With just £500, here are the top three FTSE 100 stocks and shares I think offer great potential in 2022 and could help me generate a decent return despite ongoing uncertainty in equity markets.
As the impact of increasing global inflation continues to reduce the real value of savings, I believe there is no better time to invest my spare cash. These three stocks will help me create a diversified portfolio in which I can earn dividends and grow my capital at the same time.
Income stock
There are a number of FTSE 100 companies offering strong and steady dividends but my personal favourite is BP (LSE:BP). With a consistent dividend and a yield of 5% backed by strong cashflows, BP seems like a safe bet for me as an income investor. Recent comments from BP management also support this, as they have promised to offer share buybacks in 2022 if profits continue to rise.
Of course, there are risks attached to BP’s share price. The cyclical nature of the company, coupled with the uncertainty of BP’s position in the global energy transition, means investors have been wary of this stock. However, the company’s sustainability investment pledges and its diversification away from pure oil and gas is promising. Although the stock is still 20% down on pre-pandemic levels, I think 2022 could see the shares climb significantly.
Long-term stock
As a long-term investment, I am looking to acquire shares in insurance group, Prudential (LSE:PRU). With rising global inflation, I believe the current low interest rate environment is likely to change in coming years. Although there are lots of financial companies that will benefit from rising interest rates, I particularly like Prudential for two reasons.
Firstly, compared to typical bank stocks, Prudential is less impacted by the growth in FinTech, which is heavily disrupting the traditional banking sector. Secondly, Prudential’s demerger from its US business in September has helped streamline the business and focus its investments specifically in Africa and Asia — two continents that may provide strong growth in years to come. However, this growth may take time to be realised given the ongoing Covid-19 pandemic and low vaccination rates in these continents.
Value stock
A value stock that has recently caught my eye is Rio Tinto (LSE:RIO), which I believe could do particularly well in 2022. The share price currently looks very cheap with a price-to-earnings ratio of 5.66. This is considerably lower than the average UK metals and mining industry P/E ratio of 7.9. Rio Tinto also has a current dividend yield for 2021 of 11.37%, far higher than the average FTSE 100 yield of just over 4%. I think this makes the company a great value and dividend stock.
Rio Tinto’s recent diversification into lithium, following a purchase of a lithium mine in Argentina, should help push the share price up in the next few years as it accelerates its investment into this growing sector. Despite this diversification, Rio Tinto may struggle in coming months due to declining ore prices, from which 80% of its profits are generated.