Having asked myself whether I would buy 2021’s best-performing stock today, my answer to the question in the title is yes. That’s even before I have started analysing the stock in-depth.

I have to admit that I am a little surprised at how much this FTSE 100 stock has risen this year as it is up as much as 72%. It has always been a good stock, to be sure. I have been talking about how it would be great buy for me since 2019. And truth be told, I am a bit disappointed now at not having bought it, despite it being on my investing wishlist ever since. My disappointment has only grown of late as it has done particularly well. And I believe that there is good reason for it to continue performing in the future.

Ashtead races ahead

The stock I am talking about is Ashtead (LSE: AHT), the industrial equipment rental company. Even before it found itself at the top of the league table of best-performing FTSE 100 shares, it was already a strong stock to buy. And its financial performance only backs up its stock market performance. Moreover, quite unexpectedly, it is also a great dividend share to buy. Its dividend yield is a measly 0.8%. But this hides the fact that its dividends have grown by leaps and bounds over the past decade. As a result, if I had invested in the stock some 10 years ago, it would be the highest dividend-yielder for me, according to recent research by AJ Bell. That in itself is reason for me to buy the stock for the long term. 

Infrastructure spurt could help

US President Biden’s Build Back Better bill could bolster the stock even more. It so happens that 80% of Ashtead’s business is derived from the US, which could get a significant boost if the bill does go through. There are some signs that it might not, though, but I think there is a case for me to buy the stock despite that. If the recovery picks up speed in 2022, the company could stand to benefit anyway. This is because it has significant exposure to construction, a cyclical industry that stands to gain during times of economic expansion. 

The challenge

The stock’s main challenge for me is that it is relatively pricey compared to the FTSE 100 index. The index’s price-to-earnings (P/E) ratio is around 18 times, while Ashtead is almost 35 times. Now, for a high-performing company, I totally see why the P/E ratio is higher. But it may not look that attractive if its index peers that are currently struggling manage to improve their stock market performances. I mean, just consider the best performer for 2020, Ocado, which has underwhelmed significantly this year. Yet, we at the Motley Fool like to consider long-term performers, and I think on that count Ashtead could still come out ahead. I would still buy it. 

Manika Premsingh 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.

UK share markets finished 2021 with a bang as investor tensions over Covid-19 crisis eased. This meant that the FTSE 100 has posted a healthy rise of around 15% with just one trading day left. The FTSE 250 has risen by the same percentage.

I think it’s a bit premature to get too excited, though. The ongoing public health emergency could throw up fresh surprises if new coronavirus variants emerge. Let’s not forget that infection rates are currently rocketing across much of the globe and fresh economically damaging lockdowns could be looming. Inflationary pressures are rising that could hammer consumer spending and prompt severe interest rate hikes.

I don’t think this is reason for me to stop buying UK shares, however. There are many stocks out there that I believe will have a strong 2022 despite those risks. Here are two cheap stocks I’d buy in the New Year and hold for years to come.

7.5% dividend yields

Buying shares that help electrify the planet could be a great idea as populations grow and wealth levels in emerging markets balloon. According to the International Energy Agency world energy demand is set to almost double between now and 2050. I’d buy ContourGlobal (LSE: GLO) shares to exploit this phenomenon.

ContourGlobal builds, acquires and operates power stations across the globe. It produces energy using sources like coal, natural gas, wind and hydro, but it is increasingly embracing ‘green’ technology and recently vowed not to build any more coal plants. This will allow it to exploit growing demand for clean energy from governments and industry.

I expect ContourGlobal to deliver decent profits in the coming decades, even though project slippage is an ever-present danger that can hit earnings hard. Costs can spiral and revenue forecasts can be torn up. I think its monster 7.5% dividend yield for 2022 makes it a particularly attractive renewable energy stock to buy.

Another dividend-paying UK share I’d buy

I’m thinking of bulking up my exposure to Taylor Wimpey (LSE: TW). House prices ballooned in 2021 thanks in part to the earlier moratorium on Stamp Duty payments. But I’d be mistaken if I thought this was the sole reason why property values have rocketed. Historically-low interest rates, ultra-attractive mortgage products, and continued government support via Help to Buy have also helped light a fire under home-buying activity.

Latest home price figures from Halifax prove that the housing market remains red-hot despite the return of the homebuyer tax. This showed average property values hit a fresh all-time high in December, at £254,822.

I believe, then, that owning home-building shares remains a good option for me. So buying more Taylor Wimpey shares could be a good move for me, especially at recent prices. Today it trades on a forward P/E ratio of 9.4 times. It carries a mammoth 5.8% dividend yield too. I’d buy it even though homes demand could suffer if the British labour market worsens and interest rates rise at breakneck pace.

Royston Wild owns Taylor Wimpey. 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.

One way that I can identify good stocks to buy is to eye up those that have momentum. For example, I can consider the best-performing stocks from this calendar year. At the top of the pile in the FTSE 100 is Ashtead Group (LSE:AHT). With an impressive one-year gain of 74%, momentum is clearly strong here. Should I buy now for further potential gains in 2022?

No frills, but strong results

Firstly, let’s consider the background. Ashtead is an international equipment rental company. It operates in the UK, but also has key markets in the US and Canada. The company focuses on providing good availability, reliability and ease as its three business mission values.

Although this might not sound like the most interesting business to be involved with, I can’t fault the numbers (which helped to make it the best-performing stock). In the latest half-year results, double-digit percentage growth was seen in all key areas.

Revenue climbed 18% versus the same period last year, with operating profit up 34%. This helped to deliver a profit before tax of $979m, up from the 2020 figure of $678m, a 42% increase.

The interim dividend per share was increased by 28%, however the dividend yield only sits at 0.75%. One of the downsides of it being the best-performing stock is that the higher share price decreases the dividend yield. This might deter income investors from buying the shares, but would it deter me?

A top-performing stock for 2022?

It’s one thing to note past performance, but I want to assess if the share price gains could continue next year. After all, the move higher means that the price-to-earnings ratio has been pushed up. It’s currently 38.6, well above the FTSE 100 average. Personally, anything above 20 makes me a little sceptical.

Another potential risk going forward is the source of UK revenue. In the H1 results, 32% of revenue came from the Department of Health for pandemic-related assistance. I imagine that this business will reduce as fewer testing sites need rental equipment. This will negatively impact the UK revenue base.

On the other hand, there are reasons to support Ashtead being a top-performing stock again next year. For example, the business is investing heavily in existing and new projects. In the latest update, the investment figure was $1.2bn. This should help to pay dividends in the future as the funds are put to use.

Further, the business has healthy profit margins. In the US, the EBITDA margin was a shade over 50%. This is high, and means that Ashtead is able to turn a good proportion of revenue into profit. This will help to ease any pressures if margins are squeezed for any reason next year.

Weighing everything up

Overall, Ashtead has quietly gone about becoming the best-performing FTSE 100 stock this year. But I struggle to expect the same kind of gains in 2022 due to higher valuations and potentially lower UK revenue. Although I don’t expect the share price to fall, I won’t be investing as I think I can find better options elsewhere.

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.

Tech is a sector that has been performing exceptionally well in recent years. The Nasdaq index is where most of the large tech names have their primary listings. It has tripled in value over the past five years. By contrast, the FTSE 100 has risen by 3% over this same period. So if I was thinking about investing £5k in top tech stocks at the moment, here’s what I’d do.

Sticking with the big guns

Firstly, there’s no getting away from the tech giants that dominate when you look at market capitalisation. A good measurement here is that there are currently five companies in the world that have a value above £1trn. Four of these are tech companies.

I’d definitely allocate some of my £5k to these top tech stocks, namely Apple, Microsoft, Alphabet and Amazon. These companies are popular for a reason. The customer base, the product set and the hold on the market that these stocks have is clear. Even though growth in coming years will likely be slower than the past (due to the size of the companies), I still think having funds in these shares is the way to go.

The potential risk is that these stocks are overvalued. Yet I think this can be applied to the entire tech industry. To a certain extent, it’s something that I just need to accept and live with. These same stocks were being flagged up pre-pandemic as being overvalued. Since then, the shares have continued to rise. 

Investing in specific top tech stocks

With the rest of my £5k, I’d focus on different themes that I believe in. These include the metaverse, cybersecurity and electric vehicles (EVs).

The metaverse is the virtual reality that’s being brought to life by various businesses. I think that any stock that’s related to this area (either directly or indirectly) is worth considering. The potential growth of this virtual reality is huge. It ranges from education to gaming, sport and much more.

Cybersecurity is another area that I’d pick top tech stocks for. With our increasing reliance on the internet, hacking is very lucrative. Therefore, I think companies that offer protection could do well in the future. 

Finally, EVs. Although I’ve been a vocal critic of Tesla, I do think there’s value in this sub-sector. The tech that’s going into these vehicles is incredible. I’d prefer to invest in relative newcomers such as Lucid Motors and Rivian.

Allocating funds for potential further growth

I’ll need to be mindful of the high volatility that comes with such stocks. Ultimately, in the pursuit of higher returns, I have to accept this.

Overall, I’d allocate £2k to the large established tech names. For the remaining £3k, I’d split it between the three sectors mentioned above. I feel that this gives me a diversified mix of companies even under the same umbrella of tech. 

Jon Smith has no position in any share mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, and Microsoft. 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 stock market has had a good run in 2021. As I write this in late December, the FTSE 100 is up about 14% year to date, while the S&P 500 is up about 26%.

Will these indexes continue to climb in 2022? I’d love to tell you they will. However, realistically, I have no idea (and neither does anyone else), because the stock market is notoriously unpredictable.

Having said that, I do have a number of more general stock market predictions for 2022. Here’s a look at three and the implications for my investment strategy. I could be wrong, of course, as none of us know what’s ahead.

Valuation will be important

My first prediction for 2022 is that there’s likely to be a strong focus on valuation. It’s fair to say that valuation has been a bit of an afterthought at times since the beginning of Covid-19. With bond yields at rock-bottom levels and central banks pumping trillions of liquidity into the system, investors have piled into stocks without focusing too much on value.

For a while, this strategy worked with many high-growth stocks soaring spectacularly. However, over the last six months or so, valuation has come back into focus and a lot of those expensive high-growth stocks have been crushed.

I expect value to remain in focus in 2022 so I won’t be buying high-growth stocks with outrageous valuations for my portfolio next year.

Small EV stocks will underperform

My second prediction for 2022, and this is related to my first, is that some electric vehicle (EV) stocks will underperform.

EV stocks are very popular with retail investors and it’s not hard to see why. With consumers increasingly focusing on sustainability, there’s strong demand for EVs right now and companies that operate in the space are benefitting.

However, valuations across the sector remain way too high, in my view, particularly in the start-up space.

Take Lucid and Rivian, for example. These companies have only sold a handful of cars. Yet the former has a market-cap of around $60bn while the latter has a valuation of around $90bn. These figures look very high, to my mind.

It’s worth noting that Lucid currently has short interest of 19%, while Rivian’s is around 13%. This indicates that short sellers see downside risk to these stocks in 2022.

Given the high valuations across the EV sector, I won’t be buying any of these stocks for my portfolio in 2022.

Big Tech will hold up

My final prediction is that the Big Tech stocks such as Apple, Microsoft, Alphabet, and Amazon will continue to generate solid returns for their investors.

One reason I’m bullish here is that these companies continue to grow at a very healthy rate. Another is that they all have solid balance sheets and excellent cash flows. So they’re actually quite ‘defensive’ in nature.

Most importantly though, none of these stocks look particularly expensive right now. Currently, Apple has a P/E ratio of about 30. Meanwhile, Alphabet has a P/E ratio of about 26. That’s not so high, in my view, given their level of growth.

Of course, there’s no guarantee these stocks will do well in 2022. But I think the risk/reward proposition is quite attractive. So I’m going to continue to build my portfolio around these Big Tech stocks next year.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, and Microsoft. 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 think Lloyds Banking Group’s (LSE: LLOY) share price could be set for heavy weather in 2022. So while it looks cheap at current levels of 47.8p I won’t be buying the FTSE 100 bank for my shares portfolio.

City analysts are expecting Lloyds’ profits to fall heavily next year following 2021’s rebound. Consensus suggests that earnings will drop 23% year-on-year. However, these predictions leave Lloyds’ share price with a rock-bottom price-to-earnings (P/E) ratio of 7.7 times. This is well inside the widely-accepted bargain benchmark of 10 times and below.

Lloyds also offers plenty of value in terms of dividends. The bank’s yield sits at 5.3% for next year, well above the forward FTSE 100 average of 3.5%.

Looking on the bright side

A cheap share price doesn’t necessarily mean it’s a good deal for investors, however. Indeed, I think Lloyds’ low valuations reflect the serious risks it faces in the near term and beyond. I believe cyclical UK-focused shares like this could get hammered in 2022 as the economy toils.

On the plus side though, it looks as if interest rates could rise several times over the next few years. The Bank of England’s decision to increase rates in December signals a more aggressive course of action to combat soaring inflation. This would enable Lloyds and its peers to make more money from their lending activities.

Moreover, it appears as if conditions in the British housing market will remain robust for some time to come. This is a big deal for Lloyds as it’s the country’s biggest mortgage product provider (with a market share of around 20%). Real estate services specialist Savills has predicted further property price growth in 2022 thanks to reliably strong homebuyer activity. It’s pencilled in average home price growth of 3% to 5% next year.

Why I fear for Lloyds’ share price

But I’m afraid that these rays of sunshine don’t offset the dangers facing Lloyds and its share price. I think loan impairments could spike and revenues sink as the Covid-19 crisis, persistently strong inflation and extra Brexit regulations hit the economy. There’s a good reason why economists have been downgrading their GDP forecasts in recent months.

According to the Resolution Foundation, 2022 will be the “year of the squeeze” because of rising taxes and surging energy bills. They expect households to take an average hit of £1,200 in a worrying signal for consumer spending and the broader economy.

This follows predictions from trade credit insurer Atradius that corporate insolvencies could soar next year. They reckon the number of insolvencies could jump 33% in 2022 versus pre-pandemic levels. Government furlough support helped a vast number of distressed firms survive during 2021 and 2022, assistance which has since been withdrawn.

So I’m happy to ignore Lloyds and its cheap share price. Why take a chance with such a high-risk stock when there are many other cheap UK shares to choose from today?

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

It’s usually quite easy to pin down what you want to achieve from investing. It might be capital growth, income or other ideas. But what can often be hard to pin down is how exactly to bring these goals to life. When I consider my investing aims for 2022, here are the three main ways that I’m going to try and achieve them.

Having some conservative options

First up is my aim for low-risk gains. With a portion of my portfolio, I want to invest to help protect me from potential risks and downsides. So how can I buy stocks that provide me with some defensive elements? Well I can look to certain sectors that typically have returns not linked to the state of the broader economy. 

That way, even if we do see a stock market crash, these companies should be able to perform without much of a knock. For example, I’d consider buying insurance companies such as Aviva. Or I’d look at a utility company like National Grid. 

By allocating some money towards a few companies like those mentioned above, I should be able to provide some protection for the rest of my portfolio that’s geared towards more aggressive aims.

Investing for growth in 2022

One of these more aggressive aims that I have is to try and increase my capital gains. For investing in 2022, I think one area that should do well is stocks related to the metaverse. I outlined in more detail about how I’d allocate £1,000 to metaverse stocks here. 

In short, I can take direct exposure to companies that are specifically involved in providing virtual platforms, such as Roblox. Or I can decide that I want to have more indirect exposure. For this, I could buy stocks that contribute to projects within the metaverse, but aren’t dependent on this business to survive. 

Making dividend income

Finally, for a portion of my portfolio I want to generate income. When investing, the importance of making passive income from dividends is clear to me. Inflation is above 5% at the moment, something that can erode the value of my money and dividends can help me here.

Of the three aims, I think this is the easiest one to put in action. I can easily compare dividend stocks via the dividend yield. This allows me to assess what level of income I’d be happy with, when comparing it to the risk of the individual stock and the rate of inflation.

Two options that I like at the moment are Tate & Lyle and Investec. These both offer above average yields, and should be able to weather an economic storm if it comes next year.

Companies aren’t guaranteed to pay out dividends, so when planning for 2022 I do need to make some allowances for this possibility. 

Overall, when considering how I should invest for 2022, I think that I can get growth, income and some protection from defensive stocks all within one portfolio.

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.

Warren Buffett is undoubtedly the greatest investor of all time. No other individual has come anywhere near as close at replicating his investment performance over an ultra-long (50+ years) timeframe. His holding company Berkshire Hathaway has, since 1965, generated an average annualised return of 20%, equating to a cumulative performance of 2,810,526%.

I am not looking to replicate anything on that scale; but then I don’t need to in order to be a successful investor. Although Buffett never recommends which stocks to buy, his annual letters to Berkshire Hathaway’s shareholders, together with his many publications, provide me with the inspiration to help me become a better stock picker.

A good temperament is the key quality of a successful investor, not intellect

It might not be Buffett’s most recognised words of wisdom but to me they are some of the most important. Buffett goes on to state: “You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”

Today, with the likes of the infamous “meme stocks” and the Reddit crowd, following what everyone else is doing might seem to be the easiest and quickest way to make money. For some individuals who invest early, it can lead to riches; but for the vast majority of retail investors, it leads to loss of capital. For individuals unfortunate enough to invest at the very end of a business cycle, those losses often become permanent as a wave of creative destruction sweeps away parts of the old economy.

Remember, at the height of the tech bubble in early 2000, the era of the internet was only just beginning but that did not stop the Nasdaq composite losing 78% of its value. When a market is running on fumes, like arguably it is today, then I will be “fearful when others are greedy”, for it is “only when the tide goes out, do you discover who’s been swimming naked”.

For me, temperament and conviction are two sides of the same coin. If I have done my research into a particular company or sector and decide to invest accordingly, then I will stay the course. If my picks fall out of favour or even crash, then, unless new evidence emerges which requires me to re-evaluate my original thesis, I will pay no attention to the day-to-day stock price moves. Indeed, I will consider adding to my positions.

Margin of safety

Often touted as the three most important words in investing, the ‘margin-of-safety’ concept was a key tenet of Benjamin Graham’s (Buffett’s mentor) core investment philosophy. As Graham explains: “The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price.”

From a practical standpoint, the margin of safety can most easily be understood by applying it in everyday life situations. We all know that it is important to have a buffer of cash to cover an unexpected job loss, or fix a broken-down car etc. It’s no different when buying stocks: my predictions for the future cash flows of a particular business does not need to be right for me to see a decent return on my investment, if I have a good margin of safety.

For me, a margin of safety is most profound during a stock market crash. At this point, I remember another one of Buffett’s words of wisdom: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Andrew Mackie 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.

As we ring in the New Year, I plan to double down on my passive income strategy. I have been developing a passive income strategy over the past couple of years, although it has not been an easy ride. 

To accomplish these aims, I have been acquiring a portfolio of a dividend stocks. Unfortunately, over the past couple of years, many companies have had to cancel, or reduce, their dividend payments to try and ease cash outflows during the pandemic. 

The good news is, it appears the disruption of the pandemic is coming to an end. Many companies have restored their cancelled dividends over the past 12 months. Some have even boosted their payouts, or declared special dividends, to reward shareholders for their patience. 

And this is why I am planning to double down on my passive income strategy in 2022. 

Searching for passive income 

I am investing a lump sum of £50 a week to hit my income goals. This is not enough to generate a significant annual passive income, but I think it will help me build a solid foundation for my portfolio. 

Indeed, a lump sum of £50 a week is equivalent to £2,600 a year. If I can grow this annual contribution at an annual rate of 10%, I believe I can build a nest egg of £42k within a decade. If I can earn a dividend yield of 8% on this balance, I can produce an annual income of £3.4k.

These are just ballpark figures. There is no guarantee I will achieve an annual return of 10% for the next decade. Nor is there any guarantee there will be any stocks on the market that offer a yearly recurring income of 8%. Still, I think this provides an excellent roadmap for me to follow over the next few years. 

Dividend stocks

The companies I would buy to hit these targets are a mix of income and growth stocks. On the income side, I already own British American Tobacco. This firm currently offers investors one of the highest yields in the FTSE 100. It yields around 8%, at the time of writing. 

Another stock I would buy (which is not really thought of as an income play) is Games Workshop. This wargames miniature designer, producer and marketer, has large profit margins, a strong balance sheet and earns high returns on its investments.

As a side effect of this, the company throws off cash. Management often returns this cash to investors with regular and special dividends. Therefore, while the firm might not have the highest dividend yield, it is a high-quality income stock with growth potential. 

I think this combination of income and growth from corporations like British American and Games Workshop can help me meet my income and growth goals. However, growth is not guaranteed. Either company may be forced to cut their dividends at a moments notice, and they could suffer headwinds from rising costs or a fall in consumer spending. 

Rupert Hargreaves owns British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Games Workshop. 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.