2 ‘no brainer’ UK shares to buy before 2022

AS 2021 draws to a close, this Fool is looking for stable UK shares with recovery potential for his long-term portfolio to buy before 2022.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Innovation and new ideas lightbulb concept 2022

Image source: Getty Images

I think 2021’s market recovery from pandemic lows allowed many investors to buy some excellent stocks on the way back up. Also, it gave me an opportunity to study the recovery potential of UK shares, which is a primary marker for my market analysis.

However, some FTSE 100 gems underperformed this year. Economic instability affected certain sectors more than others. And I think there is potential for these stocks to stage a comeback in 2022, if concerns abate. With this data in hand, I think BAE Systems (LSE: BA) and Legal & General (LSE: LGEN) are the two UK shares that are fundamentally very stable and have the potential to bolster my portfolio in the coming months. 

British defence giant

BAE shares rose 13.3% in the last 12 months. In comparison, the FTSE 100 index was up 14% in the same period. This is surprising when I look at its half-year (H1) 2021 report. BAE is on track to grow sales by 3%-5% in 2021. Its current order book is estimated at £44.6bn, and analysts expect the company to hit targets next year, barring any deal collapses. The company is also on track to maintain the three-year cash flow target of £4bn by 2023.

BAE’s above-average dividend yield of 4.3% is a big plus. Also, a new share buyback programme of up to £500m over the next 12 months is already underway.

But, the defence firm operates in a closely monitored sector that is tied to government regulations. Trade deals could fall through if the UK government flags a new deal. Also, export tariffs and restrictions could add to costs. The fluctuating pound to US dollar exchange rates could also affect its sizeable export revenue.

BAE shares, at their current price of 568p, are trading at a forward profit-to-earnings (P/E) ratio of 10.3 times. This shows me room for growth considering projected revenue, cash flow, and yield. This is why I think this UK share is a great buy for my portfolio before 2022.

Dividend stock with room for growth

LGEN is an FTSE 100 stalwart that underperformed this year, recording a meek 13.8% returns in 12 months. But it is a tested business with strong financials and here’s why I think that it is a good long-term pick for my portfolio.

At its current share price of 295p, LGEN is trading at a forward P/E ratio of 7.7 times, which seems low considering its large market share in a competitive sector. In fact, it has been an underwhelming year for a lot of major insurers in the UK. And this is understandable considering the economic concerns following 2020.

LGEN had a strong start to 2021. Operating profits grew 14% in H1 2021 to £1.07bn. The asset management division of the company grew well last year with a total of £1.3trn of assets under its wing. LGEN is on target to hit estimated revenue growth next year as well. The insurer also offers an impressive 6% dividend yield. The company recently updated its cumulative dividend policy, aiming for a £5.6bn-£5.9bn payout by 2024. Its 2020 dividend payout was £1.04bn. 

Competition from other big UK insurers like Aviva and M&G is a concern. And if we see a market crash in 2022, financial institutions will take a hit. Also, rising claim costs in the UK, especially for vehicle insurance could cut into profits next year. But LGEN remains my top UK dividend share for 2022 given its yield and consumer base.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Suraj Radhakrishnan has no position in any of the shares mentioned. 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.

More on Investing Articles

Young brown woman delighted with what she sees on her screen
Investing Articles

The case for buying this dividend monster just got stronger!

This dividend monster just posted impressive earnings figures that sent its share price skyrocketing. So is now the time to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

This one Ben Graham investment principle could make you richer

Legendary investor Warren Buffett applies a key principle he learnt from Ben Graham. Our writer explains why he thinks it…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the Tullow Oil (TLW) share price poised to take off?

The Tullow Oil (TLW) share price has been more volatile than some of its bigger peers this year. But is…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy Royal Mail shares while they’re under 300p?

Royal Mail's share price has come down a long way in 2022 and is currently under 300p. Edward Sheldon looks…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

I’d forget buy-to-let and buy these REITs for passive income!

I think REITs are a great way to generate healthy streams of passive income. Here's why I think they're a…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

How I’d invest £5,000 in FTSE 100 shares to aim for a million

The FTSE 100 is home to many potential gems. Our writer considers if he can reach millionaire status by uncovering…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

How I’m aiming to become a Stocks and Shares ISA millionaire!

The Stocks and Shares ISA is an excellent vehicle for investments. In fact, many investors have become ISA millionaires. Here's…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

The Scottish Mortgage share price is on the up! Here’s why I’d buy

After a poor first half of the year, the Scottish Mortgage share price is beginning to rise. Here, this Fool…

Read more »