I’m looking for the best cheap UK shares to buy for 2022. Here are two brilliant bargains on my shopping list.

On the crest of a wave

I consider Crest Nicholson’s (LSE: CRST) a sub-£5 UK share too cheap for me to miss. At 342p per share, the housebuilder trades on a forward P/E ratio of just 9 times. This is too cheap given the bright outlook for the housing market in 2022, in my opinion. Indeed, City analysts think Crest Nicholson’s earnings will rise an extra 22% this financial year (to October 2022).

What’s more, today, the business also boasts a meaty 4.5% dividend yield for this fiscal period. This is more than double the current FTSE 250 average yield of 2%.

I already own shares in a couple of British housebuilders. So I was lifted by fresh research by property listings powerhouse Rightmove released this week. It said that it expects the market to revert to “more ‘normal’ conditions” in 2022 following the “frenetic” last 18 months.

Still, it added that average home prices should rise 5% year-on-year next year “as strong buyer demand and a historically low level of available property continue to push up prices.”

A top long-term buy

Reflecting these bright conditions, Crest Nicholson’s November trading statement revealed that sales rates have remained “robust” across all its regions. The builder is seeking to take advantage of the favourable trading environment by setting up three new regional divisions by 2026 too. It hopes this will set it on course to build 4,200 new homes a year by then, almost double what it is currently producing.

But this cheap UK share isn’t without risk. Costs are increasing as raw material and labour prices rocket through the roof. This looks set to continue hitting profits in 2022 too. It’s also possible that Bank of England interest rate rises could take a big bite out of homebuyer demand. That said, it’s my opinion that the rewards on offer from Crest Nicholson far outweigh the dangers.

Another cheap UK share I’d buy

Of course, I don’t have to buy the builders to capitalise on the house price boom. I can buy the companies that allow the likes of Crest Nicholson to sell their products. Firms like Nexus Infrastructure (LSE: NEX), for example, which trades at 228p per share. This particular business creates and installs the systems that get utilities connected up on new housing developments.

This isn’t the only reason I’d buy Nexus though. The company also installs electric vehicle (EV) charging points in homes and on the street. This should allow it to benefit from the huge sums being allocated to building EV infrastructure in Britain. Last month, the government announced legislation making it a legal obligation to install charging points in all new homes from next year.

Demand for Nexus’s services could shrink if Covid-19 cases keep rising and the construction industry shuts down again. But, as things stand, I think this cheap UK share is worth serious attention.

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.

I am incredibly optimistic about the prospects for the Marks and Spencer (LSE: MKS) share price in 2022.

Over the past year, the company’s turnaround, which seems to have been in progress for over a decade, has finally started to take hold.

The market is waking up to its potential. The stock hit a multi-year low of 85p in May 2020 but has since recovered to around 232p. That is about the same level as it began 2020, before the coronavirus pandemic started.

However, the stock is still trading below its 2019 high of 280p per share, despite this recent performance. If the company continues to push ahead with its restructuring and growth ambitions, the stock could return to this three-year high. It could even move back towards 300p if trading outperforms expectations. 

Marks and Spencer share price outlook 

Of course, it will always be impossible to predict the future of any company’s share price with accuracy. I do not know what the future holds for any business or the economy. 

Still, if I assume that the economy continues to rebuild over the next 12 months in much the same way as it has done over the past 12, I think Marks’ top and bottom lines will expand. The firm’s recent changes are clearly having an impact on consumers. Its joint venture with Ocado is also outperforming expectations, which is a testament to its brand. 

It seems likely that a good deal of the company’s recent growth has been powered by rebounding consumer spending. This is unlikely to last. However, I think there is a strong chance that the group has convinced shoppers its offering has improved, which could support more spending. 

Indeed, City analysts believe the firm’s profits will hit £409m in its current financial year and £367m in 2023. These are the highest number since 2017. 

Undervalued 

If the company can hit these targets, the stock looks cheap at current levels. It is selling at a forward price-to-earnings (P/E) ratio of just 11.4. Considering the firm’s brand and growth potential, I believe this undervalues the enterprise. 

That being said, the firm will have to overcome some headwinds that could hit growth as we advance. These include the supply chain crisis and inflationary pressures. Rising costs could push consumers to change their buying habits or put off purchases. 

Still, even after taking these risks into account, I think the outlook for the Marks and Spencer share price in 2022 is encouraging. The double tailwinds of rising consumer confidence and economic growth should support the company’s revenue expansion. Its decisions to refresh its stores, product lines and reduce costs will provide further tailwinds to support growth. 

While the company has underperformed expectations more times than I can count in the past, all of the above seems to suggest that the group is finally ready to pull itself out of a multi-year decline. 

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.

As penny stocks go, Lloyds (LSE: LLOY) is probably the biggest of the lot in the UK. Even though its share price is 46p as I write, its market value is a huge £33bn.

Does its low price make Lloyds a buy for my portfolio? I need to research the prospects of the business for the following year before I invest. Here’s what I think.

What I like about this penny stock

First, the Lloyds share price is up an impressive 36% over one year. This suggests that the business is performing well. Indeed, in the third-quarter interim management statement, the company said it recorded a profit before tax (PBT) of £5.1bn for the nine months to 30 September. This was a huge increase over the same period in 2020 when PBT was just £620m. But Lloyds’ management said the improvement in trading was due to the general improvement in the economic outlook so it wasn’t purely company-specific.

It’s understandable why profits have grown by such an extent. Lloyds earns income based on a net interest margin, or the difference in interest it charges compared to the interest it pays on deposits.

Therefore, profitability will improve when consumers are willing to loan money for things like mortgages, and on credit cards. The housing market has been particularly buoyant in 2021, which will have boosted the company’s profits. Also, as general sentiment improved after lockdowns ended, consumers will have been more willing to borrow.

I’m optimistic about the growth prospects of the UK economy heading into 2022, so I view this as favourable for Lloyds’ prospects.

Lastly, inflation is set to rise again in 2022. The Bank of England is forecasting consumer price rises to peak at about 5% in April. This might sound scary, but it also means the BoE will likely raise its base interest rate in 2022. For Lloyds, this may mean an even bigger net interest margin.

Risks to consider

As mentioned, Lloyds is able to generate profit from its lending activities. This was boosted significantly by the booming housing sector this year as the company expanded its mortgage book. However, it’s unlikely that this will continue into 2022 due to the end of the stamp duty holiday. House prices are also near an all-time high which may deter future buyers, and therefore borrowers.

Looking at the full-year forecast for PBT in 2022 and it’s expected to decline by 9% over 2021 to £6.8bn. This is still far larger than the £2bn of PBT that Lloyds achieved in pandemic-hit 2020. Nevertheless, the 9% reduction, I think, reflects the cooling of its lending activities after the boom this year.

Is this penny stock a buy?

Even though Lloyds’ profit is expected to decline next year, I still view the stock as attractively valued. On a price-to-earnings basis, the shares are priced on a multiple of 7 for 2022. I consider this dirt-cheap. The forward dividend yield is an impressive 5.3% too.

Taking everything into account, I view Lloyds shares as a buy for my portfolio. There are still risks to consider, but I think the shares are priced to reflect this going forward.

Dan Appleby 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.

So far the stock market has taken Omicron in its stride. Arguably, though, it took the stock market a little while to react to the coronavirus back in the first quarter of 2020 and for share prices to fall. It’s difficult to know exactly what it means this time round for the markets and for investments.

However, if Omicron means more lockdowns and a stock market crash or slump, I think these two share prices will be hit extremely hard. Even if Omicron makes little impact on the stock market, I’d still avoid them as I think they are poor investments.

In the line of fire

SSP (LSE: SSPG) is an operator of food and beverage outlets in travel locations, principally airports and railway stations. This puts it directly in the line of fire when there are lockdowns and even advice to work from home when possible.

The SSP share price has more than halved since the start of 2020. At the same time, debt and the number of shares in issue have both rocketed. In my opinion, this fundamentally makes SSP a less attractive investment. It makes it harder for SSP’s management to drive increasing earnings per share, simply because there are more shares and debt costs more and takes away from earnings. 

As the company is loss-making, the shares are harder to value but if I ask myself: what is the growth potential here? I just don’t see any. Even if things turn out well with Omicron, there’s limited upside. If there are more lockdowns, the downside is potentially very high. I’ll be avoiding SSP shares.

Heading for disaster? 

Continuing on a train theme, Trainline (LSE: TRN) is another share I don’t think will do well if Omicrom rolls on. Earlier this year Trainline’s shares plummeted after the UK government unveiled a state-backed rival.

This change in competition comes on top of an underwhelming IPO in the summer of 2019, which in retrospect was fortuitous timing for the backers of Trainline that got out. The ticketing platform is loss-making. 

Then when you add in £169m of net debt there’s a lot to scare me away from investing in Trainline’s shares.

Trainline does operate beyond the UK, net debt has come down recently, and revenue growth is strong, but overall it doesn’t strike me as being a potentially profitable investment. That’s why I’ll avoid the shares.

Fundamentally, Trainline’s main business may cease to exist if the UK government competition is good enough to attract public transport users.

A brighter note to end on

Just quickly and to avoid making this article all about shares to avoid, I’d be tempted to invest in Melrose, especially if it becomes significantly cheaper. Already it has a price-to-earnings-growth ratio of 0.3, indicating it could be undervalued.

However, Omicron means a bigger margin of safety may be needed as the shares could fall in the short term, as a result of investors’ fear. So I’ll wait and see what happens before buying because new restrictions could hit the industrial group hard. 

Management, though, has a sterling track record of improving industrial companies and the company has been well managed through the pandemic. I think Melrose offers far more to investors whatever happens next than either SSP or Trainline ever can.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Melrose and SSP Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I always remember someone telling me that the difference between being rich and being wealthy is knowledge. The point being that a wealthy person has the knowledge to make more money. One way I’m aiming to generate long-term wealth is via my knowledge of investing in the stock market. To this end, I hope to benefit from the stock tips of Warren Buffett, one of the greatest investors of our generation with a net worth of over $100bn.

Picking stocks that I understand

Buffett was born in 1930, so has experienced countless stock market recessions and boom periods. This experience comes into play with his first stock tip. He’s quoted as saying that “the important thing is to know what you know and know what you don’t know”.

This takes a couple of times of reading to understand it! The point is that in the long run, I’m better off investing in stocks that I can understand and appreciate. For example, I might be an expert on cars. Logically, I’d probably be able to identify hallmarks of a good car manufacturer and potentially buy a promising stock as a result. On the other hand, I would be unlikely to invest in a Chinese domestic restaurant stock. 

By acknowledging where my strengths lie (and don’t lie), I should be able to be a more successful stock picker than simply buying whatever everyone else does.

Buying for the long term

A second stock tip that ties in with generating wealth is another quote from Warren Buffett. He said that “Wall Street makes its money on activity. You make your money on inactivity”.

If I buy and sell stocks very frequently, I’ll incur higher transaction fees from my broker. In the long run, this also could be damaging for my overall portfolio. Some studies have shown that investors net higher returns from letting a stock run its course rather than trying to time the market from frequent trading.

One reason for this is that it’s impossible to perfectly time the market. This can cause me to lose out on potential upside if I’m sitting in cash and waiting for a dip that might never come.

A final stock tip from Buffett

In a speech at Columbia University, Buffett advised: “Don’t pass up something that’s attractive today because you think you will find something better tomorrow.”

From my position as an investor, missed opportunities are very frustrating. Especially when I’m trying to build wealth, if I pass up one attractive stock pick a year for the next decade, it’s a lot of potential profit missed out on.

Therefore, if I see a good stock at an attractive price, I need to seize it. I won’t be able to buy every stock I like, as I have financial limitations. But the principle is there, and valid.

Overall, Warren Buffett has many great stock tips and pointers. By trying to put them into practice, I can hopefully increase my long-run wealth.

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.

If there’s going to be a UK stock market crash, it’s most likely that it will originate in the US. As the old City saying goes: “When New York sneezes, London catches a cold”. That said, the past 12 years have been the most wonderful period for buyers of US stocks. Share prices have gone up, up and up — and almost to the sky.

The stock market mega-boom

The S&P 500 — the main US stock market index — has soared since the dark days of spring 2009. On 6 March 2009, the index briefly crashed to an intra-day low of 666 points. This biblical ‘number of the beast’ certainly terrified investors that day. But it also marked the end of a brutal stock market crash that began quietly in mid-2007, before gathering pace.

As I write, the S&P 500 stands at 4,617.78 points. That’s more than 3,950 points above the 666 bottom. Thus, the index is close to seven times its low point, soaring by 593.4% in 12 years and nine months. And this doesn’t even include more than a dozen years of cash dividends. This is the biggest and longest bull market I’ve witnessed in 35 years as an investor. So why worry about a stock market crash today, right? Wrong!

High valuations produce fragile markets

From the chart below, the S&P 500 has recorded only two losing years in the past 13, plus a zero return in 2011. Hence, the index has climbed in 10 of the past 13 years. Again, these figures exclude dividends. To me, this pattern is highly abnormal in historical terms. After such a powerful and sustained winning streak, a stock market crash must be more and more probable, right?

But there seems to be one powerful reason behind these exceptional returns. To stave off another Great Depression, major central banks and governments poured tens of trillions of dollars, pounds, euros, yen and more into supporting their economies and financial markets. As a result, this enormous tsunami of money has driven asset prices relentlessly higher for years. Yet the higher prices rise, the more fragile markets become. Today, I see bubbles in US stocks, government and corporate bonds globally, real estate, and cryptocurrencies. But what might trigger a stock market crash?

Stock market crash: immediate causes

My best guess is that 2022 will be US stocks’ worst year since 2008. Why? First, the US Federal Reserve is ‘tapering’ — scaling back its $120bn-a-month bond purchases. This should lower US bond prices and raise their yields. Second, with US inflation at a 30-year high, the Fed is set to raise interest rates in 2022-23. This might happen as early as June 2022. Also, with global growth slowing down, the next cyclical recession might arrive in 2022-23.

In other words, a highly favourable and supportive environment for stocks could come to a grinding halt next year. Or I could be wrong and the boom will keep going, just as  bullish Wall Street banks claim. So, what am I doing to reduce my losses from a possible stock market crash? First, I have zero exposure to high-priced bonds or volatile cryptocurrencies. Second, I no longer pump money into expensive US stocks. Third, I’m building a cash war chest to invest when markets next slump or crash. Fourth, I’m focusing my search on large-cap value stocks, of which I see plenty in the FTSE 100 index!

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 I write, the share price of online fast-fashion retailer Boohoo (LSE: BOO) is near 148p. Previously, the stock peaked above 400p in the summer of 2020 after staging an impressive bounce-back from the coronavirus market crash that spring. Things looked good for the company’s shareholders for a while.

The big plunge of 2021

However, the stock started 2021 near 350p. Then, in February, it began its plunge to the current level.

Nothing is certain in the world of stock investing, but I’d expect Boohoo to stop falling at some point. Especially if the underlying business remains in good shape. For me, the question then becomes what is the ‘right’ price for the stock and can it return to the lofty heights it once achieved near 400p?

And to answer, I think Boohoo may be capable of returning to levels near its peak. But I’d be surprised if that happens in 2022.

With regard to the falling share price, I think short-term concerns may have given way to longer-term doubts about the pace of growth. Indeed, Boohoo was once a small, fast-growing enterprise. But it’s normal for businesses to grow at a slower pace as they become larger. However, high valuations can persist before adjusting to match current rates of growth.

Sometimes businesses simply grow into their valuations with stock prices remaining flat for years. But other times, a valuation can de-rate lower because of a plunging stock price, such as Boohoo’s now.  

Boohoo needs to find its ‘correct’ valuation

And well-reported short-term challenges regarding the firm’s supply chain could have shaken investor confidence a bit and kicked off the de-rating. Although Boohoo has done much to clean things up and wasn’t directly involved in employing underpaid labour in the first place.

It’s also possible pressure on Boohoo’s share price could be continuing because of the rise of the Omicron variant of Covid-19. However, before Omicron emerged, the directors said in September’s half-year results report they were “extremely confident” in Boohoo’s growth prospects.

Back then, they expected short-term demand uncertainty and material cost headwinds to unwind as the pandemic declined. So although Omicron could be the source of a setback on that front, the directors expect the business to grow its sales at the rate of 25% a year, while maintaining a 10% adjusted EBITDA margin in the “medium term”.  

Meanwhile, I reckon the valuation should reflect the sustainable growth rate of earnings. And City analysts’ estimate for the current year and next year average out to around 21%. So the current forward-looking earnings multiple of just over 13 looks a little low to me. But if the stock rose to 400p again, the multiple would be near 36 and too high for my liking.

My best guess is that the share price will likely bounce up a little during 2022, but not as far as 400p. However, I could be wrong. And in any case, further progress after that will likely be dependent on sound operational advances. And that, of course, is not certain. It never is with any stock market investment.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo 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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HSBC (LSE:HSBA) is one of the largest banks in the world. The FTSE 100 stock has a high amount of daily share turnover, meaning a lot of HSBC shares get bought and sold each day. Over the past few years, the bank has gone through a lot. This ranges from a strategic transformation to become more efficient to dealing with the global pandemic. But if I’d invested five years ago, would I be up at the moment?

Struggling from different angles

Five years ago, HSBC shares were trading around 650p. With the current price of 422p, this represents a fall of just under 35%. So on my investment of £1,000, I’d be down £350. I should note that this doesn’t take into account the dividends I would have received in the process. From 2016 to early 2020 the dividend yield was 5% or higher. Although this still wouldn’t offset the loss from the falling share price, it would go some way to reducing it.

Why have we seen such a fall in the share price over this period? One key element was the restructuring of the business before the pandemic hit. The aim here was to trim down the size of the bank, to allow it to focus more on key growth areas (predominately Asia). This involved large costing-cutting in certain areas, which spooked the market. For example, back in February last year I wrote about how the news of 35,000 job cuts saw the price drop 6% on the day.

It’s always tough to go through a restructure. The issue investors faced was that short-term pain was going to be felt before the benefits would be seen. Unfortunately, the benefits haven’t been seen yet, due to the pandemic. This struck as the bank was in the process of transforming and provided a lot of problems. 

For example, large provisions were needed to be set aside for potential bad debt and loan defaults. Given the size of the bank, these numbers were significant. As a result, last autumn the HSBC share price hit low levels not seen for several decades.

Positive gains for HSBC shares in the next five years?

I personally didn’t buy HSBC shares several years ago, so the question I now consider is whether I should buy the stock now. One metric I can review is the price-to-earnings ratio. This is currently 31.5. For comparison, Barclays has a ratio of 20.74, with Lloyds at 38.6. From that I can conclude that although all bank stocks have relatively rich valuations, HSBC isn’t the most expensive in the sector.

The other question I need to think about is whether the sector will do well next year. Personally, I think it will. The driver behind this is the likely increases in interest rates in the UK and around the world next year. This should help HSBC to boost its net interest margin. 

In terms of risks, I wouldn’t say that the HSBC transformation is anywhere near complete. Issues with cost cutting could provide negative publicity for the bank.

Overall, I don’t have a high enough conviction to buy HSBC shares at the moment, so will pass on the opportunity.

Jon Smith has no position in any firm mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.