7 Tips on the Best Sectors to Invest in for 2022

By Chika

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Last Updated: January 8, 2022

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2022 is here and it's a time to reflect on our investment approach for the year.

The current macroeconomic climate makes it critical that investors reposition their portfolios for the coming economic winds.

Four major factors: Fed rate hikes, inflation, supply chain bottlenecks and the Omicron variant will have a bearing on the economy, each with the potential of changing the course of the stock market.

As such, coming into this year, investors will be revisiting their strategies to see how it fits into the present economic climate. After the easy pickings and bullish run in the last two years (2020 & 2021), the potential headwinds from the macroeconomic factors would require in-depth skill to make stock picking profitable this year. 

If you are looking for where opportunities would be in the market given this scenario, here are some tips on sectors where you can invest your money in 2022.

 

7 Tips on What Sectors to Invest in for 2022

1. Real Estate

Real estate has always been considered to be a good hedge against inflation.

It has also been long regarded as a veritable source of cash flow through dividend payments. These two reasons make the sector a good place to put your money to work in 2022. Subsectors such as REITs, home improvement stocks, building materials can give you good exposure to companies in this sector. 

2. Financials

With the Fed looking to raise interest rates at least three times in 2022, this is a good opportunity to invest in the financial sector.

Rising interest rates mean banks and other lenders would be able to make money from customers who borrow from them. Also, the banks have come out from the pandemic much stronger than they were before.

So quality stocks such as JP Morgan, Morgan Stanley, Citibank among others would be a good bet for your money. 

3. Retail

After a dismal 2020, retail stocks staged a comeback in 2021.

The trend is expected to continue this year as the American consumer continues to spend, buoyed by the low-interest-rate environment and the reopening of the economy. Retailers which are expected to perform well are those that have been able to leverage technology to strengthen their direct-to-consumer sales model.

While big players such as Nike and Target are expected to perform well, also look out for less-known names for opportunities. 

4. Ecommerce

Consumer shopping patterns were altered by the pandemic, and it looks like they may not return to pre-pandemic levels soon.

Many people have adopted online delivery and sales as the new way of life, especially with new variants of COVID-19 popping up. As a result, e-commerce platforms and sites are expected to have a good year.

Companies such as Etsy, Shopify, and Amazon are the usual suspects to bargain hunters in this sector. However, less-trafficked names such as Stitch Fix also offer a good buying opportunity, given the retracement of the stock.

When picking stocks in this sector, look for names that have been profitable due to the immense competition. 

5. Dividend-paying stocks

Dividend-paying stocks are another good investment choice that investors can exploit.

The cash flow from dividend payments can hedge against the eroding effects of inflation when reinvested. However, a caveat must be added here. When interest rates rise, some dividend-paying stocks struggle.

One way to sidestep this is to use valuation and fundamental analysis as a guide to finding quality stocks.

6. Semiconductors

Most strategists have written off tech stocks in 2022.

The premise is predicated on the fact that with inflation pushing the Fed to raise interest rates, tech stocks most of whose valuation is based on future earnings would not make good investments. 

However, despite this, there are companies in this space that would continue to make headway. Semiconductor stocks are expected to be resilient in 2022, despite the Fed's purported interest rate hike.

Semiconductors are not part of our daily life and are used in all forms of activities from electric cars to games, and even the Internet of Things. 

As such, they would be much needed as global demand would increase. Also, given the whipsaw in the tech sector, semiconductor stocks presently offer good buying opportunities for bargain hunters. 

7. Utility

This sector had a quiet 2021, but with the bipartisan infrastructure bill being signed into law, and the prospect of a tailwind in this sector seems almost unquestionable.

What makes this sector a good pick is that individuals will always require utility services. Also, companies in this sector are among the most consistent dividend payers with high yields. As such, positioning yourself in this sector may reap benefits beyond 2022.

Photo by Joshua Mayo on Unsplash

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