1 of my best stocks to buy now for 2022 with £1K

Jabran Khan details one of his best stocks to buy now with £1K for 2022 and beyond. He explains why he would add shares to his holdings.

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I rate Diageo (LSE:DGE) as one of my best stocks to buy now. I would add the shares to my holdings for 2022 and beyond with £1K to invest in shares. Here’s why.

Cheers to Diageo

Diageo is one of the largest alcoholic beverage makers in the world. Although the company name may not resonate instantly, many of its brands are world renowned and consumer favourites. Some of these include Captain Morgan, Johnnie Walker, Smirnoff and Ciroc, to name a few.

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As I write, Diageo shares are trading for 3,738p. A year ago, shares were trading for 2,909p, which is a 28% return over a 12-month period. The shares are currently trading higher than pre-pandemic levels by some distance. Most of my best stocks to buy now have achieved a similar feat. I believe Diageo shares have achieved this due to pent up demand helping performance as well as recent shareholder returns.

Why I like Diageo shares for 2022 and beyond

Diageo’s recent and past performance has been impressive. I do understand the past is no guarantee of any future performance, however. I tend to use it as a gauge when reviewing investment viability. 2021 revenue came in as £12.73bn, very close to the £12.87bn record in 2019. 2021 revenue surpassed 2020 Covid-19-affected revenue levels. I am confident 2022 results could surpass pre-Covid levels by some distance.

As well as impressive performance, Diageo can make me a passive income through dividends. At current levels, Diageo has a dividend yield of close to the FTSE 100 average of 3%. More importantly, management has decided to return over £4.5bn in capital to shareholders. This will have definitely boosted shares upwards in my opinion.

Diageo’s position in its market solidifies my belief it can continue to perform well and provide me with excellent returns. Its billion dollar brands and high operating profit margins should continue to keep financials on an upward trajectory. Pricing power is extremely important in Diageo’s market and it seems to have a major competitive advantage on that front. This should continue a healthy trend of shareholder returns.

The best stocks to buy now have risks too

Diageo shares do currently look a bit expensive. At current levels, they are trading at a price-to-earnings ratio of 32. In addition to this, its debt level is a bit high. There are real risks that if performance were to dip, the shares would dip as well as the fact new pressure could be placed on management due to the current debt levels. All this could affect investor returns and sentiment.

Overall I would add Diageo shares to my holdings at current levels for 2022 and beyond. It has a competitive advantage in its market with several well performing, well known brands. In addition, there is a focus on returning capital to shareholders, and pent up demand due to the pandemic is helping boost performance. I put Diageo high on my best stocks to buy now list.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Diageo. 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.

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