The past year has been great for FTSE 100 stocks. The stock market rally was just about starting at this time last year. And many stocks were struggling with pandemic-related uncertainty. How different things look a year later! The FTSE 100 index is up almost 30% since then. And of course a number of constituent stocks have seen fantastic share price increases during this time.
As year-end approaches and I start preparing for my investments for 2022, I find myself wondering if some of the FTSE 100 stocks may still be able to give me great returns next year as well. As it turns out, I’ve found at least a few that appear to have pretty solid prospects for next year.
A year for FTSE 100 cyclical stocks
My quick analysis so far shows that it will be a year of cyclical stocks. This is because of the expected continued upturn in the global economy. According to forecasts by the International Monetary Fund (IMF), the world economy will grow by 4.4% in 2022. This may sound like a come-off from the huge 6% number seen in 2021, and it is.
But for good reason. 2021’s growth looks particularly high because of a low base effect. The global economy actually contracted in 2020 because of Covid-19. Also, even by historical standards, a 4%+ growth is robust. The last time we saw it was back in 2011.
Many FTSE 100 stocks are global multinationals that are sensitive to trends in the wider world and not just to what is happening in the UK. I think 2022 should bode well for them based on the expectations for the year.
Travel stocks to fly high
I reckon the biggest gainers can be travel stocks. They may have shown some recovery but they are a long way off from their pre-pandemic levels. Consider stocks like the British Airlines owner International Consolidated Airlines Group (IAG) and the aero-engine manufacturer Rolls-Royce.
IAG is still at less than half the levels seen in early 2020 and while Roll-Royce has fared slightly better, it too has a long way to go. But as the world gets vaccinated and travel improves, I reckon that their share prices can really fly in 2022. That is why I have already bought the IAG stock.
Oil biggies to continue thriving
I expect that commodity stocks could be great for me to hold next year as well. Let me first talk about oil stocks. Performance of oil companies is closely correlated with the global economy. A thriving economy, especially one where travel is relaxed, should bode well for them. FTSE 100 oil biggies like BP and Royal Dutch Shell have already run up this year. But I reckon there is more upside in store.
Metal miners can still be rewarding
Another set of commodity stocks, the industrial metal miners have had a particularly good past year. The Chinese government’s stimulus increased demand for metals, making it an unexpected good year for them. However, forecasts for metal prices are now being revised downwards, which has led to a correction in their share prices.
In my view, they may have overcorrected. This is evident in low price-to-earnings (P/E) ratios compared to the average FTSE 100 multiple at around 20 times. Stocks like the Rio Tinto and Anglo American look most appealing to me from this perspective, with sub-10 times P/E ratios. Also, their high dividend yields of 11% and 6.4% respectively make them quite attractive to me, which is why I have bought them.
FTSE 100 construction high performer
Construction equipment rental company Ashtead is another promising one for 2022. It shrugged off the impact of the stock market crash quite quickly last year and has doubled its share price since then. The US-focused company can do quite well in my view next year as well as the economy continues to stay robust and President Biden’s infrastructure plan bodes well for it too.
Chinese demand can stay strong
Another internationally focused company, Burberry, can do well in my view too. The stock has corrected in recent months as its successful previous CEO, Marco Gobbetti, quit and its big Asian market showed signs of a wobble. However, China’s growth is expected to stay relatively strong next year, which should lead to a pick up in the luxury stock’s price.
FTSE 100 banks to benefit
Banking stocks represents another set that has suffered a lot during the pandemic. But I think 2022 could be the year for FTSE 100 banks. Their share prices are surprisingly low in my view, even though their financials have improved significantly. They are still below the pre-pandemic levels, even though as per my calculations, prices for stocks like Lloyds Bank and HSBC should be way higher. This is especially so as loan demand will increase in a good year and interest rates are expected to rise too. They are on my investing wish-list.
What can go wrong
There is of course every possibility that 2022 does not turn out quite the way we expect it too. We only need to look back at 2020 to recognise how things can suddenly go wrong. And even if nothing so dramatic happens, there are risks on the horizon. Inflation is a big one.
Also, we are still figuring out how the withdrawal of government and central bank stimulus around the world is going to impact the global economy. In the UK for instance, the housing market should be watched carefully in my view. As the stamp duty holiday rolls back, house prices could crash taking down with them the stock prices for FTSE 100 realtors. The withdrawal of China’s stimulus is already seeing a decline in metal prices. This is impacting the fortunes of miners.
My takeaway
On the other hand, the huge public spending likely to flood the US economy could have a positive impact on growth around the world. In any case, so far the prospects for the global economy look better than not. I am positive on FTSE 100 stocks for 2022 and buying from among the stocks mentioned.
Manika Premsingh owns shares of Anglo American, BP, Burberry, International Consolidated Airlines Group, Rio Tinto and Royal Dutch Shell B. The Motley Fool UK has recommended Burberry, 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.
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