Let us be clear. The risks to the economic recovery are rising. In October, the UK economy barely grew on a month-on-month basis. This is indicative of the fact that the economy is still struggling. And the numbers could get worse in the coming months. The Omicron variant is not good news, and if we go back into lockdowns, it could tell on FTSE 100 companies’ health. High inflation is creating cost pressures for them anyway. Moreover, withdrawal of policy support could impact sectors like mining and real estate, which have a prominent place in the headline stock market index. 

FTSE 100 defensives to the rescue

To me, this implies that we could potentially see both a weak economy and weak stock markets in  2022. For that reason, I think that defensive stocks could find favour again. Defensives are those stocks whose fortunes are impacted relatively less by economic cycles because they cater to our basic requirements. These include sectors like healthcare and utilities.

I hold a number of safe FTSE 100 stocks in my investment portfolio already. But it is a no-brainer to me that these should rise as a proportion of my overall investments. So even if stocks more sensitive to coronavirus-related developments fluctuate, my portfolio can remain steady. 

High and sustainable dividend yields

Importantly, a number of these stocks have decent dividend yields as well. Utility stocks’ yields for instance, range between 3.5% and 5%. The average FTSE 100 yield is around 3.5% right now, so these offer at least as much. This is important to me because inflation is quite high right now, so a healthy dividend yield allows me to earn a positive real return on my investments. 

Moreover, these dividends are likely to be sustainable. That is not something I can say for FTSE 100 stocks with the highest dividend yields today. These include the likes of multi-commodity miners and tobacco stocks, as examples. Miners are expected to see some softening in demand next year, which could impact their financials and their dividend levels. Tobacco stocks’ long-term future is in question. This means that I will have to watch these investments more actively than others, and exit from them if required. Typically, neither of these two situations arises for the likes of utility stocks, which tend to have predictable financial outcomes. 

The flip side

There is of course the possibility that next year might turn out to be great not just for the UK but for the global economy. The Omicron virus might not turn out to be as big a threat as it seems right now. Growth might pick up pace and inflation could be brought under control. If that happens, and a large chunk of my investments are in safe FTSE 100 plays, I could miss out on a fair bit of capital growth and maybe even higher dividends from recovery stocks. But on balance, I think with rising risks they could be great no-brainer stocks to buy for now. As the situation evolves, perhaps I could tweak my investment plan.  

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 I had a lump sum of £5,000 to invest right now, I would deploy this capital in a combination of high-quality growth stocks and income investments. 

I think a portfolio split between these two asset classes could produce the best returns on my money. It could also put me on track to generating a passive income from my savings. 

Invest for growth

When it comes to finding growth stocks for my portfolio, I will focus on technology companies. There is no denying this is the fastest growing industry today and, as the world becomes more digitally focused, I think this trend will only continue. 

As such, I would buy Softcat and Computacenter for my portfolio of growth shares. These companies provide computer services to clients to help build out their technology systems. 

I would buy these stocks over other technology firms because I think there will always be a need for the sort of assistance services both offer. Not every company is a specialist technology business.

However, every business does need specialist technology. Whether it be advanced cyber security systems or cloud computing software, corporations worldwide digitising their systems will need assistance. 

As two of the largest companies in the country specialising in IT services, Softcat and Computacenter seem to be well-placed to capitalise on this trend. 

The most considerable risk facing these companies is competition. The technology market is highly competitive, and both firms need to keep investing in their product to stay ahead. 

Income stocks

When it comes to income investments, I will buy Phoenix Group for my portfolio. This company manages pension policies, which it acquires from other corporations. It can then use its economies of scale to reduce costs and improve cash generation. Cash generated from the assets supports Phoenix’s dividend. The stock currently supports a dividend yield of around 7%. 

I would also acquire BAE Systems for my portfolio. With a dividend yield of around 5%, I am attracted to this company as an income investment. The group generates the majority of its sales from multi-billion pound contracts with governments around the world. These contracts can last for decades, which produces a guaranteed, predictable income stream for the group. 

Few other businesses have the same kind of revenue visibility. 

While these companies both look attractive as income investments today, I should note that dividend income is never guaranteed. Income is paid out of business profits. Therefore, if profits fall, the dividend is usually the first thing to go. That is something I will be keeping an eye on as we advance. 

Even after taking this risk into account, I would be happy to add BAE and Phoenix to my £5,000 income and growth stocks portfolio, considering the qualities outlined above. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. 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 Lloyds Banking Group (LSE: LLOY) share price hasn’t traded above 100p since November 2008. Lloyds’ stock crashed at the start of the financial crisis and hasn’t ever recovered.

I suspect some shareholders have given up hope. However, recent news suggests that in February, chief executive Charlie Nunn will reveal his plans for returning this business to growth. If he’s successful, I think Lloyds shares could have a chance of returning to 100p.

The UK’s biggest landlord?

Lloyds is already the UK’s largest mortgage lender. The bank now hopes to become one of the country’s biggest rental landlords.

Lloyds’ new housing division, Citra Living, is starting small. But management hopes to have 400 properties by the end of 2021 and 1,200 by the end of 2022.

Looking further ahead, a partnership with housebuilder Barratt Developments means Citra will be able to fund purpose-built rental developments, bypassing the general property market.

A recent report in the FT suggested that Nunn is expanding his ambitions for Citra and may increase its initial budget from £250m to £1bn. Lloyds hasn’t confirmed this though, so it’s still speculation at this point.

In addition to rental property, Nunn is also thought to be considering expanding the bank’s commercial operations. This includes business-facing services such as insurance and corporate lending.

What’s good — and what’s bad

Lloyds should be able to fund property purchases and new developments very cheaply. If the rental business is run well, I think it could be more profitable the Lloyds’ current banking operations.

However, expanding into new business areas always carries some risk. Operating a large portfolio of rental property is a specialist business that’s quite different to mortgage lending. If things go wrong, costs could rise sharply. Lloyds’ reputation could suffer.

Similarly, my sums suggest that expanding Lloyds’ commercial banking operations could boost the profitability of the group. Indeed, Lloyds used to have a bigger commercial bank before the financial crisis. These operations were scaled back during its turnaround.

Trying to reverse these changes and expand the commercial bank will mean competing with banks that haven’t made such harsh cutbacks. This may not be easy.

Lloyds share price: what I’d do

If Nunn can generate growth and improve Lloyds’ profitability, then my sums suggest a return to 100p could be quite possible. 

However, one of the things I like about Lloyds is that it’s a fairly simple business. My fear is that the rumoured changes would make Lloyds’ business more complex and increase the risk of unforeseen problems.

Whatever happens, I don’t expect Lloyds’ share price to return to 100p in 2022. In my view, the changes being suggested will take several years to deliver results, so shareholders will need to remain patient.

In the meantime, broker forecasts suggest Lloyds’ earnings will fall by around 20% next year.

Although the bank’s forecast dividend yield of 5% looks safe enough to me, I can’t get excited about Lloyds at the moment. I’m going to wait to find out more about Nunn’s plans before I decide whether to buy the bank’s shares.

Roland Head 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.

Following the company’s IPO at the beginning of the year, investors may have hoped the Deliveroo (LSE: ROO) share price would outperform the market in 2021. Unfortunately, the stock has consistently failed to gain the market’s support. It has lost around 25% of its value since the IPO. 

However, the company has made a lot of progress in 2021. Many investors doubted that the business could maintain 2020 levels of demand throughout this year, but it has proved them wrong. Not only has demand remained high, but it has grown. 

And the firm has capitalised on this rising demand by increasing the number of products on its platform. It has also established new agreements with suppliers and launched a service for Amazon Prime users. 

These growth initiatives should help support the company’s growth next year. 

The outlook for the Deliveroo share price 

Looking at the company performance over the last 12 months, I think Deliveroo’s top line and order volume will continue to expand in 2022. What is more challenging for me to determine is how the business’s bottom line will evolve, given the enterprise’s cost challenges.

The group has always relied on self-employed couriers to deliver its products. But the legal environment for these workers is shifting. 

Policymakers are moving ahead with changes, both in the UK and EU, that will alter the rights of these workers. This could have a significant impact on the corporation’s cost base. If it is forced to pay an hourly minimum wage, sick pay and offer time off, costs will jump. 

It is difficult to tell if the business will be able to pass these costs on to consumers. That is the reason why I think the Deliveroo share price has been under pressure during the past few months. If there is one thing the market hates more than anything else, it is uncertainty. Right now, there is a heck of a lot of it clouding the company’s outlook. 

Opportunities and risks 

Considering the opportunities and risks Deliveroo is dealing with, I am cautiously optimistic about the outlook for the stock in 2022. 

When the company IPO-ed, I was worried it could not maintain the growth rate reported in 2020 as the world opened up. The enterprise proved me wrong. As such, I think there is a chance it will be able to navigate the challenges currently facing the food delivery industry and come out on top in 2022. 

If the company can prove its doubters wrong, I think the Deliveroo share price could outperform next year. Still, I am not willing to go all-in on the business just yet. That is why I would limit the position to a speculative holding in my portfolio.

If the enterprise does charge ahead in 2022, I can always add to my holdings.  

Rupert Hargreaves 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.

I think investment trusts are a great way to invest in the stock market without picking individual equities.

These trusts are essentially run as investment companies. They can own baskets of investments of their choosing. And they are not limited to stocks and shares. These corporations can own private businesses, real estate, other investment trusts and international equities. 

The structure of investment trusts

The reason why investment trusts can own so many different assets comes down to the structure. These companies are limited by shares, which are freely traded on the market. This gives them a steady capital base, which they can invest. This structure is known as a closed-ended structure. 

By comparison, regular so-called open-ended investment funds have to buy and sell assets to fund investor withdrawals. This means they have to own investments they can sell on a day-to-day basis, or it could cause problems.

That is just what happened several years ago with Neil Woodford’s flagship equity fund. The fund manager could not sell his private investment holdings fast enough to meet outflows. 

One drawback of this approach used by investment trusts is the fact that they can trade at a significant discount to the value of their assets. This could present an opportunity for investors to take advantage of, although an investment discount does not guarantee the trust is undervalued. 

These advantages are why I own a portfolio of investment trusts. So heading into 2022, I am looking to buy the three trusts outlined below to increase my portfolio’s exposure to several key investment themes. 

Key investment themes

3I Infrastructure owns a portfolio of infrastructure assets around the world. This is an excellent asset class to own in an inflationary environment. Not only does the income generated tend to rise in line with inflation, but the value of the assets also tends to grow. 

With inflation building worldwide, I would own 3I for these reasons. The company also offers a dividend yield of around 3%, and management is always on the lookout for new portfolio additions. 

Aberdeen Asian Income is another investment trust I would buy. I want some exposure to Asia in my portfolio, especially income stocks. The investment trust owns a portfolio of income stocks across the region, including some of Asia’s fastest-growing companies. As I do not know much about the region, I am happy to outsource stock picking to managers who may know more. 

Finally, I would buy abrdn UK Smaller Companies. I want some exposure to the UK economy in my portfolio as it recovers from the pandemic. Investing in smaller businesses is quite tricky, but the returns can more than compensate for the risk involved. I think owning the trust will reduce the risk of investing in these equities while providing exposure to the small-cap sector. 

The most significant risk of using this investment trust approach is that these trusts may underperform the market. I will also have to pay more money in management fees. These fees could eat away at returns, especially if the companies’ investments underperform the market. 

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.

When I first started investing in the stock markets many years ago, I had limited knowledge of what would work and what would not. What I did know was macro-economics. And how it impacts the stock markets. So I started with that. And it has been a positive experience for me. So much so that it became my go-to starting point when deciding where to invest for all kinds of stocks, including UK stocks. 

If I had to invest £20,000 in 2022, I would use this top-down approach once more. Based on this, I see three sectors standing out this year. 

#1. Banks can rally

The first of these stand-out sectors is banking. I have said for a while now that UK banks, particularly FTSE 100 banks, could really rally now and I am looking to buy them for that reason. We have seen proof of a run up in their stock prices in the past week itself. The Bank of England reacted swiftly to high inflation numbers for November with an interest rate increase. Banking stocks rallied because of this. A high interest rate regime is positive for them, because it allows for expansion in their margins. Besides that, a recovery is good for them too, since demand for loans rises during expansionary phases of the economy. The likes of Lloyds Bank and HSBC are ones I could buy now.

#2. Oil stocks could be my best investments

Recovery is also good for oil stocks like BP and Royal Dutch Shell, which have already run up quite a bit. But I reckon that there is still a whole lot of steam left in these stocks, considering that their share prices are still not back up to where they were pre-pandemic. But with oil prices expected to be on a tear in 2022, I think there is a really good chance that these stocks could now see a fair bit of share price rallying. Also, I think their dividends could improve further, which is why I have bought them.

#3. Betting on construction

Finally, I also like construction-related stocks like CRH and Ashtead, both of which earn more than half their revenues from the US. That economy’s growth forecasts are less certain than they were, as there is now a possibility that the infrastructure bill might not go through. However, I think it is still a sector worth watching out for. And even if it does not happen, both these stocks could still gain from the post-pandemic recovery expected anyway. I have already bought the CRH stock and Ashtead is on my investing wishlist for 2022. 

Wrapping up

It goes without saying that the recovery might be halted if we go right back into lockdown mode. And all three sectors could be impacted negatively then. But on balance, it appears to me that we are more likely to make progress than not. If the situation evolves adversely, I will make a call based on that, but for now these look like my best bets. 

Manika Premsingh owns BP, CRH and Royal Dutch Shell B. The Motley Fool UK has recommended 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.

Darktrace (LSE: DARK) shares have attracted plenty of negative attention since the company came to the market earlier this year. The corporation has been criticised for its opaque business practices and high valuation. While these criticisms do have some weight, they do not discourage me from buying the stock. 

Company potential 

Some investors might be worried about Darktrace’s business model, but I think the company’s results speak for themselves. The firm uses AI-based models to help identify and stop cyberattacks before they can cause too much damage.

Of course, the business does not go into too much detail about these processes. It cannot really. Doing so would give away secrets to its competitors… and hackers. 

However, we only need to take a look at the firm’s customer list to see that it is clearly offering something that works.

It counts governments and multinationals as clients and had 5,600 customers, up 42% year-on-year, at the end of its last fiscal year. If the product did not work, I do not think these customers would be willing to hang around. 

And with the number of customers using its products expanding rapidly, I am not too worried about the firm’s valuation. At the time of writing, Darktrace shares are selling at a price-to-sales (P/S) multiple of 13. Some of its American peers command a valuation nearly double this level. As such, when compared to its international peer group, Darktrace appears cheap. 

So, in my view, Darktrace looks cheap, has a highly sought-after product, and is growing at a high double-digit rate. These are the main reasons why I am backing the stock in 2022. The firm is still a relatively young public business, and it needs to build the market’s trust.

Over the next 12 months, investors will be able to build a better understanding of the business and its prospects. I think this could translate into a higher valuation and, as a result, a higher share price. 

Risks of owning Darktrace shares

There are some risks the company will have to navigate if its growth is going to continue. These include fighting off competition from larger peers with deeper pockets and keeping ahead of the hackers.

Darktrace needs to keep investing for growth to stay ahead. If it starts struggling and hackers begin to break through its defences, the firm’s reputation could take a severe hit. I would argue that this is the most considerable risk the company faces today. 

Despite the above risks, I would be happy to buy Darktrace shares for my portfolio in 2022. The company’s growth potential and unique business model are desirable qualities. Only a handful of other businesses have the same potential for the year ahead. Especially as the economic environment remains highly uncertain. 

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.

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