3 inflation-resistant top stocks to buy for 2022

Prices are rapidly rising and could affect UK shares in 2022. Harshil Patel considers three top stocks that could withstand rising inflation.

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.

Inflation in newspapers

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Rising inflation is likely to be a key theme in 2022, so I’m looking at the top stocks that could do well in that environment.

The cost of living is surging. Several factors are driving rapidly increasing prices. Global supply chain issues and rising energy costs are two culprits. It seems like the effects of the 2020 lockdowns are still being felt today.

A global shortage of computer chips created delays in new car production and increased demand for used cars. Meanwhile, the cost of gas is soaring globally as a limited supply in Europe is met with increased demand from Asia. As such, wholesale gas prices in Europe have soared by more than 800% in 2021. I reckon this will likely have a knock-on effect on consumers and industries.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Fighting price rises

So what kind of stocks could do well in this environment in the coming year? I think the top picks for 2022 will display some key features. High-quality stocks could really stand out. These will include those with strong profit margins and pricing power. But don’t just take my word for it. Popular investor Terry Smith said this of high-margin businesses: “Having high gross margins means they can pass on input cost inflation to their customers.

For the first half of 2022, I’m also focusing on stocks that aren’t pressured by high energy costs. I reckon companies that use a lot of gas and oil could face headwinds in the coming year, especially if they’re unable to pass on these costs to customers. Many companies are more digitally focused, and this could be an advantage in the coming year.

Quality top stocks

So which stocks demonstrate strong profit margins, pricing power and relatively low energy usage? I can think of several top businesses that fulfil these criteria. These include Games Workshop, which operates a niche gaming business with a loyal fanbase. It boasts 70% gross margins and tremendous pricing power.

Magazine publisher Future is increasingly operating online and is more of a digital publisher and media platform. It owns many popular magazine brands and makes its money from advertising and licencing. It makes it to my list with a 50%+ gross profit margin.

Experian is a data and information services company with several high-quality metrics including a 42% gross profit margin. This FTSE 100-listed firm provides credit information to global businesses and individuals. It also holds a strong market position and offers significant growth potential.

Unintended consequences

A word of warning, however. There can be unintended consequences to high inflation. It can push the Bank of England to raise interest rates. It already increased the base rate of interest to 0.25% from 0.1% in December. Persistent inflation in 2022 could see further hikes. What could it mean? A rise in interest rates can increase companies’ cost of borrowing. This can potentially reduce profits and could temper growth for my three top stock picks. Hopefully, operating with such large profit margins provides enough of a buffer if finance costs were to rise. Overall, as a long-term investor I’m comfortable that all three companies can withstand these economic shocks. As such I’d consider them for my Stocks and Shares ISA in 2022.

British CEO gobbles up £238,000 of own stock

What company does he run?

And why is he so confident in its long-term potential?

This new report - ‘One Top Growth Stock from The Motley Fool’ - reveals the full details, both risks and opportunities. Some of which you may find frankly, unbelievable.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent:

  • Double-digit revenue growth
  • Returns on capital almost 600% the UK average
  • Now, profits are exploding again - up 46% in 1 year!

It’s no wonder insiders are buying this stock hand over fist. Last year, they bought a total £492,000 of shares. And now might be the ideal moment to join them.

So please, don’t miss this report, ‘One Top Growth Stock from The Motley Fool’ Including both risks and opportunities.

Secure your FREE copy now

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 assessed. Consider taking independent financial advice.

Harshil Patel owns shares of Games Workshop. The Motley Fool UK has recommended Experian and Games Workshop. 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 woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »

This way, That way, The other way - pointing in different directions
Investing Articles

The B&M share price falls 13% despite improved Q1 sales. What should investors do?

Despite sales growing on a like-for-like basis, the B&M share price is falling yet again. So is the FTSE 250…

Read more »