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.

The post I think these could be the best stocks to buy in 2022 appeared first on The Twelfth Magpie.

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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.

Reasons for another stock market crash

There are several reasons why a stock market crash could be imminent. For example, recent data shows that inflation has risen to 3.2%, significantly higher than the Bank of England’s 2% target. Such high rates of inflation are often bad for stocks. This is because it may prompt the BoE into raising interest rates to get inflation under control. Such a move would make it more expensive for companies to borrow, while investors may also move their money from stocks to a savings account.

There are also fears that the UK economy is slowing down, mainly due to worker shortages and supply chain issues. In fact, in July, the country’s GDP only grew 0.1% despite the removal of the majority of Covid-related measures. The current high number of coronavirus cases may also slow the economy down, especially if a winter lockdown is required. In fact, it’s this prospect of a winter lockdown that I believe could trigger a stock market crash. 

Although a stock market crash is by no means something I wish for, I also view it as a great opportunity to buy stocks on the cheap. This means that I’m currently keeping spare cash aside to capitalise on such a pullback. These are the stocks I’ll be especially interested in.

Defensive stocks

Defensive stocks are those that should continue to provide dividends and stable earnings, no matter the state of the economy. This is because they often provide necessities. As such, when these stocks fall back, I believe it is a great time to buy them on the dip.

My favourite example of a defensive stock is the drinks giant Diageo. With a drinks portfolio of over 200 brands, enjoyed in around 180 different countries, this company clearly has significant consumer loyalty. Throughout the pandemic, it has also generated strong profits. As such, this is a stock I’d snap up more of in the case of another stock market crash.

Supermarkets are also considered essential, and Tesco is my favourite supermarket stock to buy. This is due to its dividend yield of around 4%. Due to consistent earnings, and its essential nature, it is extremely unlikely that this dividend would be cut. Therefore, I’d also add this defensive stock to my portfolio.

Buy stocks when they’re down

In the stock market crash in March 2020, I bought several stocks that were heavily affected by the pandemic, yet also had the balance sheet strength to survive. These included National Express, Barclays, and Aviva. This has proved very successful, as each has managed to make decent recoveries.

As such, in the case of another stock market crash, I’ll use it as an opportunity to buy similar companies on the cheap. It’s imperative that these companies have sufficient balance sheet strength though, otherwise there is the risk of being left with nothing. A few examples that interest me include Bellway and M&G.

The post The stocks to buy in another stock market crash appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Stuart Blair owns shares in Aviva, Barclays, Diageo and National Express. The Motley Fool UK has recommended Barclays, Diageo, and Tesco. 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.