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A no-brainer FTSE 100 stock to buy and 1 to avoid in 2022

2022 new year concept image

Since it crashed 3% in a day due to Omicron fears, the FTSE 100 has stabilised somewhat, and it is currently over 11% higher than this time last year. But the performance of the index as a whole masks very different performances of individual stocks. I still believe that some FTSE 100 stocks offer significant value, while others seem overpriced. Here’s one I think will perform excellently in 2022, and another that I think could be set to decline.

An insurance giant

After years of underperformance, Aviva (LSE: AV) seems to have been reinvigorated over the past year, under the management of Amanda Blanc. This has resulted in the Aviva share price climbing 24% over the past year, outperforming other FTSE 100 stocks.

I’m also optimistic for 2022. In fact, after it sold several non-core divisions, including its Polish, Italian, and Vietnamese operations, the company has a ton of excess cash. It has pledged to return at least £4bn to shareholders, through both dividends and a share buyback programme. Recently, it also increased its ordinary buyback programme from £750m to £1bn. This seems like a sign of things to come, as further capital return and dividend plans are expected after the full-year results in March 2022. This is likely to include a special dividend.

After selling its non-core units, Aviva seems to have focused on its core businesses in both the UK and Canada. So far, this is proving successful, especially as in the first half of the year, adjusted operating profits from continuing operations rose 17% to £725m. It is also on track to achieve £300m of cost savings by 2022.

The main risk is that the UK economy, to which Aviva is strongly connected, starts to decline. This is especially worrying due to the rise of Omicron. But despite this risk, Aviva’s business seems strong, and I think 2022 could be a very good year. I may buy more Aviva shares before then.

An overpriced FTSE 100 stock

Rentokil (LSE: RTO) has established itself as the global leader of pest control. This has partly been due to the company’s strategy of acquisitions, as it has made 228 since 2016. Recently, it has continued this strategy, announcing an acquisition of its American rival, Terminix, for $6.7bn. But while another acquisition may be a sign of optimism, shareholders seem more worried, with the FTSE 100 stock falling over 12% on the day it was announced (although they are up almost 11% year-on-year as I write). I also have my worries about this acquisition. For one, the company is paying a 47% premium for it, which seems very expensive. Secondly, it may attract the attention of antitrust regulators in the US, which could cause further difficulties. I also worry that it demonstrates the firm’s lack of organic growth. Instead, it seems to have become reliant on acquisitions.

There are some reasons to buy Rentokil, however. For one, this acquisition is expected to lead to around £113m in cost savings three years after the deal has been completed. Further, Rentokil has experienced strong growth recently, and in Q3, excluding its disinfectant services, revenue grew 14%. But with a price-to-earnings ratio of around 40, this growth is not enough for me to buy. Therefore, this is a FTSE 100 stock I’m avoiding in 2022.

The post A no-brainer FTSE 100 stock to buy and 1 to avoid in 2022 appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Rentokil. 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.