When I first started investing in the stock markets many years ago, I had limited knowledge of what would work and what would not. What I did know was macro-economics. And how it impacts the stock markets. So I started with that. And it has been a positive experience for me. So much so that it became my go-to starting point when deciding where to invest for all kinds of stocks, including UK stocks.
If I had to invest £20,000 in 2022, I would use this top-down approach once more. Based on this, I see three sectors standing out this year.
#1. Banks can rally
The first of these stand-out sectors is banking. I have said for a while now that UK banks, particularly FTSE 100 banks, could really rally now and I am looking to buy them for that reason. We have seen proof of a run up in their stock prices in the past week itself. The Bank of England reacted swiftly to high inflation numbers for November with an interest rate increase. Banking stocks rallied because of this. A high interest rate regime is positive for them, because it allows for expansion in their margins. Besides that, a recovery is good for them too, since demand for loans rises during expansionary phases of the economy. The likes of Lloyds Bank and HSBC are ones I could buy now.
#2. Oil stocks could be my best investments
Recovery is also good for oil stocks like BP and Royal Dutch Shell, which have already run up quite a bit. But I reckon that there is still a whole lot of steam left in these stocks, considering that their share prices are still not back up to where they were pre-pandemic. But with oil prices expected to be on a tear in 2022, I think there is a really good chance that these stocks could now see a fair bit of share price rallying. Also, I think their dividends could improve further, which is why I have bought them.
#3. Betting on construction
Finally, I also like construction-related stocks like CRH and Ashtead, both of which earn more than half their revenues from the US. That economy’s growth forecasts are less certain than they were, as there is now a possibility that the infrastructure bill might not go through. However, I think it is still a sector worth watching out for. And even if it does not happen, both these stocks could still gain from the post-pandemic recovery expected anyway. I have already bought the CRH stock and Ashtead is on my investing wishlist for 2022.
It goes without saying that the recovery might be halted if we go right back into lockdown mode. And all three sectors could be impacted negatively then. But on balance, it appears to me that we are more likely to make progress than not. If the situation evolves adversely, I will make a call based on that, but for now these look like my best bets.
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Manika Premsingh owns BP, CRH and Royal Dutch Shell B. The Motley Fool UK has recommended 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.