Ready to go shopping in the New Year Sales? Here are three cheap UK shares (including two top penny stocks) I’m thinking of buying for 2022.

Gas giant

The hydrogen fuel cell market could be set for spectacular growth as demand for low-carbon energy rises. I’m thinking of buying shares in Proton Motor Power Systems (LSE: PPS), the manufacturer of stationary power units as well as fuel cells for cars, boats and trains, to realise these opportunities.

Analysts at Researchandmarkets.com have estimated that the global hydrogen fuel cell market could be worth $16.5bn by 2025. That’s up considerably from the $3.9bn it’s currently valued at. Promisingly, Proton continues to rack up contract wins and last month announced that a subsidiary of German rail operator Deutsche Bahn had ordered one of its modular fuel cell systems.

I think Proton could be a top buy for 2022 and beyond. Though I am mindful that the business still faces colossal competition from manufacturers of familiar power technologies like internal combustion engines and wind turbines.

Brogue trader

Soaring inflation means that value for money will become increasingly important to shoppers in 2022. This is why I’m thinking of buying Shoe Zone (LSE: SHOE) for my investment portfolio. This retailer sells a wide range of footwear at cheaper prices than much of the high street (an average of £10 a pair).

Shoe Zone already has a head of steam heading into the new year as inflation pressures consumer confidence. Last month it hiked its profits forecasts for the financial year to September 2022. I don’t just think the low-cost retailer is simply a good buy for the near term however. Studies show that the importance of value to shoppers has grown strongly even before recent economic downturns.

My main concern for Shoe Zone is the prospect of Covid-19 lockdowns that could shutter its 400-odd stores. The retailer sources just a quarter of group revenues from its website. Shoe Zone trades just outside penny stock territory at around 105p per share.

Ground control

I think Van Elle Holdings (LSE: VANL) is set to ride the construction boom in Britain. As a provider of ground engineering services for housebuilders, it’s in pole position to benefit from the residential building boom. The UK needs to build 345,000 new homes a year, according to estimates, and Britain’s housebuilders are ramping up production to ease the shortfall.

Furthermore, Van Elle offers geotechnical expertise in rail, utilities, roads, airports and power generation projects (including renewable energy assets), as well as other types of essential infrastructure. Its knowledge in critical projects like these provides a layer of security to investors. It can expect demand for its services to remain stable, regardless of broader economic conditions.

A high-profile service failure is a constant operational risk facing Van Elle. It could have serious implications for profits and cause severe damage to the company’s business. Having said that, it’s my opinion that this penny stock remains highly attractive from a risk/reward perspective.

Royston Wild 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.

The past several years have been volatile in the stock market. No one knows what will happen in the coming 12 months. But I think the investing wisdom of Warren Buffett will continue to be helpful to me as an investor.

There is one Warren Buffett investing mindset I will certainly be bearing in mind in 2022.

Fear and greed

On different occasions throughout his long career, Buffett has used the same phrase. He has suggested that as an investor, he aspires to be “fearful when others are greedy and greedy when others are fearful”.

That sounds a bit like what is sometimes called contrarian investing. That involves doing the opposite of what a lot of people are doing. But Buffett’s approach here is more nuanced than simply being a contrarian.

It involves looking at the emotional drivers of other market participants, not just their actions. Warren Buffett is focussed here on very specific emotions. I think his logic could help me in 2022. If I feel other market participants are too greedy, it could be time for me to consider whether I want to keep investing in the market or wait for a possible correction. Similarly, if investors are fearful — like we saw in March 2020 — it could present me with a buying opportunity for my portfolio.

Spotting the mood

But how can I tell whether others are being fearful or greedy?

Last year, briefly, there was a clear sense of fear. Markets plunged, many companies stopped paying dividends, the financial outlook was unclear, and businesses warned about bad times ahead. Since then, I don’t think we’ve seen the same level of fear resurface.

I do think there have been growing signs of greed in 2021, though. Share flotations which soon flop, like THG and Deliveroo, can be a sign that the flotation underwriters and business owners have been greedy in setting a price that is too high. The rise of meme stocks also suggests that some stock market participants have been propelled by short-term greed rather than the considered analysis I associate with long-term investors.

On the other hand, there continue to be signs of fear in some corners of the market at least. Consider aviation as an example. Shares in both easyjet and British Airways owner IAG have suffered in recent months as concerns have resurfaced about future demand for air travel.

Overall, though, I think that as 2021 draws to a close, there is a considerable amount of greed in the market.

Applying the Warren Buffett approach

That is why, in 2022, I will be looking out for more signs of greed. If they arrive I will be more fearful. So in practical terms, I will be more wary of possible valuations. I will focus on evaluating companies rationally, without getting swept up in market euphoria, though I think, in any case, that is the right approach to take at all times.

Then, if the mood suddenly switches back to fear, I will be greedy in scooping up battered down shares for my portfolio.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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 festive season has provided investors with some respite from what continues to be a tricky period for the UK market. However, it won’t be long before companies start releasing updates on trading. With this in mind, here are three stocks from the FTSE 100 that I’ll be keeping an eye on in January. 

Next

Fashion and lifestyle retailer Next (LSE: NXT) will be among the first companies to report to the market in 2022. A trading update, scheduled for 6 January, should serve as something of a bellwether for how well retailers have fared in the vitally important run-up to Christmas. 

Considering just how challenging 2021 has been for some businesses, Next investors have had a fairly decent year. Boosted by pent-up demand from shoppers, shares have climbed 15% in value and outperformed the FTSE 100. 

Whether this momentum has continued more recently is difficult to say. At 10%, full-price sales growth in Q4 is already expected to be lower than that seen in Q3. It could be even lower if the Omicron variant has succeeded in keeping people away from stores in December.

Still, Next doesn’t look overvalued to these eyes at just over 15 times earnings. That’s fairly average for its sector and pretty reasonable for such a quality company. On balance, I’m inclined to think there could be more upside ahead.

Tesco

Supermarket titan Tesco (LSE: TSCO) is another FTSE 100 company that’s down to report to the market and investors in early 2021 (13 January). Shares in the business are up 22% from where they started the year, far outpacing the index.

Recent research by Kantar suggests this rise isn’t unjustified. Tesco significantly outperformed its main rivals in the 12 weeks to 28 November. This resulted in a 0.7% gain in market share, taking its dominance back to a level not seen since February 2019. 

It’s not been plain sailing though. In addition to dealing with the ongoing disruption caused by the pandemic, Tesco has also faced a difficult run-up to Christmas with the threat of industrial action by workers at nine of its distribution centres. A strike was averted after the company agreed to a new pay deal. 

Tesco stock is currently trading for just under 14 times earnings. I’d be surprised if the company were able to replicate this year’s gains. Nonetheless, the 3.5% dividend yield should compensate for this.

Associated British Food

A final FTSE 100 I think is worth watching in the first month of 2022 is Primark-owner Associated British Foods (LSE: ABF). The company’s shares have done quite poorly in 2021, falling by almost 11%. 

This feels a little harsh, especially as ABF’s diversified business model arguably makes it more defensive compared to other retailers. Moreover, the company recently announced that trading had been ahead of expectations and like-for-like sales in Q4 were better than in the previous year. ABF also said it was managing to cope with supply chain issues to such an extent that pre-Christmas trading was unlikely to have been affected. 

Sure, the investment case isn’t bulletproof. Cost inflation could prove a near-term headwind. The seemingly perpetual pandemic could also have a few chapters left. The lack of online presence needs to be borne in mind too.

Even so, I think a P/E of 14 looks decent value for this top-tier stock. Anticipation of a positive trading update on 20 January could see the shares recover beforehand. 

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and 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 I had £5k to invest in UK shares for growth in 2022, I would buy five of my top growth stocks for the year ahead according to the market sectors or themes that I believe are experiencing the most substantial growth tailwinds. 

I believe these sectors and themes are renewable energy, technology, and the economic recovery. 

And with that in mind, here are my five growth shares for 2022. 

UK shares for growth

Two plays on the renewable energy and recovery themes I would buy are XP Power and Lamprell. 

Lamprell designs and builds infrastructure for the energy industry. It has a small but growing business manufacturing assets for the renewable energy industry, such as the offshore wind segment.

Management is looking to expand this business over the next few years, and the company is bidding on many large manufacturing contracts with this aim in mind. 

Meanwhile, XP Power manufactures power supply units. These units transform power from AC to DC currents and vice versa. The company is reporting growing demand for its products from the green energy sector as demand for power supply facilities expand. 

Both of these corporations look attractive as growth investments in 2022. However, both companies are exposed to significant risks. Neither has a commanding share of their respective markets, so both are exposed to competition. They could lose market share to larger producers if they fail to keep up with the rest of the market. 

Tech stocks to buy

In the technology sector, I would buy the growth stocks Darktrace and Team17. I think these businesses provide exposure to two fast-growing tech themes, cybersecurity and gaming. 

Darktrace is one of the world’s premier cybersecurity companies, using artificial intelligence to attack and neutralise threats. As the cybersecurity industry expands, I expect the group to capture a significant market share thanks to its unique technology. 

Team17 has a portfolio of unique gaming products, which enables it to earn a steady recurring revenue stream. It is also developing a pipeline of new products, which should contribute to significant growth over the next few years. 

These companies are also exposed to significant competitive headwinds. They have to compete against the large US tech giants, which have more resources and bigger budgets. Competing against these firms is the biggest challenge facing Darktrace and Team17. 

Economic recovery

The final company I am going to highlight in this article is H&T Group. This group provides a range of simple financial products and pawnbroking. 

I think the demand for its services will increase as the economy begins to recover after the pandemic. Recovering consumer confidence could lead to higher demand for loans and more purchases at its retail stores. 

With a dividend yield of 3% at the time of writing, the business also offers an attractive level of income, unlike the other companies outlined in this article. 

Risks the business may face going forward include higher wage costs and potential regulations on its financial products. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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.

There was one big news story that was unmissable recently (besides Omicron-related developments, of course). And that was the build-up in annual inflation to 5% for November, that led to swift action by the Bank of England as it increased interest rates the very next day. These macro developments have an impact on my investments. And as a committed top-down investor, I am now assessing how to best invest, say, £1,000 in FTSE 100 stocks to aim for solid returns. 

How I’d invest now

I like to invest with an aim to both grow my capital and earn dividends. At the present time, I reckon that is possible. Stock markets have done fairly well in the last one year. And if the recovery continues, even with stops and starts, I think they could continue to grow. This is good news for capital gains. It is possible that inflation could play party pooper for the stock markets in 2022. FTSE 100 companies have repeatedly flagged rising costs as one of their current challenges. But even if this does slow down growth in the index, I am fine with that because I am a long-term investor and believe one year’s gains are less relevant than those of a multi-year period. 

High dividend yields are preferable

However, I do want my dividends to be lucrative for me. Considering that next year is likely to be one where we need to brace for higher inflation, I would like my payouts to beat this. Normally I like to reinvest my dividends, so one year’s high inflation might not matter as much as long as I still get positive returns over a period of time. However, I do like the option of withdrawing or not reinvesting dividends if I want to. 

To that extent, I would like to buy stocks that offer me a high enough dividend yield to earn me a positive real return at a time of rising inflation. There are various inflation predictions available, but going by the latest number of 5% for November, I reckon that the UK’s Office of Budget Responsibility might just be right in predicting 4% inflation on average next year. 

Potential FTSE 100 investments for 2022

This means my FTSE 100 investments should offer me a dividend yield of at least that much in the next year. Turns out, that there are plenty of stocks that do this. Considering that it has been a better year for the FTSE 100 index after last year’s dividend drought, its average dividend yield is at 3.5%. As some in the index have lower dividend yields, this logically implies that there are at least some stocks that have a higher yield than that. These include commodity stocks, insurance companies and even real estate companies. 

I would make my investment in £1,000 in some of these FTSE 100 stocks. Even if we were to go into another lockdown for some time in 2022, and inflation drops as a result, I think these stocks could still hold me in good stead. 

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.

If the number sounds audacious, I can assure you it is not. Think about it. Last year at this time, the FTSE 100 index was in the area of 6,500. Since then, it has risen by around 12%. At its last close at the time of writing, the index was at a level of around 7,300. So, to reach 8,000 in 2022, it needs to rise by less than 10%. Theoretically, that sounds possible. 

A repeat of a market rally? Not really…

But last year was a different story, do I hear you say? Yes, of course, it was a different story. A stock market rally had just got underway in November 2020, after the vaccines were first developed. Investors were bullish again, and recovery stocks were suddenly back in demand. But the initial spurt in the FTSE 100 index had already happened. In fact, by this time last year, it was already up by some 17% from the end of October. In other words, the bigger part of the stock market rally had already happened by then. This says to me that what we have seen in the past year looks more like relatively slow growth and less like a stock market boom.

Leaving Omicron behind

And there is reason to believe that this kind of growth could happen next year as well. It is true that the Omicron virus has created new uncertainty. But considering the progress made so far in managing the pandemic, I think it is fair to expect that we will be able to put this situation behind us sooner rather than later. In fact, I am quite encouraged by some reports that the severity of this variant is much less than that of other variants. And with booster vaccinations now available to fight it, I think we might just put it behind us soon enough. I think the stock markets might just be ready to rally when that happens. 

The recovery could support FTSE 100 stocks

Hopefully, in 2022, the recovery could take place in earnest. There have been starts and stops in 2021, which have held it back. Sure, the policy support is unlikely to be as strong as it has been during the pandemic. And this could slow down the pace of recovery. But then again, a genuine recovery would ideally be strong enough to take place even without it. At the micro level, a recovery should be visible in individual companies’ results, which could also carry the FTSE 100 index forward. 

What I’d buy now

So if we are looking at the FTSE 100 index at 8,000 in 2022, or a 10% gain from present levels, I think cyclical stocks could gain significantly more. I am bullish on banking and non-essential retailers for the next year based on this. I would buy banking stocks in particular because interest rates have now started rising, which could be good for their bottom lines.  

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.

Earlier today, I looked at 3 stocks from the FTSE 100 that have done exceedingly well in 2021. In this article, I’m turning my attention to the more domestically-focused second tier of the UK market — the FTSE 250. Here are another group of shares that make me wish I could turn back the clock. 

Future

One company that’s knocked the ball out of the park has been media group Future (LSE: FUTR). Its shares have leapt 105% in the year to date as the company’s strategy of snapping up publishing assets continues to pay off and profits have soared. That’s a superb return compared to the 13% achieved by the FTSE 250 index as a whole.

At £4.5bn, Future is now knocking loudly on the door of the FTSE 100. Whether it manages to gain entry in 2022 is open to debate though. Having grown strongly during the pandemic, I wonder whether performance will moderate as we emerge on the other side. Some profit-taking looks inevitable too. 

However, I’m inclined to be optimistic. Margins are steadily improving and free cash flow is strong. Perhaps most importantly, the company announced in November that FY22 adjusted results would likely be “materially above current expectations“.

So, based on a valuation of 24 times earnings, I wouldn’t be against adding Future to my own portfolio.

Indivior

Another second-tier winner in 2021 is pharmaceuticals business Indivior (LSE: INDV). Its stock has delivered a near-150% gain — thanks to the company repeatedly raising its guidance on earnings. The supplier of medicines to treat drug abuse and mental illness has also been buying back its stock, further supporting the ascent of its share price. 

Looking ahead, analysts are expecting Indivior to grow earnings per share by 45% in 2022. This leaves the stock on a P/E of 16. Sadly, I don’t think the demand for its products is likely to fall dramatically on a longer timeline either, potentially making Indivior an ideal buy-and-hold candidate.

That said, it’s worth noting that this stock has shown itself to be highly volatile in the past. Back in 2020, for example, the price crashed 30% in just one day after news that former parent company Reckitt had filed a lawsuit against it. That’s the sort of movement we might associate with a penny stock. It also makes me doubt whether I’d want to add the stock to my own portfolio, particularly as Indivior doesn’t offer a dividend as compensation. 

Watches of Switzerland

A third FTSE 250 member that’s done extremely well for shareholders has been Watches of Switzerland (LSE: WOSG). The premium timepiece seller’s value has climbed just over 155%, serving as a reminder to me that momentum can continue for a lot longer than one may expect. Every time I’ve assumed a pullback will occur, the share price has only moved higher. Investing is hard.

Like Future, however, I do question what may happen to the stock when the pandemic has finally passed. I suspect shoppers will want to use their cash on experiences rather than posh watches. As such, I still maintain that some kind of retreat wouldn’t be a surprise in 2022. The current valuation seems to make the risky assumption that management will execute its plans perfectly.

As good as recent trading in the UK and the US has been, a P/E of 37 looks too dear to me. WOSG stays on my watchlist for now. 

Paul Summers 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 draw to the end of another, shall we say, ‘interesting’ year on the markets, the masochist in me always makes a point of looking to see what stocks I really should have bought at the beginning of 2021. Here are three from the FTSE 100.

Croda International

Consumer Care and Life Sciences company Croda International (LSE: CRDA) has gained 51% in value in the year to Christmas Eve. That makes the stellar 12% rise in the FTSE 100 look almost pedestrian. Much of this momentum has been due to the company managing to exceed analyst expectations on profit over the year. The question is, can this continue?

I’m certainly optimistic. Having now agreed to sell the majority of its Performance Technologies and Industrial Chemicals businesses, Croda intends to move into “faster growth areas” such as healthcare and become a leader in the cropcare market. These moves, according to CEO Steve Foots, will see the company generate “consistent sales growth and an even stronger profit margin”.

The only problem is that Croda now trades on a punchy valuation of 39 times forecast FY22 earnings. As such, I’d be very surprised if the company manages to replicate 2021’s gains.

Nevertheless, this remains a great stock, in my opinion. If I were looking to build a FTSE 100-focused portfolio for the long term, CRDA would easily make the shortlist. One to buy on dips perhaps?

Glencore

Next up is mining and commodities trader Glencore (LSE: GLEN). Its shares have climbed 52% in 2021, so far. Again, this is evidence that picking your own stocks has at least the potential to vastly outperform the market. It also shows that winners can come from multiple, very different sectors.

Glencore’s streak can be attributed to the growing demand for commodities like copper and, more recently, oil. In fact, the company’s interest in the former could continue to be very lucrative in the years ahead as the adoption of electric vehicles and renewable energy gathers pace.

Of course, one issue with Glencore is that its fortunes are, to some extent, beyond its control. Commodity prices can quickly reverse and this leaves me skeptical that the stock will repeat this year’s performance in 2022.

Then again, it might be argued that the potential income on offer more than makes up for this. A 6.8% yield for FY22 is currently forecast. Shares also trade at just 7 times earnings. 

Ashtead

A final FTSE 100 stock that’s done the business for holders in 2021 has been equipment hire business Ashtead (LSE: AHT). Its value has climbed a stonking 72% year to date as rental revenues have soared to record levels.

Naturally, such a run of form could lead to some profit-taking in 2022. The seemingly never-ending pandemic could also cause a slowdown in trading if projects end up being delayed due to safety concerns. However, a forward P/E (price-to-earnings) ratio of 25 doesn’t feel excessive, given the consistently high margins Ashtead achieves.

The outlook is bullish too. With the construction industry in rude health following a post-lockdown rise in demand (not to mention Joe Biden’s infrastructure bill), I don’t doubt the good times can continue for the £27bn-cap.

Another 72% next year? Probably not. However, this is another stock worth keeping in the bottom drawer, in my opinion.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. 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 rare for me to bump into other active investors in my daily life. I tend not to mention my passion for investing. But if it does slip out, the most common reaction from others is concern about my gambling habit!

And to many people, investing in stocks and shares does seem like gambling. But that’s probably because most folks don’t research the businesses behind stocks. And they have little interest in investment strategies, economics, or other considerations that could help them pick winning stocks to hold.

The power of compounding gains

Many people save into passive investments, managed funds and other vehicles such as pension schemes. Then they get on with their lives. And there’s nothing wrong with that. The great investor Warren Buffett recently pointed out America’s S&P 500 index has delivered annualised total returns of just over 10% a year since 1965.

If I’d simply invested in a tracker fund following that index and left my money alone for years, I’d have done all right. For example, compounding 10% annualised gains for 10 years would turn a £10,000 investment into almost £26,000.

However, it’s correct to assume investing in stocks involves risks. All shares have the potential to fall as well as to rise. But long-term outcomes tend to be driven by factors such as the progress of the underlying business and investor speculation. And stocks don’t all behave in the same way. The trick is to pick the ‘right’ stocks in the first place.

And the success of well-known investors such as Buffett proves that investing can be executed successfully. However, even he can’t predict the short-term movement of stock prices. Instead, he concentrates on identifying good quality businesses and he buys their stocks when the valuations look attractive. Then he aims to hold those stocks for long periods.

And his returns then often arise as those businesses power ahead, building value by increasing their earnings and assets. Often such progress reflects in higher dividends and higher share prices over time.

Aiming for better compounded returns

For him, the strategy has worked well. And since 1965, he’s achieved an annualised investment return of 20% within his company Berkshire Hathaway. But is it worth all the effort to aim for returns that beat an index? After all, even Buffett has ‘only’ managed to double the annualised return of the S&P 500.

I think it is worth it because compounding 20% annualised gains for 10 years would turn a £10,000 investment into almost £62,000. And that gain is more than three times the size of the one I’d receive from compounding 10% annualised gains. Indeed, the power of compounding is enormous. And little changes in the rate of return make big differences to the end result over time.

So I’m aiming to compound my investing pot at the highest rate I can with the aim of using the funds to retire early. And to do that, I’m focusing on Buffett’s method of picking quality businesses, buying stocks when valuations look fair, and holding for a long time.

Of course, even following Buffett’s methods doesn’t guarantee a positive investment outcome. And some of his investments haven’t worked out well for him either. But the risks that come with shares aren’t going to stop me from trying because they are often balanced out by the potential rewards and opportunities as well.

Kevin Godbold 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.