As we head into 2022, I am starting to plan my investment strategy for the year ahead. I am looking for UK shares to buy that will help me capitalise on several key themes that I want to build exposure to as the global economic recovery gets underway.
The themes are rebuilding (construction and infrastructure), hiring and luxury goods. Plenty of companies could ride these trends in 2022 and beyond.
However, I am looking to build a focused portfolio of high-quality companies which should have the financial resources to capitalise on the opportunities available.
Luxury shares to buy in 2022
The first two are higher-end businesses. I already own shares in Diageo and would be happy to buy more to invest in this theme. The corporation owns some of the most premium, sought-after alcohol brands globally and has been investing more in these products to capitalise on the shift by consumers towards quality brands. Consumers are drinking less, but they are happy to pay more when they do.
The other is luxury company Burberry. This high-profile fashion house has a cash-rich balance sheet with no debt. As such, it is one of the UK’s top brands.
In my opinion, these companies are well-positioned to capitalise on the recovery and consumer spending. But if spending falls, they could start to encounter problems. This is the biggest risk they face right now.
Economic recovery stocks
There are many companies I would be happy to own to invest in the construction and infrastructure recovery. However, one related business many investors may not be aware of is the hedge fund Pershing Square Holdings.
This company owns a portfolio of many US investments, including retailer Lowe’s. This is America’s B&Q, and it is seeing tremendous demand from homeowners developing their properties. As the economic recovery continues to grow, I think this trend will continue.
Along the same lines, I would also own Kingfisher, which owns B&Q here in the UK. These two companies are some of the best ways to invest in the consumer economic recovery, not to mention the infrastructure and construction recovery, in my opinion.
Infrastructure growth
Some direct infrastructure investments, which I would also like to include in my portfolio, include Balfour Beatty and 3I Infrastructure. The former is one of the largest construction companies in the UK, while the latter owns a portfolio of infrastructure assets around the world.
Infrastructure is a defensive industry. It also has a lot of protection against inflation as contracts connected to infrastructure investments are usually inflation-linked.
This protection is one of the main reasons I would own 3I Infrastructure. I also think the company will have a significant amount of opportunities for growth over the next few years as governments around the world fork out vast sums of cash for spending on new projects.
The UK government is looking to spend £100bn over the next few years on new projects. Balfour could benefit directly from this. The company has already recovered from the stresses of the pandemic, and it has a robust order book for the next few years as new projects are proposed.
Construction risks
The one risk all of the four groups outlined above will have to deal with is another economic slowdown. Construction and infrastructure companies are usually the first to suffer here. Therefore, if the market suddenly takes a turn for the worst, these businesses are going to be more exposed than most.
But even after taking this potential headwind into account, I would still own all of these businesses as a way to invest in economic recovery and infrastructure spending from global governments.
This brings me to the final investment theme I would like to have exposure to in 2022. The global employment market has rebounded rapidly from the pandemic. And it is not only hiring plans that have improved. Wages are surging as well, producing a double tailwind of more volume and higher prices for recruitment companies.
The best UK shares to buy for recruitment
There are plenty of recruitment companies available for investors to buy on the London market. The four stocks I would acquire for my portfolio are Hays, Pagegroup, Robert Walters and Sthree.
I think all of these organisations bring something different to the table. Hays is the largest with the most extensive international footprint. Robert Walters is the smallest, but it has more room to grow and take market share from its competitors.
Meanwhile, Sthree specialises in hiring the science, technology, engineering and mathematics (STEM) industries. Due to its specialist nature, the company may be more defensive as an investment than some of its peers.
All four companies are expected to report a substantial increase in profits and sales for the current financial year. Sthree is projecting earnings growth of around 77%. Robert Walters could see earnings rise by 340% in its current financial year, with earnings projected to increase a further 26% in 2022.
According to analysts, thanks to its international footprint and recent growth initiatives, Pagegroup’s net income could hit £34m this year. This is the highest level in more than six years. Further growth is expected in 2022, as the firm rides the global economic bounceback. Analysts have pencilled in earnings growth of 20% to £41m.
These companies are firing on all cylinders at the moment. However, like the construction stocks outlined above, they are usually among the first to feel the pain in an economic downturn. Therefore, the most considerable risk they face is an economic slowdown. In this situation, all of the projections outlined above would become irrelevant.
