that could contribute to a stock market crash in the year ahead is the winding down of quantitative easing by central banks.

Quantitative easing has helped support equity markets over the past 24 months. Confronted with near-zero interest rates on fixed-income securities, investors have had no choice but to buy stocks. As central banks increase interest rates, some investors may leave the equity market searching for income elsewhere. As these investors sell out, it could spark a stampede away from equities into other assets. 

High valuations are the third and final reason I believe a stock market crash could materialise in 2022. As equity prices have surged over the past two years, some growth stocks are trading at multiples last seen in the dot-com bubble. This trend could reverse in 2022 as the world starts to move on from the pandemic.

As the world re-opens, investors may start to question if these growth stocks can meet their lofty expectations. Once again, this shift in sentiment could lead to a broad sell-off as investors stampede out of the market. 

Investing for the next decade 

Of course, all of the above is just speculation. There is no guarantee a stock market crash will happen in 2022. And even if it does, I am not taking any action right now.

Here at The Motley Fool we are long-term investors. I am only interested in buying a stock if I am prepared to hold it for the next 10 years, no matter what might happen to it in the near term. 

This is the approach I will continue to use over the next 12-24 months, no matter what happens in the broader equity markets. I plan to keep focusing on high-quality stocks, which have the potential to expand, no matter what the future holds for the market and the economy. 

Rupert Hargreaves 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.