Rising revenue and profit

During the pandemic lockdowns, many people turned to online gaming and gambling to pass the time.

It should come as no surprise, then, that betting firm Entain (LSE:ENT) is on my radar. In the past month, the shares have fallen 7% and this may provide an opportunity to pick up a bargain.

The business has seen a recent resurgence in its retail segment, as more shops have reopened following months of lockdown.

For the six months to 30 June, group revenue grew 19% to £2.1bn. Underlying cash profit also increased by 17%, finally settling at £471m.

With more shops open, however, operating costs rose by 31%. These costs do pose risks to the company going forward. 

It’s possible that rising energy prices and the cost of running shops begin to eat into profit margins on future balance sheets.  

Despite this, the firm has performed well in the face of immense challenges, and I think that it’s well-equipped for any short-term issues that may arise. 

A hospitality recovery?

Conversely, Whitbread (LSE:WTB) was hit very hard during the pandemic. The firm – a UK operator of restaurants and hotels – was forced to close its doors for months on end.

More recently, though, things seem to be turning more positive for the business. Yet in the past month, the share price is down nearly 6%.

Lockdowns resulted in a string of poor results for Whitbread. For the year ended February 2021, the company reported a pre-tax loss of £1bn. 

By the following year, however, this loss had turned into a pre-tax profit of £58.2m. This is an indication that the firm is beginning to recover as restrictions become a thing of the past.

The ability to continue trading, though, came at a cost. It now has a debt pile of £4.08bn, with a cash balance of just £980m. 

Despite this, it has a consistent dividend yield of 1.42%. While this isn’t a market-leading yield, it’s still good to know that I could derive income from this investment.

Demand also looks to be improving. For the 13 weeks to 2 June, year-on-year accommodation sales growth hit 227.4%. This figure is also 21.3% greater than pre-pandemic levels.

Overall, there are a few different reasons why I believe the shares of both of these companies could soar in the event of a market bounce. Entain is clearly resilient and Whitbread is now enjoying better operating conditions. To that end, I’ll add both businesses to my portfolio soon.  

A growing business

The first business I’m focusing on is asset manager Schroders (LSE:SDR). In the past three months, the shares are down 12.6% and are currently trading at 2,640p.

For the six months to 30 June, the firm’s assets under management (AuM) grew by 1% to £773bn. 

This is positive news, especially given that rival companies have reported dwindling AuM figures. Ashmore, for instance, saw its AuM decline heavily in the first half of 2022. 

Also, for the same period, Schroders reported that operating profit increased by 2%, although pre-tax profit fell by 16%. This is likely the result of inflation, which is beginning to eat into the firm’s balance sheet. 

While many companies are suffering from inflation-related problems at the moment, I’d like to see pre-tax profits rise in coming quarterly reports.

Investment bank Credit Suisse recently upgraded the business, stating that it was trading at a “deep discount” and boasts a diverse portfolio.

It’s also in a good state of financial health, with cash of $5.09bn dwarfing its total debt of $373.5m. This should ensure that it can weather any storms that come its way in the short term.

Room for improvement?

Second, Premier Inn owner Whitbread (LSE:WTB) has seen its share price fall 9.55% over the last three months. At the time of writing, the shares are trading at 2,532p.

The firm was battered by the pandemic, which forced its hotels and restaurants to close for many months at a time. For the year ended February 2021, the company slumped to a £1bn pre-tax loss.

Threats remain, however, in the form of cost inflation.

Despite this, for the three months to 31 March, the business stated that it was seeing a continued rebound in demand after the pandemic. 

UK accommodation sales surged over 200%, compared to the same period in 2021. Furthermore, they remained over 21% higher than 2019 levels. 

As a potential shareholder, it was promising to read that total group sales were over 286% greater than the same period in 2021. While the firm definitely isn’t out of the woods yet, it’s clear that a recovery is in progress.

Overall, both of these lesser-known companies appear to be running smoothly. While both have suffered in recent years, they look to be recovering at a swift pace. Investing in both also gives me the chance to diversify my own portfolio. As such, I’ll use my £500 to buy shares in the two businesses soon. 

Tapping into African telecommunications

Airtel Africa (LSE:AAF) has enjoyed upward movement in its share price. In the past year, the shares are up 92%, while in the last month they’ve gained 14%. At the time of writing, they’re trading at 160p. 

For the year ended March, revenue climbed 21% to $4.71bn, while the firm – a telecommunications business in east Africa – reported that pre-tax profits surged by 75% to $1.22bn. It’s important to note, however, that continued profit growth is not guaranteed.

Much of this is down to the company’s success in expanding its customer base. Over the same time period, this grew by around 9% to a total customer base of nearly 129m. Furthermore, revenue per customer rose by 15%.

It’s always possible that future balance sheets may be hit by issues such as inflation and energy costs. This could lead to a fall in the share price over the long term.

However, the firm clearly has growth potential and is expanding its operations into the Democratic Republic of the Congo (DRC), investing $42m to support its wireless broadband rollout there

A recovery stock?

Second, Whitbread (LSE:WTB) is a company that was hit hard during the pandemic. Shares in the business are down 9% in the last year and have fallen 15% in the past six months. At the time of writing, they’re trading at 2,652p. 

The firm – an owner of UK hotels and restaurants – slumped to a £1bn pre-tax loss for 2020. It’s possible, however, that a recovery is now in progress. During 2021, the business reported a £58m pre-tax profit.

Additionally, for the first three months of 2022, sales were up over 200% year-on-year. Compared to pre-pandemic levels, they’re still up 21%. Most hotels and restaurants have now reopened as restrictions have been scaled back.

However, the company expects cost inflation for 2022 to be around 8%-9%, which is about 1% higher than previous forecasts. This could start to weigh heavily on Whitbread’s operations and balance sheet as ingredients for use in restaurants become more expensive. Additionally, energy costs will inevitably rise as a result of tighter supply due to ongoing geopolitical issues, like the war in Ukraine.

Yet both of these companies still look like attractive prospects for investment this month. While there are, of course, risks involved with both purchases, it seems like the underlying businesses are financially solid. With Airtel Africa’s controlled expansion into the DRC and Whitbread’s comeback after the pandemic, I think I could be picking up two winners. I’ll be snapping up the shares of both businesses soon.  

Let’s explore the FTSE 100 stocks I’d buy in my Stocks and Shares ISA next month.

Aviva

The Aviva (LSE: AV) share price trails the FTSE 100 index over five years. It’s down 15% compared to the Footsie’s 7% gain. However, with a price-to-earnings (P/E) ratio of 8.74 and a dividend yield over 5%, I find Aviva stock attractive from both a value investing and passive income perspective.

The life insurance and pensions provider is returning total capital of £4.75bn to shareholders in addition to the £1bn share buyback it completed last month. This should provide downside protection to Aviva’s share price.

As inflation surges, Aviva shares could face some headwinds. For instance, the macroeconomic environment may result in lower consumer demand for retail annuity deals.

Conversely, with over £400bn assets under management, the company’s well placed to take advantage of a hawkish monetary policy response. Rising central bank interest rates afford Aviva the opportunity to move funds into higher interest-generating investments.

For me, Aviva looks like a reasonably valued FTSE 100 share with solid finances. I’d buy.

GlaxoSmithKline

At nearly $117.5bn, GlaxoSmithKline (LSE: GSK) is a top five FTSE 100 share by market capitalisation. Last year was tumultuous for this pharmaceutical giant. Activist investor Elliott Management unsuccessfully tried to remove the company’s CEO Emma Walmsley due to concerns over her non-scientific background.

Tensions eased last week following GSK’s takeover of US cancer drug developer Sierra Oncology in a $1.9bn deal. Moreover, 2021 saw GSK grow its revenues for the seventh year in a row — up by 5%. The healthcare business forecasts a 12%-14% rise in operating profits this year.

The GSK share price reflects the company’s strong recent performance, soaring 31% over the past year. Shareholders also currently pocket a healthy 4.52% dividend yield.

GSK carries a P/E ratio of 20.33, which is considerably lower than some direct competitors, such as AstraZeneca. As a defensive investment, with lower susceptibility to seasonal and cyclical fluctuations, GSK is my FTSE 100 pharma pick for May.

Whitbread

Whitbread (LSE: WTB) manages a range of hotels, restaurants and leisure clubs in the UK and Germany. The hospitality firm’s share price is down 18% over the past year following substantial revenue declines during the pandemic.

However, brighter days lie ahead, in my view. There are no longer any testing or quarantine requirements for international arrivals to the UK. Additionally, the rising cost of living means staycations are an attractive option for British holidaymakers this summer.

The combined effect of these developments should benefit Whitbread, which owns the Premier Inn brand. Indeed, like-for-like accommodation sales in the UK were up 5.5% over pre-pandemic levels in the third quarter of Whitbread’s 2022 financial year, although a 33.3% decline in Germany brought the total gain down to 5.1%.

Should a return to pre-Covid normality continue in both countries, Whitbread’s budget hotels should do well. I’d buy this FTSE 100 share before a summer recovery.

The good news is once investors have deposited this money into a Stocks and Shares ISA wrapper, they can take their time to invest it. However, I am not waiting around to invest my money. I think there are plenty of opportunities in the FTSE 100 right now that I want to take advantage of.

And with that in mind, here is a selection of FTSE 100 stocks I would buy with an investment of £20,000 today.

FTSE 100 recovery play 

The first company on my list is the Premier Inn owner Whitbread (LSE: WTB). The business has struggled due to coronavirus lockdowns over the past couple of years. Still, it is now well-positioned to capitalise on the economic recovery and reopening of the economy across Europe.

It is already reporting a solid recovery for its properties across the portfolio. Consumers are travelling again in the UK, and its European business is also reporting an increase in growth. Further, management has plans to gradually increase the portfolio’s size over the next couple of years, which should only increase the company’s growth potential.

A challenge that may hit these expansion plans in the near term is the cost of living crisis. Some consumers could put off travel plans with costs rising across the board. Rising wages may also put pressure on the company’s profit margins.

Market leader

In a different sector, I would also buy the engineering group Smith & Nephew (LSE: SN). This company owns a diverse portfolio of highly specialised products. The great thing about the business is that these specialist products have few replacements. That means the corporation has a strong competitive advantage over its peers.

Other companies around the world are currently ramping up spending to meet rising demand after the pandemic, and Smith & Nephew is set to benefit from this expansion.

It is one of the few businesses in the FTSE 100 that has a global presence in niche engineering markets, which makes it a must-buy for my £20,000 portfolio, in my opinion.

Unfortunately, it is not immune from the challenges I have outlined above. Some risks higher-than-expected costs and a reduction in demand due to rising prices.

FTSE 100 homebuilder

I think one of the most attractive sectors on the market right now is the UK home building sector. The UK housing market is structurally undersupplied and demand for properties is increasing rapidly. It does not look as if this trend is going to continue anytime soon.

Builders are trying to increase output, but there is only so much they can do. At the end of the day, planning controls and resource shortages will restrict the amount of properties companies can produce. With that being the case, I would acquire Taylor Wimpey (LSE: TW) for my £20,000 FTSE 100 portfolio.

According to the firm’s full-year results for the year ended 31 December 2021, the corporation increased the number of homes produced by 47%, translating into a 19.3% increase in operating profit.

Management also reinvested profits back into growth, with the business acquiring 14,000 new building plots in a year. It now has a total of 85,000 building plots in its land bank and in the process of development.

This land bank should underpin the company’s growth for the next four or five years. And the group has also shown a strong willingness to return lots of cash to investors when profits rise. This growth potential and the stock’s cash return plans are the reasons why I would buy the stock for my portfolio today.

Challenges the company may face as we advance include rising costs, which could put pressure on profit margins. Additional regulations may also hit margins if the enterprise has to spend more to comply with government demands.

Renewable profits

One of my favourite stocks in the FTSE 100 is utility supplier SSE (LSE: SSE). This company is one of my favourite stocks because it is investing a considerable amount in renewable energy production. This is likely to be a strong growth driver for the enterprise in the years ahead.

The demand for renewable energy is booming, and SSE is one of the largest investors in the UK, with several of the largest wind projects in the country under its belt.

Going forward, I think the business can capitalise on the renewable energy market opportunity by increasing production and using its skills to connect more homes across the UK. This could translate into earnings growth and, more importantly, dividend growth for investors in the years ahead.

That said, this is a highly regulated market. Regulators place strict controls on the amount of profit utility companies are allowed to generate. This could restrict the group’s growth in the years ahead if regulators decide to clamp down on the sector.

E-commerce market

Warehouse operator Segro is the final stock I would buy for my FTSE 100 portfolio of shares. As the e-commerce market expands, the demand for big warehouse space is increasing. This is one of the few businesses that specialise in developing and selling this warehouse space.

Demand for services has exploded over the past couple of years, and the trend looks like it will continue.

However, a lot of money is flooding into the market, which could depress returns from these assets. That is probably the most considerable risk this company faces today.

This might just be the opportunity for me to buy the stock, while it is still cheap. 2022 could be a better year for travel than last year was, which in turn could support companies like Whitbread. As a result, its share price could start inching up. In fact, I am surprised it has not done so already. On the contrary, its share price was down by almost 2% at yesterday’s close after it released its trading statement yesterday.

Positive trading statement for Whitbread

To my mind, though, there are plenty of positives in the company’s trading statement. In the third quarter of its current financial year (FY22), ending 25 November 2021, the company reports “Continued market outperformance”. Further, it points out that its budget hotels segment of Premier Inn reported sales growth of 10.6% from the same time in FY20, which is the comparable period from before the pandemic. Total sales in the UK were up 3.1% for the company and it is also cashflow positive.

It also sounds positive about the next financial year, which is expected to have less Covid-19 related restrictions. Specifically, it sees Premier Inn’s revenues returning to pre-pandemic levels. It does not say anything about turning profitable, though. If that happened, I reckon its share price could rise fast from current levels. Analysts are positive, though. As per a Financial Times compilation, on average they expect Whitbread to report a small profit in FY23, though these levels are expected to still be below the pre-pandemic numbers.

Risks to the FTSE 100 stock

I think this bodes well for the FTSE 100 stock in 2022. But there are risks too. The biggest one of course is the lingering pandemic. We really do not know what happens next, even though we could hope for the best based on the progress made so far. Another fast rising risk is inflation, which is also mentioned in the company’s latest update. It expects its sector inflation rate to range between 7% and 8% in 2022, which it says could impact its cost base. In particular, rising prices could impact its ability to clock profits. 

What I’d do

Based on my assessment of the risks surrounding the stock, I would wait and watch for developing trends on Covid-19, inflation, and its own performance. Its next full-year result in particular, could throw light on where the company is truly at and get a sense of where it is headed. There are still a few more months to go before those numbers come in. I will make a call then. Until then, it is on my investing watchlist.  

Stuart Blair: National Express 

Although the National Express Group (LSE: NEX) share price has managed to make a decent recovery from 2020’s stock market crash, it is still far below its pre-pandemic price.

But the coach operator is starting to see a pick-up in demand, and its businesses in both Spain and North America have managed to re-reach profitability. This has meant that in Q3 of 2021, revenues were up to 83% on the same period as 2019. I believe that the recovery will continue into 2022, especially as things hopefully return to full normality.

As a more eco-friendly way of travelling than cars, I also believe that National Express is well positioned to combat climate change for the future. This will hopefully be met with increased demand, helping to boost revenues and profitability.

Accordingly, despite the continual risks posed by Covid, I will be adding more National Express shares to my portfolio in 2022, hoping that its post-pandemic recovery can continue. The prospect of a returning dividend is another factor that gives me optimism.

Stuart Blair owns shares in National Express Group.

Rupert Hargreaves: XP Power

My top stock for 2022 is XP Power (LSE: XPP). I think this company offers one of the best ways to invest in the global economic recovery and green energy transition.

The group designs and produces power transformers, including AC-DC power supplies and DC-DC converters. As renewable energy generation capacity expands, it seems likely the demand for these transformers will rise substantially.

Renewable energy sources such as solar and wind produce DC power, but most homes and businesses are wired for AC currents. Therefore, power transformers — such as those produced by XP — are becoming an integral part of the energy system.

Unfortunately, the company is not the only firm in the space. It faces competition from other corporations around the world. This is the biggest challenge facing the enterprise.

Still, despite this risk, I would acquire the stock for my portfolio today. I am excited by its growth potential and its intellectual property portfolio, which could have significant value to a potential acquirer. I would not rule out a possible acquisition as the race for green energy heats up.

Rupert Hargreaves does not own shares in XP Power.

James Reynolds: Darktrace

Darktrace (LSE: DARK) has been in the headlines a lot since it first went public earlier in 2021. It saw some of the most volatile price action of any UK company, pushing it quickly up into the FTSE 100. But what goes up must come down, so the saying goes, and sentiment seems to have soured on Darktrace since the share price corrected in late 2021.

Irrespective of this, sales and revenue have remained strong, and the company is projected to grow by a further 38% over the next year. It seems that customers are eager for the service.

Cybersecurity is proving vital for the modern world. More than 88% of US businesses suffered a data breach in 2020 and one was successfully hacked every 16 seconds. Darktrace is providing adaptive security on a subscription model, which I believe will come to serve it well over the long term. The longer a customer uses Darktrace, the more entrenched it will become in that customer’s IT ecosystem.

The Omicron flash crash pushed the share price to its lowest point since July. For as long as it remains low, it looks to me like the perfect time to buy.

James Reynolds does not own shares in Darktrace.

Edward Sheldon: Volex

My top stock for 2022 is Volex (LSE: VLX). It’s an AIM-listed manufacturing company that specialises in power cords and cables. Its products are used across a number of markets including the electric vehicle (EV), data centre, and healthcare industries.

There are several reasons I’m bullish on Volex. One is that the company is seeing very strong growth in its EV component segment. For the 26 weeks to 3 October 2021, EV market sales were up 210% to $45m, boosted by the global rollout of EV charging stations. I expect growth here to remain strong in 2022 as charging stations continue to be installed around the world.  

Another reason I’m bullish here is that the company looks well placed to benefit from the recovery of the healthcare industry. Covid-19 placed a tremendous amount of pressure on healthcare systems in 2020 and 2021, resulting in lower spending on medical technology. In 2022, I’m expecting spending to bounce back as hospitals move to address the backlogs that have built up during the pandemic.

There are risks to consider here, of course. One is supply chain issues. Another is competition from rivals.

Overall, however, I think this stock looks very attractive at its current valuation.

Edward Sheldon owns shares in Volex.

Niki Jerath: Rolls-Royce

The share price of Rolls-Royce Holdings (LSE:RR) has been volatile in 2021, but it’s worth remembering that prior to the Omicron mini-crash in November, the stock was trading near a 12-month high. This reflects the newfound positivity around the business following the pandemic.  

I could be wrong, but it wouldn’t surprise me if the share price got to 180p next year. 

First, it used the pandemic as an opportunity to cut costs and shore up its balance sheet. Second, it has now secured UK Government backing for its small nuclear reactor business. Third, its P/E ratio is very low. It’s one of the lowest in the FTSE 100. I feel it could be substantially undervalued.  

The biggest risk to the business may be if airlines do not recover. Despite the Omicron scare, I hope that in 2022 air travel will increase substantially. The core business is still building and maintaining aircraft engines and is likely to benefit if it does.  

Rolls Royce is still a bastion of British industry and a byword for quality. I am largely optimistic for the stock going into 2022.

Niki Jerath does not own shares in Rolls-Royce.

Dan Appleby: Games Workshop

The Games Workshop (LSE: GAW) share price has been volatile this year. At one point it was sitting at an all-time high, which meant the company was almost knocking on the door of the FTSE 100 index. But as I write today, the stock has fallen by 17% on a year-to-date basis.

The share price weakness came after a trading update in which management said the company had seen pressure on freight costs. This is a key risk to consider for next year as Games Workshop continues to grow internationally.

I view the current supply chain issues as temporary, though. Management also said that sales continue to grow, which I think is key. This is because the previous year marked a major release of its flagship game. The fact that sales have grown again makes me think the company has excellent momentum heading into 2022.

With an expanding customer base and greater use of its intellectual property through licensing deals, I view the recent weakness as a buying opportunity. I expect Games Workshop stock to outperform in 2022.

Dan Appleby owns shares in Games Workshop.

Zaven Boyrazian: XP Power

2021 has been quite a tumultuous year for investors. Disruptions have been commonplace throughout most industries, with the pandemic wreaking havoc across supply chains. But despite this, the world is still shifting into a new technological era.

Renewable energy, robotics, and 5G telecommunications are just some sectors that have received enormous levels of new investment. And that’s something that has dramatically benefited XP Power (LSE:XPP).

The firm manufactures power converters for electrical appliances. That may not sound particularly exciting. But the technology is a core component for machines in the industrial, healthcare and even semi-conductor industries. In fact, revenue generated from the latter sector alone surged by 86% in 2020!

As encouraging as this level of growth may be, it doesn’t come risk-free. The electronics industry is highly competitive, with relatively low barriers to entry for low-voltage solutions. As such, the group may struggle to retain its pricing power for some of its products in the future.

Having said that, XP Power seems to be faring well against its competitors so far. And with the demand likely to keep rising for the foreseeable future, XP Power is my top stock for 2022.

Zaven Boyrazian does not own shares in XP Power.

Christopher Ruane:  Safestore

Although it had a stellar run in 2021, I reckon there continues to be substantial upside in Safestore (LSE: SAFE). I recently opened a position in the self-storage operator after watching its performance from afar for a while. Self-storage demand has grown in the UK but, based on the US market as a comparison, there continues to be significant space for growth. As a proven operator with an established brand, I reckon Safestore can be one of the beneficiaries of that.

One of the reasons I think the shares could continue to climb in 2022 is their relatively low valuation. Even after hitting an all-time high in December 2021, the shares still traded at a price-to-earnings ratio of around 12. I regard that as cheap for a company with Safestore’s growth prospects. Its most recent quarterly revenue grew 19% compared to the prior year.

Risks include any drop off in demand for self-storage, and the relatively low barriers to entry in the industry. That could lead to more price competition and hurt profits. For now, though, I am optimistic about the outlook for Safestore stock in 2022.

Christopher Ruane owns shares in Safestore.

Nathan Marks: JD Wetherspoon

Following a bleak period for pubs, the market cap of JD Wetherspoon (LSE:JDW) has almost halved since December 2019. After two years of disruptions and suffering, Wetherspoon is my stock pick for 2022 based on optimism of an economic recovery.

Covid-19, supply chain disruptions and inflation could unfortunately persist. However, Wetherspoon has a strong brand name, loyal following and a pre-pandemic history of steady sales growth. It has long been a solidly run business and can thrive again as we hopefully leave the pandemic behind us. If we can avoid any lockdowns or tightening of restrictions, there are more headwinds for the pub chain. Specifically, a 5% cut to the tax on pulled pints. That is the largest beer duty cut in 50 years and could help offset rising input costs, keeping prices low. And with a focus on affordable food and drink, it could continue to attract customers even if inflation rises further.

I think the stock looks cheap at the time of writing, trading at under 900p per share following fears of the spread of the Omicron variant. With the right market conditions, though, the share price could test the 1,600p level not seen since January 2020. Cheers to that!

Nathan Marks does not own shares in JD Wetherspoon.

G A Chester: Whitbread 

I think Premier Inn owner Whitbread (LSE: WTB) has outstanding growth prospects for 2022 and beyond. It still has plenty of scope for growth on home soil, but also has a huge opportunity to replicate its UK success in Germany. 

The pandemic has taken capacity out of the market, and with surviving competitors more financially constrained, Whitbread can take advantage. The company also believes it’s “better placed than most to deal with the challenging operating and inflationary environment (wages, utilities).” 

Reporting on the six months to 26 August, management said Premier Inn’s recovery was ahead of expectations. It trumpeted a “significant market outperformance” in the UK and “expansion continuing at pace” in Germany. 

There’s a risk pandemic developments over the coming months could yet set back the recovery and hold back Whitbread’s share price. But with management “confident on the return to pre-pandemic UK profit margins” at some point, and “confident in our ability to execute acquisitions at good returns in Germany,” the stock is currently at the top of my shopping list for 2022. 

G A Chester has no position in Whitbread.

Harshil Patel: Diageo

My top stock for 2022 is global drinks giant Diageo (LSE:DGE). It has a long history of building successful drinks brands around the world. It owns a collection of over 200 brands, including highly successful names such as Johnnie Walker, Smirnoff and Guinness.

I think 2022 could be full of many uncertainties. As such, I’d like to own strong, stable and relatively defensive businesses. I’d say that Diageo fulfils these criteria.

It also benefits from several trends that could make it a long-term winner. Rising populations and incomes in several developing countries are sources of growth. In addition, Diageo expects an extra 550m consumers to come of age this decade.

Diageo is also relatively counter-cyclical, so it should perform reasonably well whether the economy is strong or weak. With so many uncertainties regarding the pandemic, I certainly value this characteristic. That said, it will need to look after its brands to maintain popularity. Competition is strong so it will need to stay alert to maintain its pricing.

Overall, Diageo is a quality, defensive consumer company. And I’d be more than happy owning it in 2022.

Harshil Patel does not own shares in Diageo.

Royston Wild: SSE 

There’s never a perfect time to buy shares. There are always some economic, political or social problem that’s threatens to sink global stock markets. It’s my opinion, though, that the litany of risks as we head into 2022 — from the enduring public health emergency and rocketing inflation to the rapidly slowing Chinese economy — mean investors like me probably need to be extra careful right now. 

This is why I think SSE (LSE: SSE) could be a top stock to buy for next year. Electricity’s one of those essential commodities that remains in high demand irrespective of broader economic conditions. Therefore power generators like SSE can expect revenues to remain stable in 2022 even if the world economy goes for a bath. 

I also like SSE from a long-term perspective. The FTSE 100 firm has made green energy a cornerstone of its growth strategy and it plans to treble output from renewable sources between 2019 and the end of this decade. This should pay off handsomely as low-carbon electricity gains in popularity. I’d think SSE’s a top stock to buy for 2022 despite the unreliable nature of wind power and the subsequent danger this poses to the energy producer’s top line.

Royston Wild does not own shares in SSE.

Roland Head: Centrica

Gas prices and energy supplier failures have made headlines in 2021. I reckon that British Gas owner Centrica (LSE: CNA) could be one of the biggest winners from this crisis

Unlike smaller rivals, Centrica has a solid balance sheet and has hedged its supply contracts to make sure it doesn’t lose money on price-capped deals with consumers.

By taking on the customers of failed firms such as People’s Energy, British Gas has also been able to add more than 400,000 new domestic customers. This has helped to reverse the customer outflows seen in recent years.

As one of the largest players in the utility sector, Centrica is helping to shape new rules aimed at preventing a repeat of supplier failures we’ve seen in 2021.

I expect larger firms such as British Gas to emerge stronger from this crisis. Indeed, I expect economies of scale and value-added services such as boiler maintenance drive a return to growth.

Centrica shares are currently trading on less than 10 times 2022 forecast earnings and offer a forecast yield of 4.6%. I can see plenty of room for further share price gains, supported by higher profits.

Roland Head does not own shares in Centrica.

At 3,326p today, its share price is up 173p in the past five days. It’s also increased from when I last considered the stock back in June. And over the past year, it’s up a whopping 58%. Of course some perspective is important. The company was hit hard by the pandemic. Its restaurant chains were forced to close, and overnight hotel stays were banned. On 21 February 2020, the Whitbread share price was 4,769p, and a month later, it had hit a low of 2,341p. And by September 2020, it was 2,062p. So while the share price may have recovered some ground, it’s still 30% lower than its pre-pandemic price. But I think if the economic recovery continues, it could get back there by this time next year.

Interim results

The FTSE 100 stock published strong interim results on Tuesday. Revenues in H1 hit £661.1m, more than double the £250.8m reported in the same half last year. However, this was still 39% below pre-pandemic levels. This was because only essential business guests were permitted to stay in hotels until 17 May, and restrictions weren’t completely lifted until ‘Freedom Day’ on 19 July. But in September, accommodation sales were up 9.7% year-on-year.

And encouragingly, Whitbread reported a loss of only £56.6m, which was £310.8m less than the loss reported last year. And it’s worth bearing in mind that as a hotelier and restaurateur, many of the fixed costs are inescapable. However, the group made a £235.6m profit before the pandemic. And the company’s lenders have banned dividend payments until things improve, which isn’t expected to be until at least March 2023. But I’m a long term investor. That’s no time time at all for a stock I’ll hopefully be holding until retirement.

FTSE 100 stock’s future

Now that the pandemic seems under control (at least for now), Whitbread is finally starting to see some upside. But it’s not immune to the challenges faced by every other FTSE 100 firm. The lack of labour, increased raw material costs and lorry driver shortages are all putting pressure on the company, at a time when it’s seeking to minimise costs. It’s had to spend £23m on increasing salaries and paying out bonuses.

But its expansion into Germany is going well. “Total open and committed pipeline is now at 73 hotels,” and German revenue is up 197.3% over FY20. Room occupancy grew to 47% in Q2, and then to 60% in August and September. And the company remains “confident in our ability to execute acquisitions at good returns in Germany”.

Of course, in this inflationary environment, the current economic recovery remains fragile. And the pandemic is not over yet. Another lockdown this winter would spell short-term disaster for Whitbread. But I think the current price point is still very attractive for me on the balance of risk and reward.

Here are three companies on my investment watch list. 

UK shares to buy for growth

B&Q owner Kingfisher (LSE: KGF) has seen a significant increase in its sales over the past 18 months. Sales have jumped as stuck-at-home consumers have undertaken home improvement projects. In its fiscal second quarter, sales across the group were up 22.3% compared to the same period two years ago. 

While I think it is unlikely this explosive growth is sustainable, as the economy continues to rebound, I reckon the company will experience more normal spending patterns. And with wages rising, consumers have money to spend. Kingfisher could benefit from this. 

Those are the primary reasons why I would buy this company for my portfolio today. However, I should note that one critical risk to the group’s growth is the potential for a housing market slowdown. This may result in consumers becoming more cautious, and fewer housing transactions may lead to a reduction in DIY spending.

Holidays are back on the cards

As well as Kingfisher, I would also buy hotel operators Whitbread (LSE: WTB) and Intercontinental Hotels (LSE: IHG) for my portfolio of UK shares in September. 

The reason why I would buy both of these stocks is simple. While I believe the outlook for the hotel industry is improving, I am well aware that coronavirus is still rampaging around the world. Until the pandemic is brought under control, the travel and tourism industry will remain under pressure.

Still, as noted above I think the industry is recovering, so I want some exposure in my portfolio. By acquiring both Whitbread and IHG I will not have all of my eggs in one basket. Further, both of these company operates different business models. 

Whitbread owns and manages the Premier Inn brand, which has the majority of its sites in the UK and Germany. Meanwhile, IHG uses a franchise model, where franchisees run hotels using its brands in markets around the world. This business model is far more flexible because the company can add and remove franchisees, expanding or contracting its footprint how it sees fit. The group also owns a range of upmarket and cheaper brands, giving it exposure to all sections of the market. 

By acquiring these UK shares in September, I hope to be able to invest in the travel and tourism sector recovery while at the same time minimising risks associated with investing in the industry. Another series of economic lockdowns could significantly harm both enterprises, and they may have to take evasive action to remain afloat. With this threat hanging over the sector, I want to have as much diversification in my portfolio as possible. 

Despite not being exposed to the tech titans, his investment vehicle — Pershing Square Holdings — has outperformed the S&P 500 over the last five years. And when you consider the US index has more than doubled itself over this time, I think this makes Ackman worth listening to. 

Thinking like Bill Ackman

As a value investor, Ackman looks for stocks he believes are being unfairly rated by the market. This isn’t to say he automatically buys anything with a cheap-looking price tag. He actually makes a point of only investing in companies with sound balance sheets and strong brands in sectors with significant barriers to entry.

The drawback of adopting this approach is that it takes time for value plays to work out (if they work out at all!). This can test even the most patient of investors. It’s hard to stay committed to a stock when others are making great money in glitzy tech shares or promising penny stocks. 

Not that this bothers Ackman. As he said: “Investing is a business where you can look very silly for a long period of time before you are proven right.” In other words, he’s more than happy to play the contrarian. 

I believe there are at least a couple of stocks in the FTSE 100 that matches this mentality.

2 UK stocks Ackman might like

1) Tesco (LSE: TSCO) is a stock Ackman actually once contemplated buying. It’s not hard to see why. A great brand is just one of the FTSE 100 member’s attractions. And right now, the UK supermarket giant also looks good value at 13 times forecast earnings.

The shares have been stuck in the 200-250p range for a couple of years. However, I reckon Tesco’s share price will rise again as additional costs relating to Covid-19 aren’t repeated and profits rise accordingly. Yes, the supermarket sector remains a highly competitive space. The growth of German discounters, for example, shows no sign of slowing. However, if any company can beat back rivals, it’s one with a huge market share.

In the meantime, Tesco yields 4.1%, according to analyst projections. I’d have no problem buying the stock for my ISA today.

2) Whitbread (LSE: WTB) is another FTSE 100 stock I think Ackman might like. He does, after all, hold a considerable position in Hilton within the Pershing Square portfolio.

Whitbread has an excellent brand in Premier Inn. It also has a commanding market share of the budget hotel sector in the UK. Having taken advantage of the weakness of opportunities over the pandemic, it now stands to fully benefit from a rebound in travel and tourism in the UK. On top of this, the firm is continuing to expand in Germany. This should give it more geographical spread, earnings-wise.

Quite when we see a full recovery in the Whitbread share price is open to debate. Variants of Covid-19 could still impact the hospitality sector for some time to come, which comes back to the point of being patient.