Investing in the stock market is one of the best ways to build wealth over the long run, I feel. So I plan to keep buying stocks for my ISA in 2022.
Having said that, I’m going to be very selective about the stocks I buy next year as not all companies are likely to see their share prices rise. With that in mind, here’s what I’ll be looking for when searching for shares to buy in 2022.
The best stocks to buy in 2022
The first thing I’m going to be looking for is stocks that aren’t vulnerable to inflation. This year, inflation has hit profits at many companies and I expect it to be a similar story in 2022.
Companies that typically aren’t vulnerable to higher prices are those in the software sector. These companies don’t have to worry about things like raw materials price increases and higher transport costs. Other companies that are also less vulnerable to inflation are those with pricing power. These businesses can raise their prices to offset higher costs.
The next thing I’ll be looking for is those with low levels of debt on their balance sheets. I think there’s a good chance interest rates will rise in 2022. If they do, firms with a lot of debt will face higher interest costs. This could impact their profits and their share prices.
I’ll also be looking for stocks that could benefit from the continued reopening of the global economy. I think these could do well in 2022 as economic activity picks up.
Of course, as a long-term investor, I’ll be after businesses that operate in growth industries and have long-term potential. I’m not just looking for short-term gains, after all. I’m looking for stocks that can generate big returns over the next five to 10 years.
Finally, I’ll be looking for stocks that have reasonable valuations. I don’t want to buy any that are overly expensive. I think that in 2022, expensive stocks may underperform as interest rates rise.
3 shares that could do well in 2022
Putting this all together, one stock that ticks my boxes is payments company PayPal. It’s certainly protected from inflation. If prices rise, it should benefit because it takes a cut of every transaction. It also has a strong balance sheet. Meanwhile, it should benefit if consumer spending picks up.
Another stock that looks interesting is accounting software specialist Sage. It appears to be protected from inflation and if economic activity picks up, it should benefit as small and medium-sized businesses adopt accounting solutions. It’s worth pointing out that Sage shares look cheap compared to plenty of other software companies.
Turning to the small-cap space, I think Alpha FX could do well in 2022. It’s a fast-growing British company that specialises in FX hedging and payments. It has a strong balance sheet and should benefit from higher levels of economic activity.
Of course, it goes without saying that all of these stocks have their own risks. There’s no guarantee they will perform well in 2022. So to minimise stock-specific risks, I’ll be investing my money across a number of different companies.
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Edward Sheldon owns Alpha FX, PayPal Holdings, and Sage Group. The Motley Fool UK has recommended Alpha FX, PayPal Holdings, and Sage 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.
