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I’m searching for the best penny stocks to buy for my portfolio for next year. I wouldn’t just buy the following shares to make a quick buck, though. I think they could deliver excellent shareholder returns over the long term too.

A penny stock on my radar

I have direct exposure to the housebuilding sector through my stakes in Barratt Developments and Taylor Wimpey. I’m considering capitalising on improving construction rates in the UK by snapping up building goods supplier SIG (LSE: SHI) too. This penny stock sells a broad array of essential products like roof tiles, insulation boards and cladding.  

Britain needs to get building over the next decade and the government has set a target of 300,000 new homes a year by the mid-2020s. Companies like SIG will play an essential role in helping the housebuilders meet this goal.

I also believe the rock-solid repair, maintenance and improvements (or RMI) sector gives SIG and its shareholders plenty to be positive about. I’d buy the business to exploit this opportunity, even though supply chain problems poses a danger to profits in the nearer term.

Making money from the inflationary boom

Recent inflation news convinces me that grabbing a slice of some gold-producing stocks could be a good idea. Inflation gauges from the US and UK showed prices rising at 39- and 10-year highs respectively. Data more recently from the eurozone showed consumer prices increasing since the economic bloc began in 1999 as well.

Gold prices rise when inflationary pressures grow. This is why I’m considering buying Ariana Resources (LSE: AAU) today, though it’s not the only reason why.

I’m also encouraged by the slew of positive drilling updates from its Turkish assets (and from Mediterranean-focussed miners in which it’s invested) in recent months. I’d buy Ariana despite the threat that gold prices could fall if, for example, the US dollar were to strengthen.

A next-gen food share

Concerns over animal welfare and the environmental impact of livestock farming have fuelled a sharp rise in vegan and vegetarian diets in recent years. This has led to an explosion in the number of non-animal products being manufactured and sold all over the globe.

It seems that the growing popularity of meat alternatives is set to keep running too. Analysts at Expert Market Research think the global vegan food market will be worth $26.1bn by 2026, up from $15.4bn last year.

I’m thinking of buying Agronomics shares to make money from this trend. This company has invested in a selection of fledgling producers in the field of lab-grown meat. Okay, these sorts of products aren’t strictly ‘vegan’. But sales are tipped to take off as people seek to get their protein in other ways than from animals. I’d buy the business even though one or more of the assets it’s spent cash on could fail to deliver on their exceptional promise.

Royston Wild owns Barratt Developments and 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 challenge faced by all investors sooner or later is learning to separate reality from myth, signal from noise. For me, consulting the thoughts and strategies of market masters such as Warren Buffett can be helpful in this regard. Here’s a small selection of how the Sage of Omaha’s incredible success shows why we all need to frequently question the things we hear. 

“The more stocks I own, the better”

Spreading my money around different shares sounds like plain common sense. After all, investing in just a few stocks, however carefully picked, opens me up to the threat of massive volatility and, perhaps, huge losses.

The truth, however, is a little more nuanced. Having too many investments is potentially as problematic as having too few. Why? The gains made by my winning picks will be diluted by the poorer performers and thus have less impact on my overall returns. Owning nothing but growth stocks when value stocks are in vogue is similarly not ideal.

Warren Buffett has long recognised the power that comes from running a concentrated portfolio of high-quality companies in different sectors. Investing heavily in one incredibly profitable beverage business (Coca-Cola), for example, has served him far better than investing in a number of average beverage businesses.

Clearly, the appropriate number of stocks for a person to hold will depend on many factors. There is no right number. However, the idea that ‘more is better’ should not be blindly accepted. 

“Only invest if you’re already rich”

The fact that Warren Buffett is one of the wealthiest individuals on the planet may be taken as a sign to non-investors that only the rich should get involved in the stock market. In fact, Buffett started from scratch, making his first investment at the age of 11.

Now, I sincerely doubt there are many 11-year-olds out there doing the same. Nonetheless, grasping the importance of getting started and cutting costs where possible are key to growing wealth. This applies regardless of a person’s age. It’s about making use of tax-efficient accounts, zero/low-commission online brokers and, if so inclined, cheap index-tracking funds.

One caveat to mention is that investing usually only makes sense when there’s a lack of debt (mortgage excluded). Having an emergency cash fund for life’s eventualities is also important.

“You can time the market”

It’s easy to study a share price graph and pick out what would have been the optimum moment to buy. For example, we now know that March 2020 was a wonderful time to go shopping in the market. 

The problem is that all of this is exceptionally easy to say in hindsight. When the chips are down and prices are tumbling, it takes guts to throw money into assets such as equities. To make matters worse, anyone attempting to ‘buy at the bottom’ perfectly soon faces another challenge: identifying exactly when to sell. 

As successful as he is, Warren Buffett doesn’t know what will happen next any more than I do. Instead, he recognises that a strategy of being “greedy when others are fearful” tends to work out well. This is assuming that the investor possesses sufficient patience to allow things to actually work out.

Holding the same stock for decades sounds unexciting, but it’s played a huge role in making Buffett the billionaire he now is.

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.

By most measures, 2021 has been a great year for investors. But like billionaire investment guru Warren Buffett, I aim to “be fearful when others are greedy, and be greedy when others are fearful”. As share prices rise, they often become more fragile and volatile. Hence, I sometimes worry about the next stock market crash. Here are five things that I’ll watch out for in 2022.

1. Stretched US stock valuations = stock market crash?

Since the low of 23 March 2020 (when it slumped to 2,191.86 points), the US S&P 500 index has skyrocketed to 4,649.23 points today. Therefore, the index has more than doubled in 21 months, soaring by 112.1%. In 35 years of investing, I’ve never seen such a powerful, one-way market. By most measures, the US stock market is strongly overvalued. So is this the calm before the storm of the next stock market crash?

2. Volatility could surge

As banker JP Morgan once replied when asked what would happen to stocks: “Prices will fluctuate”. Yet despite being year two of Covid-19, 2021 brought remarkably low volatility — for the US stock market, at least. In 2021, the biggest high-low intra-day volatility in the S&P 500 was a mere 3.3% (on 5 March). On only 14 of 245 trading days was intra-day volatility above 2% (but four of these came this month). That’s not a market I’d get too nervous about. But if volatility picks up in 2022, I’d expect more aggressive daily swings in stock prices.

3. Chinese contagion

As the world’s workshop and growth engine, China might play a part in the next stock market crash. Chinese growth has tumbled this year, dragged down by the coronavirus and deep-rooted, possibly systemic problems. Until recently, property and construction in China accounted for 29% of economic output. But with huge property developer China Evergrande and other real-estate groups defaulting on their debts, 2022 could be tough for the Middle Kingdom. And that’s before further crackdowns by the Chinese Communist Party — following body blows to the tech, education, and property sectors.

4. Runaway inflation and rising interest rates

I was born in 1968 (Gen X and proud!), so I remember the ‘Great Inflation’ of the 1970s. I recall this decade as one of genuine hardship and poverty, as ever-rising prices ate away at modest family incomes. In 2021, after two decades of being subdued, inflation suddenly sprung to life again. In the year to end-November, UK inflation surged to 5.1%, a 10-year high. Meanwhile, over the same period, US Consumer Price Index inflation was 6.8%, a 30-year high. But if central banks jack up interest rates to quell inflation, this might trigger a stock market crash (where prices fall by 20%+).

5. Stock market crash: the next cyclical recession?

Finally, I worry about one thing that hasn’t happened for years: a cyclical recession. Before central banks and governments threw money at the problem, developed economies usually went through growth and shrinking phases. First the feast, then the famine, as boom turned to bust. However, ignoring the Covid-19 recession in spring 2020, we haven’t had a ‘proper’ recession since the global financial crisis ended in mid-2009. Will it come in 2022? Who can say?

Finally, I’m not that terrified of the next stock market crash. Indeed, buying cheap shares in the 2000-03, 2007-09, and 2020 stock market crashes made my family much richer. That’s why we’re building a war chest of cash to invest in discounted stocks in the next bear market!

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 Bank (LSE: LLOY) share price seems to drive investors crazy. Its value has been on a general uptrend over the past year, but is still down 25% from the pre-pandemic days. In fact, the share price hasn’t really recovered from the 2008 financial crash.

But Lloyds drives far more investor interest than almost any other publicly traded UK company, and I have had to ask myself…why?

Lloyds doesn’t pay a particularly exciting dividend, and the price has remained fairly stagnant since 2009. What is it about this bank that’s keeping investors hooked?

Share price fundamentals

On paper, Lloyds seems like a very safe investment. Its price-to-earnings ratio (P/E) hovers at a very respectable 6.93 and the bank has a CDP score of A-. Lloyds does offer a dividend but, as I said before, it comes in at 2.73%, well below the UK average of 4%. It does have a very high market cap at £32.25bn, although this is slightly lower than Natwest’s £32.98bn.

In fact, Lloyds and Natwest are both dwarfed by HSBC‘s £90.12bn market cap, 3.59% dividend yield, and equivalent CDP score of A-. At a cursory glance it seems to me that HSBC has always been the better investment, although its share price has failed to recover to pre-pandemic levels and the consistent allegations of money laundering have dogged the bank for as long as I can remember.

Marketing and branding

Lloyds has excellent brand recognition. There’s no arguing that. Its black horse is nothing short of iconic and the bank undoubtedly has the largest presence of any in the public zeitgeist. This could just be down to exposure. I don’t tend to watch adverts if I can help it, but Lloyds bank adverts are by far and away the most ubiquitous and memorable of any in the sector.

Warren Buffett has always stressed the importance of a business having a ‘moat’ or aspect which will protect it from the competition. Brand recognition is one kind of moat but from where I’m sat, it seems like that’s all Lloyds has going for it.

What about Lloyds future?

Over the course of 2021, Lloyds announced that it would be closing more than 90 of its branches across the country. It also made headlines for its plans to invest in build-to-rent homes around the country. Closing branches will help to cut costs but there is a chance that by shrinking its high street presence that it may hurt its branding.

Lloyds probably hopes that being a landlord will become more profitable than mortgage lending over the next few decades. I can see the logic behind this, especially with interest rates being so low right now.

But Lloyds has been profitable despite low rates and being a landlord incurs ongoing maintenance costs. On top of that, there is no guarantee of income if homes remain empty.

Honestly, I’m still unsure why retail investors seem so enamoured with Lloyds. It’s not a bad company, but to my eye, it owes most its popularity to branding.

Perhaps people expect the share price to shoot to the pre-financial crash highs, but I won’t be adding it to my portfolio any time soon.

James Reynolds 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.

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With nine days remaining of 2021, I’m here to review 2021. It was a year of highs, lows — and a veritable tanker-load of volatility. Here are my takeaways from year two of Covid-19, from an investing perspective.

Investing in US stocks was great

The US S&P 500 index is up almost a quarter (+23.8%) this calendar year, excluding dividends. But after three years of strong rises, US stock valuations look stretched to me. Nevertheless, most of my family investments remain in American stocks, largely because of TINA (There Is No Alternative).

Bond investors got burned

For the first time in 50 years, US stocks went up, but bond prices fell. Thus, 2021 was the year when the 40-year bull market in bonds halted. And with inflation surging and interest rates forecast to rise, will bonds disappoint again in 2022? Fortunately, I missed this fall, because I’ve owned no bonds for several years.

Investing in Bitcoin beat gold

The price of gold — one traditional hedge against inflation — fell by 5% in 2021. Meanwhile, leading cryptocurrency Bitcoin had another great year, soaring by 69.4% in 2021. But Bitcoin was also hugely volatile this year. BTC’s price ranged from below $30,000 to almost $70,000 and now hovers around $49,000. I own no cryptocurrencies, so I’ve lost out as a ‘no-coiner’.

Tesla was briefly worth over $1.2trn

As I write, Tesla stock has gained a third (+33%) in 2021. But it went way higher earlier in the year, peaking at $1,243.49 on 4 November, valuing Elon Musk’s company at around $1.24trn. Seven weeks later, Tesla is now worth $305bn less. Wow. As a TSLA sceptic, I don’t own this volatile stock, yet I love Tesla’s electric cars.

Speaking of popular shares, there was some crazy price action in meme stocks. This showed how large herds of retail investors can push stock prices around and even bring down venerable hedge funds.

Bear in a China shop

It was a bad year for investing in Chinese stocks, particularly in the tech, education and property sectors. Government crackdowns led to stock declines of up to 95% among some US-listed Chinese shares. A notable casualty was vastly indebted property developer China Evergrande, whose shares and bonds have plunged in value. More recently, several other Chinese real-estate companies have also defaulted on their foreign debts. Yikes.

Archegos taught us three investing lessons

Family office Archegos Capital Management — run by ex-hedge fund manager Bill Hwang — imploded spectacularly in late March. It turned out that Archegos was killed by three classic investing problems: concentration risk, leverage, and illiquidity. Here are my three lessons from this failure.

Inflation will make investing harder in 2022

Across the globe, inflation returned with a vengeance. US Consumer Price Index inflation was 6.8% in the year to end-November, a 30-year high. UK inflation surged to 5.1% over the same period, a 10-year high. It’s now clear that major central banks will raise interest rates in 2022 to curb rising prices and wages. Already, the Bank of England raised its base rate from 0.1% to 0.25% this month, the first rise in three years.

My investing in 2022

Finally, what are my plans for my investments in 2022? I’m going to stick to my long-term plan, which is to buy cheap value stocks based on underlying fundamentals. I’m drawn to shares trading on low earnings ratings, high earnings yields and market-beating cash dividends. For me, the best place to look is in the FTSE 100.

Cliffdarcy 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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Whenever I have covered NIO (NYSE: NIO) stock in the past, I have always tried to clarify that the main reason I am not buying the shares today is the company’s second-place position in the electric vehicle (EV) market. 

While I am excited by its battery technology, which allows consumers to swap out old batteries for new to speed up charging, it still has a lot of work to do to capture a big share of the market. Its US competitor, Tesla, is already producing 10 times more vehicles a quarter.

NIO is trying to rapidly increase output in order to meet the growing demand for EVs. But so are its competitors.

The outlook for NIO stock 

The competitive environment in the EV space is only becoming tougher. Without the first-mover advantage that Tesla has been able to build, NIO may continue to struggle. 

There are other reasons why I am avoiding NIO stock. The Chinese company went public through what is known as the variable interest entity (VIE) structure. Under the structure, shareholders do not actually own an interest in the underlying business. They own an interest in an offshore entity, which has rights to the underlying corporation. 

Not only is this structure opaque, but it also has not been given the green light by Chinese regulators. They have not declared it illegal, but they have not made it legal either. It operates in a grey area. 

Of course, regulators may never decide to take action against this structure. By raising money in New York, Chinese companies using VIE have been able to bring hundreds of billions of dollars in outside capital into China. I do not think regulators will want to cut off this supply of funding. 

Nevertheless, I am not comfortable bringing this sort of exposure into my portfolio. Moreover, when coupled with the competitive challenges I have outlined above, NIO stock is just far too risky for me. This is why I think it is improbable I will ever buy a position in the stock for my portfolio. 

That said, I could always change my mind.

Company growth 

As I noted above, the company has some exciting tech, which could help it capture a large share of the EV market around the world. If it can ramp up production to meet demand, it could even gain an edge over Tesla.

NIO’s main advantage is that, as a Chinese corporation, it has significant exposure to this market. The Chinese automotive market is the largest in the world. Success is virtually guaranteed if a company can make it in this market. 

So if NIO can overtake Tesla as the world’s leading pure-play EV producer, I would be happy to reconsider my position on the stock. In the meantime, I am going to continue to avoid the company.

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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